francine: bond is a flash recession, treasury yields hit an all-time low as curves invert. is the global economy headed for a serious downturn? attacks jay powell and says the central bank is holding the u.s. back from big rewards. maersk sores, reassuring -- , reassuring investors despite an uncertain trade environment. good morning, everyone. good afternoon if you are

watching from asia. welcome to "bloomberg surveillance." you are just getting that decision from gorgeous -- norges, this is an interesting rate on how to set interest rates. a hawkish stance because of weakness in the national currency. -- but given the rest of the world is much more dovish and weaker president trump putting pressure on the fed to cut, it is interesting if you are one of the lonely banks out there that wants to hike. overall, european stocks are unchanged. , which gave sold much fear and anxiousness on the markets, currently stabilizing at 2.01. will have extra checks throughout the day and more on the inverted yield curve. coming up, axis of conversation with philipp hildebrand, the blackrock vice chair.

-- and exclusive conversation with philipp hildebrand, the blackrock vice chair. let's get straight to bloomberg first word news in new york city. >> warren buffett has upped his wager in amazon. hathaway's stake in the e-commerce giant rose 11% in the second quarter. it is now valued at more than $1 billion. the stake in amazon is still much smaller than holding an apple, worth $49 billion at the end of the quarter. filings,from the 13-f this investor has taken a big stake in berkshire hathaway, worth $690 billion. but we are told the activist investors stake is not expected to be an active one. a great leader, that is how president trump described xi jinping in a series of tweets.

he says his counterpart is a quote good man in a tough business. he ended by saying personal meeting? he did not clarify if he was suggesting a summit. could the u.s. see a caretaker government to block a no deal brexit? that is the plan of jeremy for a bid tog block boris johnson's plans. corbyn says that if successful, he would delay brexit and call a general election. india's prime minister has rescinded its moved to revoke kashmir's economy. modi says the region's special status has only lead to terrorism and separatism. he says the recent moves will allow kashmir to play a meaningful role in india's ongoing development. , hongbloomberg scoop kong's ongoing protests are making companies think again

about fundraising in the city. have learned several companies are reconsidering plans to ipo. one company scrapped preliminary public --going preliminary plans for going public and will look at a u.s. listing. 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 month -- thank you very much. let's kick off with the bond markets have dropped below 2%. tot was for the first time miss concerns about a slowing global growth. dippedle, the yield below the two-year rate for the first time since 2007 in what is considered an omen of recession on its way. blamed therump has fed for what he calls the inverted yield curve, slamming

them as clueless, deflecting criticism that it is his trade war doing the real damage. joining us is philipp hildebrand vice-chairman at black rock. he was previously chairman of the governing board of the swiss national bank. so you are the perfect guest to figure out the conundrum of the central bank but also what markets are fearing. first, the money question. is it an impending slowdown or is it different? philipp: we have a slowdown. what yield curves and interest rates generally tell us is that the risks of recession in 2020 are more elevated them may have been in this entire cycle. from a risk perspective, the slowdown is already here. the question is, does it lead to something worse? francine: let me bring you to the money chart. we brought it back to the

1960's, you can see that every time there has been an inversion, the recession odds have increased. are we in recession territory? some of what we are seeing is wanted by fundamentals some of it is also just the politics. policies inrnmental many places across the world, including the united states, that give rise to great worry and uncertainty, questioning the world order. so we see flights to safety as a precautionary measure. francine: could that lead directly to a recession? if the trade war gets dealt with, and we just go back to normal? confidence works with a lag. unfortunately, a lot of damage has been done already.

i do think populist policies across the world cannot lead to prosperity. what we have today is confidence being undermined. there are starting to hit the economy as a whole and reflect itself. we also have the particular issue that if there were to be a recession, it is not clear what the policy response would be. the problem of being without ammunition adds additional concern to markets and an additional excavation of why we are seeing these extreme movements. francine: blackrock investment has a wonderful paper out about dealing with the next downturn, from unconventional policy to unprecedented coronation. one of the authors is stanley fischer, a former fed. does the inverted yield curve impact the central banks and markets worry about central banks inability to deal with it?

the point of the paper is that more of the same is unlikely to be an appropriate response if we get into recession. the question is, what comes next? is that it iscing not at all clear what central banks will do. what we are proposing is the next step has to be more than just more of the same about into ways oft goes putting money into pockets of consumers reports in order to spend. to go around the interest rate channel or additional rate -- central bank plan which always works to the interest rate channels. francine: so you have to be correlated? philipp: helicopter money is a catchphrase from that famous paper, but yes, you have to go

in a different way and work into the interest rate channel because they are already so low. thatit means inevitably is we will see much closer coordination between fiscal and monetary policy as a critical element of the next policy regime. francine: who amongst the central banks would have encouraged to that? -- have the courage to do that? philipp: the obvious one is the ecb, simply because they are closest, or perhaps at the point where more of the same simply will not work you can see the entire yield curve in germany is the all-time lows. the notion that you can't really cut interest rates anymore, you can't really drive the more it is no longer available. -- you can't really drive them anymore, it is no longer

available. francine: we had nor just bank bank talking about greater uncertainty, with a greater -- a hawkish tone to the messaging. can you be a bank hiking overall? philipp: it is difficult. you see the connection between the ecb and the swiss national banks, the reality is, this is a global phenomenon. forcing all-time lows in the u.k., the u.s., across the globe in germany and switzerland. this is a global phenomenon and it is difficult for a single central-bank to conduct policy free of the context of the global system. is, in a sense, coordination between fiscal and monetary authorities but inevitably a sense of all central banks having to think of how to respond if this gets worse in the aggregate. francine: looking at the

currency, it is hitting a high of 10.047. something we have to keep a close eye on. norges saying it contains greater uncertainty. philipp hildebrand stays with us and we will have plenty more from the currency move. we talked dollar strength and banks next. this is bloomberg. ♪

>> what happened today is broader than just the fed. it is about global economic weakening. >> you are seeing slowdowns in major developed companies and the bond market in the u.s. is

finally screaming they have had enough. >> if you see six weeks, eight weeks of inversion, followed subsequently by the yield curve starting to steepen, then i would say this is a sign of a recession and also signaling a turnaround. the answer is more frugal policy to lift structural impediments. is unlikelyy, that to materialize, and that is the big concern moving forward. >> those were some of the highlights of our guests yesterday talking the market downturn. let's get straight to the bloomberg business flash. morgan stanley and this year's largest ipo. but the firm's missing out on the second-biggest rework. we learned they step back from a

role in the public offerings they have rejected the pitch to be the top underwriter. fund is's second vision already toward an unexpected win . new investments probably won't hurt its debt outlook. softbank's pile of debt is amongst the biggest for a japanese non-financial company. but analysts are starting to look at the company differently as it increasingly takes on the characteristics of an investment firm. elliott management is waiting deeper intoding some of wall street's hottest the debt. that is as some fear we're seeing the moments before a debt bubble burst. is pouring hundreds into asset management, the money manager it set up to bundle corporate loans into clo's.

that is the bloomberg business flash. francine: thank you so much. it's get back to our conversation on ultralow rates and what it means for europe's banks. still with us is philipp hildebrand from blackrock. blackrock owns a large chunk of these banks. a lot of the banks touched record lows in the last couple of days and weeks. what does it mean, that the business model is broken? philipp: it is remarkable that 11 years after the crisis, we are back at record lows, more or less. what it shows is that the environment is difficult. curveis no doubt the of is hard for banks. but it also shows there has not been enough to fundamental -- enough fundamental rethinking of cases in europe. this is something we have talked about many times.

they have restructuring of the business model and what we have today is basically the consequence of that. it is an environment that is difficult for a bank to operate in. francine: is it almost too late to rethink some of the business models? banks will not disappear, at least for the for siebel future. my guess is that it looks very different and i suspect one of is ahings we see rethinking the activities in the u.s.. instead, focusing european banking much more on an integrated european market. that is where we are going to see a big changes in the future.

i've always been convinced this is going to come. we are now seeing that the market pressure may be a final acelerant and goes through value appears before we come out on the other side. is that through consolidation or becoming leaner as a company? philipp: it is three things. the mix of the business model, particularly in the context of investment activities. , thatthe european focus will require proper european integration so there are things that need to happen. finally, it is the cost structures. if you think about -- in many more or lessperate the same as they did 10 or 20 years ago. technology is changing, but it has been slow. if you compare this to things that have happened in industry, banks have been lagging in being able to embrace this change. so it is really all three

factors that will move forward. francine: the ecb has been trying to mitigate some of the effects of negative yields on their banks. does that help in any way? philipp: it is tough. the yield curve matters a great deal for banks. wayth management can be a to diversify away from some of the risks of having a flat or inverted yield curve. but it is difficult. we are not going to see booming the banks in an environment like today. francine: i have this amazing chart i look at almost weekly. this is the value of negative yielded a bonds topping -- yield ed bonds topping $16 trillion. our bonds in a bubble? -- are bonds in a bubble? philipp: markets are seeking a safe haven and bonds are where you go. i would not say it is a bubble,

but a consequence of, on one hand, a cyclical slowdown. risks of recession are increasing. but more importantly them a it is also a consequence of governmental, particularly populist, policies we have seen. the notion that this will not harm the global economy is simply a fallacy that is now revealing itself. populist economic policies will lead to bad economic outcomes and markets are reflecting that. francine: but the person on the street does not necessarily look at bonds and say i need to change my vote. does this get worse, does it lead to a recession? philipp: it would be nice if we could avoid it. my biggest fear is not so much of the slowdown, but the fact that we have very limited policy space if we were to hit a recession. the u.s. has some, but thinking about the rest of the world, there is virtually no traditional monetary space left

to react to a global recession, let alone a sharp crisis or a slowdown. this also reflects itself in what we're seeing in the market. the market knows this, it sees there is very little ammunition left. that in and of itself adds an additional layer to all of us. some of what you are seeing in your charts, these extreme, all-time record lows in yields, are a reflection of current weakness, current populist policies, and the notion of what will the central banks and authorities do if we hit a real recession. francine: thank you, we will get back to the policy mistakes and opportunities, focusing on the ecb. that was philipp hildebrand from blackrock. its 10th week, we look at the economic price of the hong kong protest. --protests.

we are live in the region next. this is bloomberg. ♪

francine: president trump has made what seems to be an overture president xi jinping in a series of tweets, saying beijing can quickly and humanely solve the hong kong problem. let's get straight to your yvonne man. she has been -- to your yvonne man. -- to yvonne man. how hard has the market been hit? the hang seng has been

down and recession calls are growing for the economy. we are standing in front of the pacific place mall is owned by a group that has been dealing with this protest from all fronts. the retail value of luxury brands are talking about how businesses have been hit by these store closures and the drop in tourists coming into hong kong. well with the as likes of marriott and conrad, bookings may plunge as much as 50% as month according to a hong kong lawmaker who represents the they have beeny dealing with these issues with the pilots that were fired over there. ♪

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there is human ingenuity. ♪ ♪ every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. take your business beyond. bonds flash recession. 30 year treasuries hitting an all-time low.

is the global economy headed for a serious downturn? saying therump is central bank is holding the u.s. back. world's largest shipping line reassures investors that -- of its outlook despite an uncertain trading environment. good afternoon if you are watching from asia. this is bloomberg surveillance. i am francine lacqua in london. we are getting data out of the u.k. something, inflation, that we follow very closely. rising 0.2% instead of the 0.2 percent decline we were expecting. i need to break it down to see whether it is weather-related or bank holiday related. for the moment, retail sales ofing 3.3% for the month july, compared to a month earlier. it is also a better than

expected pound, 1.2085. let's check in on what is moving in the markets. here are the main market movers. >> we are still in earnings season in europe. it was a miss, amid lower guidance for the year. they are down 4%. the ceo asked about the trade wars. the new ceo said it is up to both men on either side of this negotiation. we have to think the raw material prices are coming up for the turbine maker. a strong firstp, half. and it was due to strong beer sales. is sounding the alarm about what concerns are for global growth they're it i know we will be hearing from him shortly again. francine: thank you so much, annmarie hordern. first word news in

new york city. >> the bond rally continued with u.s. 30 year deals falling below 2% for the first time ever. yesterday the treasury curve inverted for the first time since the financial crisis. but it might not be time to jump out of equities just yet. 500 topped out anywhere from two months to two years after previous inversions. $16 trillion. that is the pool of negative yielding debt was just hit a new your head high. that total could be about to be getting even bigger. says 10gan strategist year treasuries could hit the level by 2020. the u.s. may even join japan and germany by going negative. global risks mean greater uncertainty for the path of interest rates according to norway upon central bank. it held rates today at 1.25%.

hawks leftf the few in the world of central banking. it has raised rates three times since september of last year. the autopsy of disgraced financier jeffrey epstein has reportedly deepened the mystery around his death. according to "the washington post, he suffered multiple breaks in his neck bone. it could happen in people who hang themselves. but one of the brakes is more common in victims by homicide by strangulation -- but one of the breaks is more common in victims by homicide by strength. 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 renitauntries, young. this is bloomberg. francine: thank you so much per let's focus on the global trade. shipping giant mirsky has --

ersk -- the outlook remains very uncertain. >> right now there is not much we would be done anytime soon. going in the other direction. with that being said, for our business, what really decides the consumer,s and the consumer spending and the u.s. consumer is still in a relatively good mood, labor markets outside, salaries are increasing, and confidence remains relatively good. we also of course have the fact that it is a relatively small share of the u.s. consumer .pending that is impacted

so far, so good. >> it is interesting you say that because what we have been talking about for a lot of the show is in the bond market we have seen an inversion of the 210 year the curve. a signal -- we are also seeing a big bid for a long end rates. from what you are saying, are you not particularly concerned about a global or u.s. recession anytime soon? way we havess in a been expecting a slowdown all year. when we came out in february, we 3%ded global demand of 1% to in container shipping in the will not bethat we seeing a slowdown in the global

economy. global demand has grown right in the middle of it so far, and we also expect that to continue for the rest of the year. 2% or 3% growth is consistent with a no growing economy, and that is what we are planning for. maerske: that was the ceo speaking with us earlier. basically this is a list of all the things that we should worry about. we will get that up for you in case any of the reviewers were too optimistic this morning. we have central-bank ammunition and trade concerns with a foreign policy, the china slowdown, the yield curve. out of these, what actually worries you the most? philipp: i think to me what the greatest concern, is the pressure that is coming down from populist economic policies,

from governmental policies, particularly the china-u.s. context. the pressure this generates that is coming down on financial and economic structures. this is undermining confidence. it is hitting growth. it is leading to safe haven flows, all the things we have talked about that we are seeing is ultimately reflected on the pressure bearing down from populist economic policies and politics generally. if you look at the risks geopolitically -- we follow these indicators or create these indicators -- it is at a very high level. we have an unusual amount of hotspots across the world. francine: does anything look ok out there? putting it into context, if you look at the point to spread, it .2% spread,-- the is there anything that leads up to it?

philipp: i thought you might ask me that this morning. it is hard. on an optimistic note, it is quite remarkable how well particularly the u.s. economy has held up, in light of all these things that we have talked about this morning. so i would not say so much there is any good news and what we are seeing here in terms of economic data or market signals. if you look at the latest data out of germany, it is very poor, but i would say despite all this, despite the pressure coming down from policies and politics, the global economy continues to hold up, and the u.s. economy in particular has held up remarkably well. francine: there is a question about euro as a funding currency. if there is pressure out there, it rises and gives may be some concern to the exporters. what can the -- what can she do

that mario draghi did not? thatpp: she will realize she knows this, of course -- that really there is very little ammunition left. despite the big compression, german yields only went down about half as much as u.s. yields. that is a sign that we are hitting rock bottom in terms of how low you can hit rock bottom with interest rates. my guess is if we go into that region firemen -- in that environment, we will see regime change. one element of this will be a blurring of fiscal and monetary activities and responsibilities. and actually for that type of environment, if we go into that kind of policy regime, christine lagarde, frankly, is ideally qualified. it may well turn out that her

appointment ends up being a very fortunate thing in the future, just the way ben bernanke was very fortunate to be the -- we were fortunate to have him the chairman of the fed at the time since he was the greatest student of the great depression. wherego into this world fiscal and monetary inevitable be become blurred and one has to do with how you operate in this environment, then i think you will find that christine lagarde is the ideal next president of the -- francine: i have been listening sincery single conference mario draghi became ecb president, and he has been asking for fiscal stimulus from day one. philipp: it is not just a matter of fiscal stimulus because you cannot extend fiscal policy indefinitely. debt levels are high. it is about bringing a concerted effort between monetary policy and fiscal policy together in a form that delivers monetary

policy rightly to the economy as opposed to working via the traditionalist root -- the traditional interest rate channel. and unconventional monetary policy have essentially worked by driving interest rates lower. once you get to a point that is no longer possible, you have to come up with a new regime. one of the reasons the market is so nervous is that the market sees that currently there is no regime out there as to what central banks and fiscal authorities would do if we get into that environment. francine: does it have to start with germany? philipp: the ecb almost inevitably is at the forefront simply because that is where rates are lowest in many ways, and that is where there is very little -- very little room if any left in the traditional sense. when i say traditional, that includes more asset purchases for the ecb. i do not think that is materiall

y different from what has been done in the past. francine: could germany and europe deal with tariffs coming from president trump right now? philipp: it would be very -- a very hard hit in addition to everything else. germany is twice as open an economy as similar economies of that size. it is capital goods oriented. germany is extremely exposed to what is happening right now, so an additional shock to germany would be a very hard thing to absorb you can see all of this in the latest data. that is why the story of what comes next and how can fiscal become part of the response as opposed to laying it all on the monetary authorities the way we have done it in the past, will be the big theme over the next couple of years if the slowdown continues. francine: philipp hildebrand from blackrock. still to come, more on our top story, alarm bells in the bond

market the yield on 30 year treasuries dropped below 2% for the first time ever. we will get back to the market and have a focus on brexit. this is bloomberg. ♪

francine: i am francine lacqua in london. let's get to the bloomberg business flash in new york city. --ita: warren buffett berkshire hathaway's stake in amazon rose 11% in the second quarter. it is now valued at more than $1 billion, but amazon -- it's taken amazon is still lower than the stake in apple.

and bill ackman is taking a big state -- big state in berkshire hathaway. his holdings are worth about $690 million. we are told the famous activist investor's stake is not expected to be an active one. carlsberg reported a strong first half thanks to a 17% increase in craft beer sales. net profit was up from a year ago. last week the danish beer maker raised its forecast. that led to carlsberg shares rising the most in the most a decade. that is the bloomberg business flash. francine: let's get the latest on brexit. jeremy corbyn has asked rival part is to install him as prime minister in an effort to block boris johnson's government from a no deal brexit. his overture was welcomed by the

scottish national party but rejected by the liberal democrats. let's bring our senior executive editor in. followed this day in and day out. what is significant with the fact that jeremy corbyn wrote this letter and they said thanks, but no thanks. david: he was testing the waters for the confidence vote when parliament is back, and it is dead in the water before it started. i think it proves that this idea of a national unity government, that all the other parties would rally around to delay brexit or to cancel brexit, it is just not going to happen. you're not going to get the rest of the parliament coming around any other candidate. jeremy corbyn says it should be him and it is within his right to do that because he is the opposition leader, but he is so divisive not only with the opposition but within his own party as well.

many labor leaders do not even want him to be prime minister. if they win that no-confidence vote, they are headed not for a unity government but for another election. can thatat happens -- happen before johnson gets his no deal brexit over the line in october? francine: can they block a no deal? david: they are going to have to legislate. they are going to have to get legislation through parliament that says the government cannot drive brexit through with no deal. that is a complicated process, and the top -- the clock is kicking -- the clock is ticking down. it is possible. but what parliament is showing is that they cannot agree on anything. francine: what does this mean for markets? philipp: it is another great source of uncertainty, bad politics leading to terrible economic outcomes. we are seeing it in the data, particularly on the investment side. companies are adapting. i see what we do. the train is in motion there the

damage is being done. be ae end, it will political choice that will have significant economic and financial impact. one should not assume that markets will not adapt. the place the city of london has as a financial center is not a god-given thing. move andill adapt and markets will go elsewhere if need be. i think the trains are in motion and the damage is being done. francine: but this would be -- if we have a no deal brexit, how difficult is it to see what happens the day the market opens on monday. philipp: i think you would have initial extreme reactions and markets, but that is interesting for the news day to day, but the question will be, what happens next and what kind of agreements are in place? what is the strategy of a no-deal brexit?

additional layer of uncertainty that will come on top of everything else. source ofly one concern in global politics. there are many. there is an unusual amount of risky areas around the world in geopolitical times. francine: do we have any insight at the moment? is it almost a given that we will have a general election but we do not know if it will be after the no deal or for? david: that is right. one of the former colleagues of the tories has joined again this morning. that majority could vanish at any moment. that election is coming. does it happen for october 31 or after? francine: thank you. we will get back to philipp hildebrand at blackrock. this is bloomberg. ♪

andcine: economics politics. this is bloomberg surveillance. let's focus on the euro area and

from philipp hildebrand from blackrock. we want to talk to you about japan and the s&p. if you are a european politician right now, do you worry that euro is made a center part of his campaign? philipp: i don't think that is likely to happen. one of the things we are seeing can workopulism short-term. but the postcrisis period creates inequality and terrible damage in the financial system, so people have good reason to be upset. it works for a while politically, but what italy shows right now is that populism does not create prosperity. it does not produce stability. it creates over time bad economic outcomes. to then double up and say let's go even further, by arguing that

we should leave the euro, i spend a lot of time in italy, that to me sounds like not a very credible proposition. this is a different story than what we have in the u.k. more likely what you will see is that basically part of the reason we are heading toward a potential election is there is no policy framework that can deliver on prosperity at the moment by this government, and so that is why we are getting this impasse and a deadlock, and we will see what happens next. but it is more uncertainty. francine: given what we talked about and the last hour, if euro ports become like japan, would it be that bad? philipp: i think so, yes. i don't think that is a good place to be. which is why the big question really is, for the next couple years, particularly if the slowdown continues and we go into a recession, what is the appropriate policy framework to

get out of it? one thing i am sure about -- and we tried to lay this out this morning -- one thing i am sure about, it is very unlikely to be more of the same. so much. thank you great to have you on a day like today where we have anxiousness in the markets, even if it is nothing like what we saw yesterday. philipp hildebrand, the vice chair of blackrock. francine will join me in the next hour out of new york and we will be talking about the carlsberg chief executive, carlsberg getting a boost out of craft beer. this is bloomberg. ♪ ♪

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yields hit an all-time low. the global economy is headed for a serious downturn. fighting the fed, president donald trump attacks jay powell, calling him clueless, and says the central bank is holding the u.s. back. in the world's largest shipping line, maersk, reassures investors about its outlook despite an uncertain trade environment. good afternoon if you are watching from asia. good morning, everyone. in london.ne lacqua tom keene is in new york. way stay on the markets with extra daily checks and try to figure out what that means for the world economy. tom: really interesting to see where those data checks will lead us. francine, you wonder like when the u.s. markets open at 9:30, you wonder where we will be at 9:38. i have no clue. francine: we will look to the market shortly, but let's get to bloomberg first word news in new

york city. here is renita young. renita: president trump is what it -- is making what appears to be an overture to president xi jinping. the president wrote of course shona -- of course china wants to make a trade deal. xi a great leader and once a one-on-one meeting. president trump says china is not the problem facing the u.s. economy. it is the federal reserve. the president resumed his fed bashing as stocks plunged. he said the phase -- the fed fed raised says the called jayast and powell clueless. present -- to prevent boris johnson's government from pursuing a no-deal brexit. corbyn promised to seek a delay

in brexit and then call a general election. corbyn's overture was welcomed by the scottish nationalist party -- the scottish national party, but liberal democrats rejected. there are reports that john hickenlooper will drop out of the race for democratic presidential nomination. instead he may run for the u.s. senate of his home state hickenlooper is at the bottom of the polls. qualifylikely going to for the next democratic debate. 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 renitauntries, young, and this is bloomberg. check now, equities, bonds, currencies, commodities. i am not sure i trust that. dow futures up 89 right now. two-cent spread.

oil soggy over the last couple of days. down, 9:00d rounded p.m. our last night, those headlines out. on a 30 year bond on 2%, yen is a key indicator. it indicates fractionally a weaker yen over the last number of days. that is a good sign for the president. and i threw in deutsche bank. i am watching the e.u. banking system. i am not predicting anything, but deutsche bank and euro, under a six is a big deal. francine: i just finished a conversation with philipp hildebrand and we spoke at length about the banks. he was not too rosy about the models out there when it came to the european banks. what i am looking at is stocks drifting in europe. they were stronger just 15 minutes ago. the markets are trying to figure out the signals of a possible

recession emerging in the bond market yesterday, and whether that means they still want to continue with the rally and take some of the gains. renminbi, 7.0327. we have not focused on renminbi too much. tom: as we do the data check, 1.98% on the 30 year bond. the yield is plunging as we speak. get10-year yield, i can back to general eisenhower. this is the famous h-15 chart. it is not back to world war ii, but it gets you almost back there. 14%, 15%.peaks of chart only picks it up to end of month, and we have moved so much in august, we are down well below the 1952 deflation. we are back to where we were at

world war ii. we will have a paragraph coming up on that later. francine, a chart back to the time of the revolution of the colonies. francine: that is interesting. i'm glad you brought our attention to it because it is something that if you take it history, ity in gives you an interesting perspective. mine is an easier chart. it is giving us a little bit of perspective, so you have now the u.k.,eld inversion in the in the u.s., but also japan and germany. just seeing them together i think is something that is quite surprising and actually quite stark. let's start with the inversion of the yield curve. joining us now, michael straw beck. what would you do with the inverted yield curve? do you scream recession? what does it take? is it in a bubble?

>> maybe we pray for sanity in the political sphere. i think we are not horribly survived -- surprised that the yield curve has flattened, given policy uncertainty and the yo-yo effect of the trade war. there is just a lot of uncertainty, and it seems like the escalation after the last round of trade talks was a material thesis violation for a lot of people. they started to focus people on the downside risk not only to the u.s. but also to china. china is really the under depreciated story here. tom: jean freda, always out front on the discussion. frieda, always out front on the discussion. right now, headlines out on bloomberg from china, and i would suggest this is from beijing. china says we will have to take

countermeasures on u.s. moves. china, u.s. action violates consensus, reaches the osaka meeting. china says u.s. action deviates from right way to solve disputes. then bloomberg headlines as well, the idea that china says consensustes xi-trump with a new 10% tariff. from this is elevation headlines out of the first real -- the 30 year bond plunges four basis points to 1.97. waiting fore been the chinese response to this. we knew the leadership was off on their summer retreat. what this is telling you is, number one, this is not going away quickly. the important question to ask is, how does china respond to this domestically? do they become more hermetic?

do they become more conservative in their reaction function? because they recognized this is not a short war, this is a long war. ultimately what i think it means, it is not so much about the currency. i think the currency will depreciate over time, but their bias is to keep it stable. it is more about preserving ammunition, not offsetting slowdown in growth with stimulus. a slower china means a slower world. francine: if this is a problem that we have for a long time, do we resume -- do we assume that the recession will be looming? >> i would be careful about recession and trade war. we have had a slowdown for a few quarters already, and the trade war is suddenly doing insult to that injury. it had the potential to tip the global economy into recession. if it escalates from here to

read but it is not going to go away so fast. i think that is what terrifies to try to find that equilibrium. the prisoners dilemma, which means you and up with what is is suboptimal sort of locked in position where everybody hurts. that is where we could go. china, my first trip to i learned about the relationship with credit suisse, with all of the pacific rim. what does all this turmoil mean for europe? is it an opportunity to out-china the united states? are we all in this together? michael: honestly, we are all in this together. europe is probably hurting the most by the trade tensions between china and the u.s. because of europe's deeply dependent export oriented

economy of germany, and therefore the europeans, if they will expose themselves over the next 10 or 15 years to exports, they are feeling the headwind of this trade war probably more than any other economy. we are in this together. frieda, who knows what the president will be commenting on today. the 30-year bond is not through the lows at midnight new york time, but we are getting there rapidly. is there an interventionist success for the fed or for president trump, or are they really not helpful here? gene: by interventionist success, you mean a reaction? process?y action, a how about a policy? gene: i think the market has become so heavily reliant on the central bank, but i think there

is a real concern that the central bank, which generally operates on a slower moving average than does the market, has difficulty kind of appeasing market expectations here. i think there will tend to be a strong bid on bonds into the jackson hole conference next week, into the ecb meeting a couple weeks later. we think it is actually german yields that are driving this rally in global fixed income more than the u.s. it is challenging to kind of meet those expectations. francine: there are a million questions about central banks. if they are running out of ammunition, is that underlining the market anxiety? and what comes after? if they don't have any fire policy that if they don't have any firepower, is it a mix of fiscal policy? --on't think michael: i don't think they are running out of ammunition.

it is not off the table. and they didn't have to pay out again, but in europe or the u.s., it is not off the table .nd while come on the table especially in the u.s. -- no president will probably take action before that. tom: as our guests focus on the german paper, let's look at the 10 year yield. the 30 year bond -- here is the german ten-year. this is the vanilla chart before i treat it for tv. you can see the leg down to an ever greater negative rate, 0.67 negative yield on the german ten-year. there is the 10 year yield on

the u.s. coming in as well. francine, a hectic start to surveillance this hour. francine: it certainly is, a very big start. we will be back with michael strobaek from credit suisse. and gene frieda. the government in hong kong -- the government and china has raised charges for small and medium companies. we are hearing from the secretary holding a press conference announcing that hong 2019 gdp growth forecast. that forecast has been cut to one, fromro and minus 2% to 3%. we will have much more on the hong kong economy. this is bloomberg. ♪

tom: it is in the past. there is no other way to put it. evaporates with headlines, and dual headlines out of china. secondarily, hong kong lowers gdp estimates, near a 0% level. there are bold headlines from beijing this morning. remembering osaka and going right to the xi-trump relationship. we will have a series of headlines out for you. we get perspective from gene frieda from pimco, and michael strobaek joins us as well. what do we expect given the bond frenzy right now? first of all, you should not panic, you need to stay calm. it is too early to step into -- until this washout.

selloff, september, traditionally not great months. we have started off particularly bad with the u.s. president sort of tweeting tariffs and then pulling it back, and people honestly very uncertain about where to go and what to do with all of that. we have taken our equity back already a bit in july, waiting patiently until this selloff continues. look at marketu dynamics, the more negative rates go -- and it looks like it, with the yield out there some point at change the markets to something that is worrisome? michael: yeah, in the moment we really have a panic. markets havequity not panic to yet. we are in selloff mode where people are uncertain where to go.

when it becomes self-fulfilling and dangerous is when they q4ome panicky like it was in of last year, where you had the fed doing insult to injury. i think equity markets -- it is important to know that the fed is there and will take action. we are not that far away from the all-time highs. we are still quite close to good levels. we are going to be quick here. we are lengthy with the chinese headlines. we are going to be showing this chart through all of surveillance today. it is a chart of u.s. interest 1790. back in we are back to the world war ii levels of low interest rates. stay with us. this is bloomberg. ♪

francine: this is "bloomberg surveillance." reporting a good first half things to a 17% increase in craft beal sick -- craft beer sales. last week the danish beer maker -- that left shares rising the most in almost a decade. we are delighted to be joined by the carlsberg group chief executive. i am looking at the share price, and it is up some 4.5%.

you are delivering to shareholders, but let's leave that to one side. what worries you about the world economy? day in, day out, people are worried about trade. chief executive's are not responding. how does that affect carlsberg? goodviously it is never when consumer confidence declines. over the years we have experienced that consumers continue to enjoy a glass of beer at the end of the day, and good times and bad times. we do not expect that to change, so we are not negative. francine: is there any part of the world you worry about more than others? does it mean that you will be much more bullish and that is where you will be spending and acquiring extra targets? >> maybe despite some of the issues in china, we are doing very well in china. andee consumers trading enjoying our craft specialty

brands. we see very good growth of our international premium brands there, and that has left china with a 19% revenue growth in the first half of the year, very good margins. that is one of the reasons that we have been able to make an upgrade. effectat is the societal on your employees in copenhagen? 1%, ainflation up multi-retail sales statistic in june. what do you need from madame lagarde, from continental europe to stabilize a denmark economy? >> that is a difficult question to answer, but i see people in the office being very confident coming in when they enter our office. --i don't think there is obviously people read the papers to see what is going on in the world economy, and i don't think

it has hit the optimism in denmark. tom: what is your view as an international executive of the european banking system, and do you believe the american banks with their relative strength can do better on the continent, can do better in copenhagen? : right. beerpretty ok in leading a company. i am not an expert in banking. i know american banks do much are reasons for that. but it is not for me to advise people how to run the banks better. he has more confidence than most of the -- francine: on a serious note, to look at asia, is there anything that you want to acquire, mr. to be stronger,

there? do you have the money to acquire anything? wes: it is no secret that would like to participate in the privatization of a beer company in vietnam. we are in talks with the government, and these talks continue. are comingt we closer and closer to an issue of the government and we would like to have -- tom: let's live it there. the state of data is simple privy 30-year bond off chinese headlines, below a 2% level. this is bloomberg. ♪

tom: breaking news out of china. we have been waiting for a response. trumpcite directly the xi-

consensus and osaka and the phrase "necessary countermeasures." that is what they look for if tariffs go into effect. , the equity market evaporates, futures up six and yields come in dramatically. the 30 year bond at 2%, maybe a touch under. francine: european stocks are declining more than 15 minutes ago because china is pledging to take countermeasures against planned american tariffs. gold reversing an earlier decline, which is now at 7.0364.inbi let's get to the first word news. : hong kong says the city

will grow by 1% this year at the most, down from a previous forecast of two to 3%. u.s. pilots may not have to train on stimulator -- thelators before flying boeing 737 max. instead they could take a computer-based training course. it may make it harder to reassure the public that the plane is safe. , a russian airline pilot nearly averted a disaster. he landed in airbus a 321 in a cornfield after the plane lost power in both engines. at struck a flock -- it struck a flock of seagulls after takeoff. but aople aboard survived dozen were injured, none seriously.

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. young and this is bloomberg. tom: thank you so much. right now on hong kong, $2 billion of support. it is not free beer but it is an extra payment to social security recipients, subsidy to kindergarten, primary, and secretary students, and a one-off -- secondary students, and a one-off electricity charge. does the fiscal stimulus have anything linked to the protests? yvonne: that is not what the finance secretary is saying. he says these were not related to the protests, but the key question is, those measures, is it enough for hong kong to avoid entering into a technical recession as the protests go on for an 11th straight month?

who will spend when retailers are shutting stores as we see touristsgoing on, and not coming into hong kong as they fear their safety. tom: they shop at the pacific place behind you. whetherdeep into china, you are at the mandarin or conrad. you are about 1524 feet into china, which is about as far as i go. what are you going to see this weekend behind you on those highways and in the commercial district? what we see protests? -- will we see protests? yvonne: on sunday, they have planned a march. the key question will be, what will this be like, what crowds will show up? how many people will show up? it will be a test to see where

the mood is after a volatile and violent week. they shut down the airport on monday, flights canceled, disruptions in the airport, a violent clash with protesters and men they claim are mainland police officers. will people rally behind these demonstrations, or is momentum getting lost after these airport beatings? francine: overall, how much has this undermined hong kong's reputation for stability and what does that mean for future ipos? yvonne: we talk about the recession calls and the hang seng index following 12% in the last three months. some companies are reconsidering their listing plans in the city, given the unrest. we talked about the big place behind me, owned by swire group which owns cathay pacific and

they have been dealing with the impact. you spoke about the retail sector. hotel bookings, they still have some hotels on top of pacific ways. -- place. they could fall into a crisis and bookings could fall as much as 50% this month, according to a hong kong lawmaker representing the tourism industry. when it comes to foreign arrivals, more than 80% come from the mainland. francine: yvonne man, thank you so much. we are back with michael and gen e, both looking at our wall of protests ining the volatility when it comes to trade. when you look at what you worry about the most, trade, tariffs, brexit, central bank policy.

is there any hope of anything stabilizing that could give relief to the markets? gene: i think there is at least short-term hope in the sense that we have seen a number of populist actions taken by certain governments, and those exert their damage on markets and confidence, and then you get it counter reaction. we have tried to frame the world in the function of a trump put. there is uncertainty cast on the, and the china put. now we are waiting to see the responses from both sides. we have seen some effort of can to lay tory response -- conciliatory responses from the trumpet industry should and i would be surprised if we do not -- trump administration and i would be surprised if we do not see more stimulus. michael: from the u.s., we have just gotten it.

they just raised the debt ceiling. the u.s. really did not need it that much at this stage. what is needed is more fiscal stimulus from europe, and we still have brexit to work through in the country that needs to be stimulating is germany, and they are not. we have a newwhen governmental set up, but right now with ms. merkel, unclear who comes next, and this government with spd being so weak, we don't see it. in this world of negative fields , that is needed. tom: i want to talk about a theme that is needed -- theme through the morning, the new set of interest rates we have. eda haveco and gene fri to adjust our actuarial assumption?

do we have to think of a new level of low rate regime or do you and pimco look at this is a one-off? gene: i don't think we look at it as a one-off event. we have been telegraphing we think we are in a new neutral environment. we did not expect that neutral to keep running toward the bottom. populism, demographics, technology, these are pushing secularly toward lower nominal yields as we attempt to avoid a perverse rise in real yields. we do think it is the new -- it is what we are going to have to deal with. against that, it is important as michael said not to overdo it. of fear wheniods you should lean against the market and access optimism when you should lean against the market. we are closer to fear. tom: we sell that yesterday with

the dow 800 points. we will continue this discussion. there is much more to come today , all centering on trade and the china headlines. we have the china headlines. we need interpretation. always good from carla hill and david westin's 12:00 our. ♪

♪ say this is a bubble. this is a consequence of a cyclical slowdown, which we are delaying part of the cycle so risks of recession are increasing. it is also a consequence of the governmental policies, the populist policies we have seen in so many countries, the notion

that this will not harm the global economy is a fallacy that is revealing itself. another great source of -- badinty is fed politics leading to terrible economic outcomes. we are seeing it in the data, on the investment side. companies are adopting. the train is in motion and the damage is being done. it will be a political choice that will have significant economic and financial ramifications. francine: that was our conversation with philip hildebrand, blackrock vice chairman, talking about the risk of recession 2020 being more elevated. rival corbyn has asked parties to support him as a caretaker prime minister to block boris johnson from a no deal brexit. rafael us now is therese

. are still bothe with us. says i will don it better and they said thanks but no thanks. where does that leave the chances of a new deal brexit followed by a national election? therese: the government corbyn has been proposing, we have seen it blown out of the water if it was ever possibility. binary choices are interesting in politics. corbyn was offering no deal or me. he saw conservative lawmakers and labour and liberal democrats, no, thank you. this is what they said to theresa may when she said my deal or no deal, no, thank you. there seems to be a hope that

either there is some way to avert a no deal or that lawmakers will take their chances. i am not sure either of those are reassuring for market for consumers. -- markets or consumers. francine: it is a 60% chance on a no deal. parliament could block it? therese: there is a number of options they are considering. we saw the speaker of the house at and edinboro fringe event, saying this cannot be allowed to happen over the wishes of parliament, suggesting he would use his office. how can they do that? they would have to be able to table legislation to force the government to seek and extension -- to seek an extension. it is not easy now.

it could be procedurally blocked, filibustered. is it possible to block a no deal? yes, but it is not a straightforward move, which is why you are seeing that 60/40 percentage. tom: have you picked out your halloween costume yet? how close is it? therese: it is looking closer all the time. we have even seen some conservative mps against no deal tweeting things like, we don't see any way out of this. the one thing we have seen from this brexit saga is things can change very quickly, so let's not rule anything out. tom: hammond is the new pin yada. -- pinata. how is the formula chancellor doing? -- former chancellor doing? therese: people are arguing and

saying he did not do everything he could to block a no deal brexit. clearly how they plan to fight the next election, and hammond played right into boris johnson's hands. tom: theresa rafael, brilliant writer for bloomberg opinion on the united kingdom. we will continue. we need to do a data check in that first line is what you need to know, green on the screen before the chinese headlines of their upset over president trump's actions. equities, screen on the 30 year bond is history making as well. a challenging day. this is bloomberg. ♪

♪ this is bloomberg "surveillance." warren buffett's berkshire hathaway has increased its bet on amazon. it's stake rose 11% in the

second quarter and is valued at more than a billion dollars. that is far smaller than berkshires stake in apple, valued at $49 billion. morgan stanley is nowhere to be found on the year's second largest ipo we work. they have stepped back from a larger role after we work rejected their pitch to become top underwriter. morgan stanley would not extend as much debt financing as we work wanted. shares of cisco are falling after it came out with the lackluster forecast, a share -- a sign companies are -- cisco is trying to become more of a software and services provider but the majority of sales come from machines that are the back phone of the internet. -- backbone of the internet. that is the bloomberg business flash. tom: we don't need a chart or a

morning must read. we have the wall of worry. i feel like i am on jeopardy. for 200.da, brexit here is the wall of worry and it is absolutely textbook. invest, i have got to for monday morning with this going on. what do you do in a retirement plan it retail or institutional when you are playing with a wall of worry? michael: figure out how is your time horizon set. i would argue still that we are in a world where risky assets will give you a decent or handsome risk premia. we are stuck with a decent equity allocation in our typical client portfolios, feel very comfortable with that. markets always short-term have a

wall of worry to climb, and i in the opene that so we can climate and know what we are -- climb it and we know what we are dealing with. tom: francine the four had the great negative rate buildup chart. what is the temptation to take the gain and go to cash? gene: i think inevitably, it does go up. that is a rising temptation. i am probably more cautious than michael and saying i worry more about risky assets. because of the dependence on central banks, we are leaning heavily on them to keep risky asset prices inflated by pushing bond yields down more. that does not mean that risky assets are cheap. it means they are inflated. i do not feel like i have much of a margin of safety and it wants -- makes me want to be

cautious. francine: i want to go back to brexit because you have a diversion view on the michael set -- london set. michael thinks there is a slight chance of no deal and gene thinks that is something we need to be mindful of. gene: our probability is around 70% of no deal. we could talk about nuances of how hard that deal brexit looks. -- no deal brexit looks. this has always been about party politics. you see it on the conservative side to unify the party and kill the brexit party, and the labour side, it is about gaining power. earlier, thatd was thrown under the bus. francine: you think the e.u. will give in? michael: i think there will be a

blink, maybe on the 31st of october and beyond. the parties need more time and i think mr. johnson knows the clock is ticking down and ultimately, something has to give. i don't think what has to give is a no deal which triggers a crisis and risk event that nobody is position for. the parties will find a way to extend and find a solution. francine: you don't think the market is pricing it in? do you think that is pricing it in? movedno, it has obviously to a certain extent. the point there is almost all roads lead to persistent uncertainty, some more extreme than the other. even if we have a deal, we will have a long period of uncertainty. the place where you will see the price most is in the currency.

we can imagine eurosterling at parity -- euro-sterling at parity. we don't think it is a price check. tom: how is credit doing? we spent the entire hour on full faith and credit. gene: in the u.k. or globally? tom: investment grade and high-yield as well. gene: it is starting to come under pressure. i would not call it a bubble but you have had excess in that second there. spreads look tight. relative to the economic outlook, they have been inflated with central-bank purchases. we think they should come under some pressure but they are not particularly cheap yet. francine: michael? michael: we have taken our credit allocations down a bit. spreads are decently low and i don't think that part of the

market is where you want to be. i perform -- i prefer more equities and credit. tom: we will continue, thank you so much. eventful hour. we started with substantial green on the screen and now futures negative for, all of 4, all of thise because of china headlines. they do not mince words about a 10% tariff and the memories of osaka. in our next hour, russ koster it of black -- russ koster it of h ofkrock -- koesteric blackrock. ♪

♪ tom: this morning, there is a shortage of funds. u.s. full faith

and credit falls below 2%. the yen weakens. russ koesterich's of black mark. what -- blackrock. what is the president to do with a crazy inverted yield curve? maybe the chinese headlines in the last hour. there goes the actuarial assumption, your retirement, it is toast. from our world headquarters in new york and queen victoria street in london, francine lacqua. we are watching european banks, commerzbank down to new lows and deutsche bank below six euros per share. francine: hildebrand saying a lot of the business models are not adept and equipped to deal with negative rates. that conversation leads to the conversation about what madame lagarde can do.

do negative interest rates work at all or is the next leg of options something that one's more fiscal monetary policy? tom: mr. hildebrand the former president of the swiss national bank. right now in new york city, here is renita young. renita: china is signaling it is ready to retaliate against new u.s. tariffs, calling planned u.s. tariffs on $300 billion of goods a violation of accords between their leaders. china will take they called necessary countermeasures. this comes hours after president issuelinked the hong kong with the trade war, and called xi jinping a great leader. the economyw say will grow 1% at most this year, down from previous forecasts of

2% to 3%. in the u.k., opposition party party -- opposition leader jeremy corbyn has asked his opposition to support him to block jeremy corbyn. welcomedoverture was by the scottish national party but liberal democrats and welsh nationalists rejected it. multiple reports that john hickenlooper will drop out of presidentialthe nomination and instead could run for senate. it is unlikely to qualify for the next democratic debate. 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 renita young and this is bloomberg. tom: thank you so much. the data check is dramatically

different than 60 minutes ago. green on the screen has become red on the screen. dow futures -49. deepens out. the bloomberg commodity index ugly this morning. the vix elevated over 20. a 1.9 sixight we had handle on the 30 year bond. yen showing not so much save haven. e.u. banking is front and center for me. ,rancine: midnight u.s. time here it was early morning and in the middle of the trading day in asia. asopean stocks are down china is pledging to take countermeasures against planned american tariffs. the onshore yuan is steady because the pboc added

liquidity. gold reversing an earlier decline to be a little bit up, oil at 54.36. tom: let's look at a chart that goes back to 1952, disinflation of the 1950's. up to the volcker highs of 15%, down we go, that is where we are now. that is the plunge we have seen. we are back near yields of world war ii. we will have that with our single best chart. francine: mind is a simple chart but i think has huge impact because when you look at the inverted yield curve, a lot of time we spent in the u.k. in u.s. because it happened 24 hours ago, but japan and germany have been in the situation for longer. the ever lower yield curve. tom: let's begin with placing

where we are now after 800 dow points in perspective. it is wonderful to do that with russ koesterich of blackrock, fund portfolio manager. what did you do yesterday, look at metz and yankee baseball or did you do something? russ: we actually did not trade a lot if that is what you are asking. we are seeing investors starting to discount a growing probability of recession, the trade war metastasizing to a currency war. how much of that is already discounted? bond yields are going down, and the probability is greater. stocks have correct did a bit -- corrected a bit and in the united states they are fairly expensive. tom: i don't like the headlines of record low yield. that is back to the modern-day.

jerry richardson at the history is a richmond fed, this time of guadalcanal. the banks agreed to purchase bills at an interest rate of 3/8 of a percent year, substantially below the typical rate of 2% to 4%. we are back to the fiction of world war ii yields. , you go back even further look at the bank of england policy rates that goes back to the 17th century, you have never seen policy at this level. tom: what is the urgency for institutional officials including chairman powell? russ: to see how much about this -- how much of this is about trade and how much trade uncertainty is affecting business confidence, investment, spending.

this is not just a return to a mean of slow growth. this is more insidious and that is the challenge for mr. powell and the ecb and pboc. francine: is it different -- if you are ecb you don't have much tools left. the fed is in a stronger position. russ: my colleague spoke about it a few hours ago. this is the challenge for central banks. the ecb policy rate is already deeply negative and creating enormous pressure on the banks. the european banking index has undercut the december lows and is back to where it was 2016. it is not clear going further into negative territory will be the right course. francine: what does it mean, if president trump goes for germany with tariffs for carmakers and if angela merkel does not put fiscal policy in place, what

does the ecb look like in 18 months? russ: you will see them tools -- use tools at their disposal. it will be difficult for a global economy to rebound if the only tool being deployed is a further cut interest rates. at this point with yields where they are, it will be less effective than five years ago. tom: this is like modern fiscal portfolio theory. francine's question on the degrees of freedom that we have, what are our degrees of freedom to fix a 1.97 30 year bond? i don't see the optionality for bankers. russ: i don't think you have to fix the yield itself. what will produce the best growth in calls -- impulse? tom: what about the united states? russ: there is room.

is it politically feasible or will you see it run up into the presidential election? that looks unlikely. francine: russ koesterich of blackrock stays with us. a lot of the u.k. press including our own reporters are being briefed by the chinese ambassador to the u.k., saying the hong kong event has gone way beyond peaceful protest. he says hong kong has faced the gravest situation since the handover. we also saw hong kong having to reduce their forecast for growth , and this could have an impact on possible ipo's. we will have plenty more from hong kong. this is bloomberg. >> governing hong kong in accordance with law and support the hong kong police with strict and rigorous enforcement. ♪

♪ surveillance." those antigovernment protests in hong kong may chase away some ipo business. several chinese companies are rethinking fundraising plans in the city. some of those shares could end up in the u.s. that is an ominous sign for hong kong's future as a gateway to the largest economy. shares of the world's are just shipping -- largest shipping reassuredersk investors it can keep its outlook despite an uncertain trade environment. that is the bloomberg business flash. tom: the perspective on washington, we are advantaged to do that from singapore with

derek wallbank. set the news flow, we have on the pacific rim. in the newspapers you look at in the zeitgeist from sydney and singapore, what has been the response from what we have seen in hong kong? derek: i think that there has been a big question about where is this all going to go from here? there is a big is this week story -- businessweek story that asks the big question, which is, this has been going on a couple of weeks, what happens in a couple of years and decades when hong kong is supposed to transition over? it is a long-range question of where do we go? in singapore, they are not trying to take huge advantage. maybe this idea that singapore

was going to be where all the money went, but they are not trying to push that play and you don't see a huge amount of economies trying to get hong kong when it is down. it is incredible the restraint going on. tom: we have been talking about degrees of freedom of central bankers. what is the degrees of freedom of the trump mercantile trade policy after the chinese headlines we saw an hour ago? derek: i think there is some linking and particularly because of a tweet that got a lot of attention where donald trump was saying, it seemed like he was trying to say, does xi want to meet and have conversation about hong kong? there has been reaction from chinese commentators who say they do not think trump is fully linking hong kong into trade, but it is hard to know. the tweet was bizarrely written and at is not clear what trump

was offering. the u.s. has tried to stay out of this, although it has not worked too well. there was a big move when the chinese denied a routine port request for two navy ships to go to hong kong. that is a pretty big deal. francine: it is a big deal, but does president trump with the fact that china is saying they will retaliate against u.s. tariffs, does he stop talking about hong kong? what do we know about his thinking with protests? derek: there is a big diversions between donald trump and aids in the white house who would like house aides in the white who would like him to go further. there is a giant golf between between donald

trump and almost everyone in congress, not just nancy pelosi, but even people in his own party, mitch mcconnell, kevin mccarthy. traditional trump allies have been pushing the president to go more on the freedom side and stand up for the people in the street. trump has not been willing to go that far. he has been saying, let's deal with the situation to mainly. it has caused a little bit of tension in washington to try and figure out how far he is going to go. francine: how difficult is this to navigate? it would be difficult to imagine almost any u.s. president to say something about a domestic issue. this is a chinese issue, is it not? derek: trump has framed this is a chinese internal issue, music beijing's ears.

there was a "year times -- "new york times" article that got news, thaty asians said he may not be able to do much, but all the things going on in asia from the japan and korea situation, if you wrap it up it kind of shows the u.s. is not able to influence the region like everyone thinks it can because it cannot prevent all these things from actually happening. tom: thank you very much. , russ koesterich of blackrock with us. this is the 30 year bond yield below 2% last night. handleight we had a 1.96 and we are retesting that. russ koesterich's turns into a pumpkin if we get down to 1.95.

this is bloomberg. ♪

francine: this is bloomberg "surveillance." extra data checks throughout the day as we had the big move on the 30 year yield below 2%, and coming back up. this is our wall of worry. the markets are worried about the yield curve inversion, hong

kong protests, brexit, and a whole lot of other thing. to takeedged countermeasures against the planned american tariffs. renminbi at 7.04. we are back with russ koesterich. if you are currently in the market, is there anything that will stabilize the situation. russ: it will start with a calming down of the trade tensions but people are more concerned about the economic outlook than they were. we are focused on the yield. this is not just about trade in the last few days. this is a multi-decade trend and --s is profound because of the factors that are driving this, none of these are going to change even if we have quieting down of trade tensions.

this is a different investment environment and people have ever seen. francine: what does that actually mean, a recession or significant slowdown is almost unavoidable even if we get back on track with trade? russ: i think in some ways onple are putting too much the inversion of the yield curve. a recession is avoidable. if you go back to decent but bonds arerowth, where no longer providing the yield they traditionally did, that is a different portfolio. yield showed the 10 year with the cleveland cpi. we have negative rates. i have not done the deviation study but we are way out to greater negative rates. retirees cannot get it done.

where does the u.s. retirement go? what do we do about a retirement program? ,uss: this is the key question because the notion of a 60/40 portfolio producing 7%, percent, i think it is a different assumption. you have to lower your return assumptions. it is a portfolio that looks difference with equities as a source of income as well as bonds. tom: we are going to get onto chairman laurence fink and say haverock, we are going to a massive, societal cash call with these low yields. yields down, or money in, that is the formula -- more money in, that is the formula? russ: this is a major shift,

something larry has been talking about for a while. tom: since time began. -- actuarialactual assumption now? 8%, then 6%. as for percent the new actuarial assumption? 4ss: it probably has a handle. tom: where are we on the 30 year yield? 1.97 on a 30 year bond. francine: if you look at the concerns about what happens to the german bonds and how the banks cope with it, what does it and to reprice german bunds what is the likelihood that we get a repricing that could change the course of the markets over the next eight months? russ: it will take a fair amount.

you have the entire german yield curve and negative territory because the expectation is that the policy rate from the ecb will be negative over the next decade. as long as you have the environment where policy rates remain at zero or below, it is hard to see a significant rebound in german bond yields. tom: much more to talk about. i have a wonderful and special chart for single best chart in the next half-hour. moments ago, deutsche bank makes a new low. coming up on trade on those important chinese headlines, carla hills with david westin .nd the 12:00 hour ♪

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i on stock drops because of china saying they may retaliate against the u.s.. let's get straight to the bloomberg first word news in new york city. renita: china fired the latest shot in the trade with the u.s. beijing said it plans to retaliate for they knew -- the new u.s. tariffs, calling them a violation of the truce reached. the u.s. has delayed the imposition of some of the new tariffs but not all. the u.s. has added for chinese nuclear firms to a blacklist. in recent years, the u.s. has -- the autopsy of disgraced financier jeffrey epstein has deepened the mystery around his death.

according to the washington post, he suffered several breaks in his neck bone. one of the breaks is more common in victims of homicide by strangulation. the medical examiner's office has listed has cause of death as pending. a russian airline pilot narrowly averted a disaster, landing and airbus a 21 in a cornfield after it lost power in both engines. the plane struck a flock of seagulls shortly after takeoff. all people on the plane survived. about a dozen were injured but not seriously. 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 renita young and this is bloomberg. francine: thank you so much. stocksin bank stops -- has coincided with the drop in

the yield curve. we asked how banks would survive. >> the yield curve matters a great deal for banking no matter how you look at it. wealth management can be a way to diversify away from some of the risks of a flat or inverted yield curve, but it is difficult. we will not see booming banks in an environment where we have the yield curve where it is today. tom: the vice chairman of blackrock. right now, with markets moving, nicholas comfort joins us with number news. i want to take a broader view with futures that -13, the 30 year bond with a 1.96 handle. what is the urgency at the ecb? nicholas: not what the banks would like to see probably.

ecb goes to see if the further into negative territory, they want to see a hearing -- shielded from the impact of negative rates. the noise out of the ecb over the last several months, you have some officials playing down the effect. i am not sure if people will be happy with what comes out next month. some investors may be disappointed. tom: everybody slides through. matt miller's interview with the cfo of commerzbank bordered on outrage. here is the compare and contrast on global banking, jp morgan normalized back to 2016. barclays is trying to keep it together flat. german banking, represented by deutsche bank, is an unmitigated disaster.

write thee move to banking system? nicholas: very little. they do not appreciate the value of their banks to the degree the brits and americans do. it is not a popular system so righting this is difficult. the merger talks, you could say that was an attempt to do something. for the banks them selves, it is sparse pickings. francine: how worried are rate about companies like deutsche bank refocusing on the german economy at precisely the time when we could see a big downturn in the economy? nicholas: absolutely. that is the key worry that many are voicing. you guys are going to be less global, more europe and germany focused at the exact moment things are turning south.

it is desperation on the side of the bank that they cannot name taino's aspirations anymore. those global aspirations anymore. lowsing back from historic , it is an admission of the fact they are more focused on an area which may not do quite as well as it has in the past. francine: how many more jobs well the european banks have to lose? -- well the european banks have european- will the banks have to lose? nicholas: a lot of numbers are not disclosed. banks will put out numbers occasionally, but there is a lot going on behind the scenes. unicredit is considering 10,000 more job cuts. it may come in lower than that because of retirement, what have you.

commerzbank is reviewing their strategy this fall and i don't see how they can get around more job cuts. 1000,r there is 100 or the bleed will continue at european banks. tom: nicholas comfort, thank you. bond near 30 year that midnight low. do you fear if we get another breakdown, if we do not get a newfor stocks and we get a reset, that that will lead to an institutional response or we will wait this out? bond i don't think lower yields will give the stock market that much. tom: what about the fed? russ: the fed is key. why are bond yields lower? thesenvestors are finding

are a real good hedge against equity risk so bond yields are level as the stock market is going down. tom: we went through the 30 year bond midnight pricing, 1.95 handle. i looked at all the emergency meetings of the fed and had a chair -- had the pleasure of talking to mr. levitt. have anu can intervening cut and guidance out of a number of committees. i think there are things the fed can do. what happened in december, they are rethinking that, and it is a much weaker environment than people thought. francine: what is your best play? what do you look into? russ: one of the places we see an opportunity, some of the companies in technology and health care have differentiated

business models. if we see another day where the dow is down 800 points, we will be looking for bargains in those spaces that over the long-term term can generate superior cash flow. francine: what are those spaces? russ: i think software. some of the places we have been buying is in china, internet commerce in china. these are domestic plays. plays on a rising middle class, and we think these continue independent of trade. tom: futures -20 right now. we had green on the screen when we started the morning. the 30 year bond over five trading days, ring it up. -- bring it up. bond with no0 year end in sight.

stay with me, because i want to go to the equity market and go to russ koesterich on where we are in terms of a correction. this is not the futures, but very importantly the correction is down 24,600. we forget what a correction is. we become immune to -10% on equities. russ: that is correct. even with a 6% correction. tom: that is not a correction. russ: it is not a correction. given everything that is going on, the equity market is behaving in a fairly mild fashion. trump do should mr. this morning? you know we are going to get a tweet-a-thon. if lawrence kudlow is the representative free trader, if

kudlow walks in and says, here is the deck of cards now, what is his most efficacious tweet? russ: this is sort of like the hippocratic oath, do no harm. tom: agreed. russ: this is affecting business confidence. we talk to ceos and cfos. they are questioning, where do you build that next factory and what do you do with capital spending? this is having an impact. francine: russ koesterich of lack rock. -- blackrock. curry willjeffrey talk about oil, gold, and the risk of a global recession. this is bloomberg. ♪

tom: a little bit of a bid in the last few minutes, the german 10 year yield coming down to a record low. we need some perspective. atkinsons with rick and my book of the summer. this is when the british were coming over and it was not to see the new york yankees or to watch liverpool play at yankee stadium. it was a war of a number of years ago. it is a special single best chart. this is from the great jim be juncker -- bianco. thank you. long-term interest rates back to 1790, that was when there was a

war that washington won. the yield comes down and what is so important is that other than that world war ii induced yield time, we truly have never been here. russ: unprecedented, never seen it. now,otion you have right $15 trillion, $16 trillion in negative yielding debt, none of us were taught in school about this. tom: how about the bank of england back to 1911? even here, bank of england rates are set lower than they were from the depression through to churchill's final government. russ: you can take that back further and go back to 1696. tom: we did "surveillance." russ: napoleonic war, never this slow. dark" "poldark" was

still drilling for oil. francine: what is the change in the last 200 years? the financial markets have gotten so much bigger that you cannot really compare. russ: you can't, except for the fact that we are in an environment -- ed is fun to put these charts up but it has -- it is fun to put these charts up but it has real ramifications. thing you are buying that will give you a 4% yield will be something like a high-yield bond, emerging-market dip that will carry a lot of risk. this has implications for savers and retirees. how do you build a bond ladder with this type of backdrop? thecine: how do you predict

next recession if that is not the inverted yield curve? russ: i think the first thing to realize is it is difficult to predict a recession 18, 24 months out. there are false positives. the yield curve is a concern. premium that the term is unusually negative, that is something that should be flashing yellow. i am concerned by the fact that we are on the cusp or close to a manufacturing recession. the big question is watch the confidence numbers and the consumer. do we see companies pull back and does hiring slow? does what is happening in manufacturing bleed into the household sector? tom: we will see manufacturing today, and i take your point on a shift to a lack of confidence by the consumer.

i am looking at the bloomberg screen and i'm certain i have never been here before. the institutional people are telling us there will not be a seismic shift, interview after interview this is business as usual. i don't buy it. russ: it is unprecedented. whether or not this is the cusp of recession, it is dependent upon -- tom: is it the cusp of -- this is really critical, you cannot theict recession -- is that cusp of corporate and financial adjustment to the new reality of terminal rates? russ: absolutely. we have spoken about it in terms of the household sector and pension funds. it will require a rethink about retirement and borrowing and in europe, how do you run a bank? tom: we will have you be a guest host for eight hours, russ

koesterich of blackrock global allocation funds. we will drive forward this chiefsation with pimco's u.s. economist. --data, it is real simple yields lower, futures give way. this is bloomberg.

♪ this is bloomberg "surveillance." let's get to the business flash. activist investor bill ackman is taking a position in berkshire hathaway. pershing square built a stake valued at about -- has interest in buffett's company will be passive. goldman sachs took a 4% stake in uber in the second quarter. shares of uber fell yesterday to their lowest since they began trading publicly in may. warren buffett's berkshire hathaway has increased its bet on amazon. there stake rose 11% in the

second quarter and is now valued at more than a billion dollars. that is smaller than berkshire's stake in apple, valued at more than $49 billion. that is the bloomberg business flash. francine: let's get back to the warren buffett story, doubling down on amazon. joining us from washington is sarah how zach. as soon as it broke with warren buffett this amazon bet, does it tell us more about what esther buffett thanks in terms of technology companies and how his view has shifted, or his view of how much bigger and stronger amazon could be? sarah: i think it is the latter. providing a scalable profit engine and that is a nice

complement to the retail business that grows strongly. they have over 100 million prime members and are doing a good job signing up for more. you can see how that complements each other and fits together as a business. francine: how much bigger can and iscome -- become, there ever a to big amazon? -- too big amazon? concern if u.s. regulators think about antitrust law differently. that could be a challenge for amazon. it should continue growing at a pretty strong rate. it has 30% of the e-commerce market in the u.s. and i expect that to grow as it expands into more categories. it is beefing up its assortment.

francine: yesterday, macy's missed estimates. what does that tell us about the strength of u.s. department stores? sarah: it tells us they are not very strong. what happened yesterday was not about trade or the health of the consumer that about macy's making its own mistakes. it's fashion assortment was off the mark and did not sell well so it had to reduce prices. department stores are doing a good job of hanging onto the baby boomer customers but not ringing in the next generation. francine: are you bullish on the u.s. consumer and their stocks? the fact that president trump delayed some of the tariffs will not hurt the retailers as much as it could have. sarah: the u.s. consumer is still in good shape. see that in consumer

sentiment numbers and with the low rates and i expect we will see that what the walmart numbers in a few minutes. that is because they are providing a compelling, convenient way for people to shop so the retailers executing well are benefiting. those not executing well like macy's are feeling the pain. francine: how much can walmart outperform their peers in the next 12 months? sarah: i don't think it will change much because of the trade concerns. walmart is better positioned to weather the storm. because of its sheer size, it has a negotiating power so it should be able to offer good prices on a relative basis. walmart is insulated in that way. of sales are50%

grocery. that port -- part of business is not under particular threat. francine: thank you so much, sarah. european stocks are down, u.s. equity futures down. china pledging in the last 90 minutes or so to take countermeasures against the planned american tariffs. i am looking at treasuries and the core european bonds advancing. the onshore yuan edging lower as china's central bank added liquidity to the financial system. gold reversing its earlier decline. this is bloomberg. ♪

♪ david: how low can you get?

yield on the u.s. 30 year dips below 2%, flirting with negative real yields, yet investors keep buying those bonds. back to trade. onna says it will retaliate the u.s. imposing more tariffs. we talk with jeff curry of goldman sachs for some commodities wisdom. will the consumer bail us out again? retail sales numbers out 90 minutes from now. welcome now to "bloomberg daybreak" on this thursday, august 15. i'm david westin, here with taylor riggs. alix steel is off today. taylor: you haven't got rid of me yet. david: what will we do without you with a bond story? theor: every yield on german curve was a negative territory. now every yield on the u.s. territory below 2%. we are