francine: a review chief -- conte calls it quits. btp rallies. investors hope jay powell will signal deep cuts when he speaks at jackson hole. but will he suffer a misstep? heads to meet angela merkel, but can he make any progress on the new brexit deal? good morning, everyone. this is "bloomberg surveillance." this is what your markets are doing.

there is quite a lot going on. if you look at btp's, this is the one thing we need to look at. stocks, climbing, treasuries, slipping. retreating. carmakers leading the gains. contracts also advancing after the s&p 500 index close lower. lower.ed towe -- we speak to the german economy minister and get his take on the slowing economy. don't miss that interview at 3 p.m. london time. we are also getting some details from norway's sovereign wealth fund about the second-quarter performance. dani burger has details. not as bright as we saw last quarter. funds's sovereign wealth

8%, they hadpoint a gain of about 3%. comparing that to last quarter's return of 9.1%. i have been digging through some of this report and see exactly what the layout looks like. in terms of how different investments did, equity investments returned nearly 70%. equity, 2.7%, mirroring what we saw last year. the issue was the global uncertainty we saw. keep in mind, this was the second quarter. this was not even before we got to the bond terminal. in terms of the stocks, there is a 3% return. last quarter, 12% return for stocks. so the 69% number was the holdings not changing that much,

but really, the turmoil is hitting stock performance hard. francine: thank you so much. dani burger with the latest on the breaking news. overhaul.an an volcker 2.0 is here, looking more like a tweak. regulators have rolled out the limits banks must follow. it is a win for big wall street letters -- lenders but hardly considers the transformational changes needed to spark a revival. the u.s. economy is not headed for they recession according to mary daly. wrote that domestic momentum is pointing to continued expansion. the comments echo those from the white house or downplaying fears of a recession. >> i think the word recession is inappropriate because it is just people int certain the media are trying to build up

because they would love to see a recession and we are very far from a recession in fact, if the fed would do its job, we would have a tremendous spurt of growth. >> an employee of the u.k. consulate in hong kong has been held in china. confirmation comes after early reports he went missing after an august 8 meeting. earlier, police said they have launched a missing person investigation. donald trump is canceling his meeting with denmark because they do not want to talk about selling agreement. he tweeted that copenhagen save a lot of effort by being direct. he described it as a large real estate deal. denmark's prime minister ruled out the sale, saying she hopes he is not serious. 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: thanks so much. quit as prime

minister, blaming his deputy sell beanie. -- deputy salvini. handed in the job, accusing salvini of rebellion. talks has been scheduled with the biggest political parties. is the us for the hour portfolio manager at pimco and fixed.trategist at thank you both for joining us. and country -- gunter. let me kick off with you. when you look at concerns, if we haven't snap elections, what will people be asking for? do they have beef with the european union or is it just immigration?

that is a good question. so far, we don't know if we are headed for a new election or if there will be a government passing budget laws and only then going for an election. but if there is an election, i think voters will be quite confused. populistsvoted for and have been in office. after one year in office, they have not delivered that much on the promises they initially made, the big spending plans. one thing would have done a lot of action is migration. playing on what he considers big achievements. overall, some of the skeptic voices will really be quite a big theme in the election.

that would be devastating. francine: when you look at some of the spreads between the 10 , is btp and bund yields this artificially low? you don't exactly know what the ecb will, possibly looking for that to be higher. >> it's interesting to see that the market is relaxed about the prospect of a snap election. the main reason is that this government has not done much and anything else would be positive. there will probably be a center-right coalition that will be seen as more market-friendly. so i expect the reaction makes sense. i don't think the development is necessarily bad. we have not seen any good news in the last 14 months. anything else from this government is probably seen as positive.

that is why the market seems to be pretty relaxed. francine: the concern is that it ist comes to liga, unclear what their plan is. luca.gree with with the election, we might have something that is ideologically stable. cuts, butet more tax less spending if they win the election. in the back of everyone's mind is the qe is likely to come from the ecb that will bring relief to italian bonds. view iny much share the the fact that the market is relatively benign. riskine: we have seen the of the italian president

overstretching what he could say and could do. if you does not call a snap election and we find the solution with the five-star movement, will the people of italy feel cheated? italy, so iive in don't know what they will feel. of italians think went to the polls because they were unhappy a year ago and disenchanted with the political class. they voted for an experiment with new people. they knew that five-star had zero experience in government and they still vote for them because they were so fed up with the old medical system. after one and a half years, they have to vote again, there will be a lot of questioning why again and why isn't this new set of working.

so this coalition will be one option. the think a lot of people, especially those who have voted for five stars will feel really angry. francine: when you look at some of the concerns, but the investors are worried about, is your? -- eruope? -- europe/ how attached are they to the project? i personally don't think there is a lot of opposition to europe. if you look at the polls, it is 60 or 70% support. so it is not even an issue that is debated in italy. there is immigration and the recession, but of course, politicians can use this

argument. but even the league up -- the l iga, they have stopped talking about it. this is not a big thing. francine:'s what we saw 12 months ago, talk about a possible parallel currency, you think it won't be part of the conversation? >> i don't think so. it would be infrastructure plans, tax cuts, these will be much bigger issues than the euro membership which is not actually an issue at all for most italians. francine: thank you for a good conversation. all stay with us. and stay with surveillance, plenty coming up. boris johnson meets angela merkel, we focus on the prospects for a brexit compromise. and a pisa bond market history of germany holds the world's first option with 30 year bonds

and a negative yield. who will buy it? we discuss that next. this is bloomberg. ♪

>> i think the word recession is inappropriate. it is just a word that certain , certain will be kind people in the media are trying to build up. i'm going to do this whether it is good or bad for your statement about falling into a recession. fact is, some he had to take china on. but i like doing it because i had to do it. we really need a fed cut right. if you look at what is going on with the european union as an example, take a look at germany

and what they are doing, they are actually doing something nobody has ever seen before. we have to keep up to an extent. francine: that was president trump talking recession fears. now let's get back to brexit. the eu has poured cold water on boris johnson's attempt to renegotiate the brexit deal. it says the irish backstop is a vital part of the agreement. the two sides deadlocked, the premise or heads to berlin and to meet emmanuel macron tomorrow. still with us are our guests. , let'sgo back to you start with the political stuff and go to the market. what do you think will be able to be renegotiated, if anything? what is the word from brussels? i read the letter carefully

and it is an explanation for the problem. does not offer any solution. it talks of the creative solution for ireland. while this discussion has been ongoing for several years and the only thing the negotiating partners could come up with was the backstop. so in the end, if he says he does not impose border patrols, the eu will have to do it. otherwise, integrity of the will be violated in that sense, unless you have the backstop or another solution , she does not always say what it would be, there will be basically a hard border and it is therefore dishonest in that sense that we don't want a border but don't have a solution

for the problem. francine: do you know if brussels, it's not an alternative to the backstop. it could be something boris johnson could sign up to. >> brussels has weighed all the options, but i do not think there is a lot of willingness to consider many other options. i think there has been an attempt to do this. at this stage, the machinery is locked and everyone has more or less agreed on this. the moment where we might see reconsideration is basically in the european council when it is the time to blank for both sides. as a market participant, you have to make a bold call. you either bet that there is a

and on the words from mr. johnson or you ignore it, saying there will be a repricing of assets. >> that is what we are doing. when we look at the pound and those yields, there is little to be said. there is one place where we feel the premium is to elevated -- too elevated. the capital buffer of these banks is relatively large, even in the case of a bad outcome. francine: is the market positioned for no deal? andf you look at the pound the cell value, you would probably conclude we are pretty much there. the consensus is that it will be no deal at some kind of agreement to avoid economic disruption.

that is probably the consensus. there's also a possible snap election in november. but i feel that the no deal is probably the best -- base case scenario. francine: when we look at what ,appens through a european lens what are the questions we need to ask ourselves? is it whether we trust the government whether we will suffer more than the u.k.? it is clear that a no deal would be a very bad outcome. i think that history will certainly say no deal is also to be blamed on the eu, primarily on the u.k., but also the eu. people look at this quite carefully at what is also clear is that, for the eu, it is impossible to just give it to

the new prime minister who is very much remembered in brussels as a person who has been gaming and unreliable in his reporting. and so i think there is not a lot of sympathy for this government at this stage. in the end, there might be an agreement among the 27 leaders to push it to the brink. i quite like the idea of perhaps deal fora technical avoiding -- finding a deal for avoiding catastrophe. the european council in the middle of october will be crucial. francine: thank you. coming up, as world leaders start to pack their bags, we

will stay with the geopolitics and what to expect from this weekend. we seehe first time president trump and boris johnson head-to-head. this is bloomberg. ♪

francine: this is "bloomberg surveillance." let's stay with geopolitics and discuss the g7. had of this two-day gathering in france, president trump says he is open to considering remitting russia.

meanwhile, the u.s.-trade war and tensions with iran subjects likely to be focused on. still with us are our guests. tryingf all, if you are to protect yourself or hedge yourself against some of these concerns and the numerous wells of worry, where do you go? 's treasury still the right haven? -- is treasury still the right haven? >> yes, it remains our favorite. these are yields that can still go lower, where some are already in negative territory. generally, it is just quality. quality has to be the overarching theme of a portfolio. temptation for junk. course, people are in the search and hunt for yields.

sometimes needing to make bets that are relatively debatable. francine: if you look at the g7, is there a pairing of world leaders to look at? is it boris johnson and trump or boris johnson and angela merkel? the dynamics of such a summit are difficult to predict. notabley, what is quite is that the so-called anglo-saxon world, boris johnson and donald trump, in a sense, are quite apart from the other five in terms of what they think is right. francine: thank you so much. from the couldn't be prouders

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calls it quits, it's up to the president to decide whether new elections need to be called. investors are hoping jay powell will signal a deep cuts when he speaks at jackson hole, but could he suffered a messaging misstep? -- suffer a messaging misstep? donald trump meet with angela merkel -- boris johnson meets with angela merkel, can he make any progress? let's check in on today's biggest stock movers. annmarie: we have some auto news. renault and fiat are both higher. report from a a local italian newspaper saying that talks between the two companies never stopped. they're still in contact, a reporter citing people well-informed with the minor -- the matter. telworld isld -- hos

down, saying the 2019 outcome will be well below 2018, citing a competitive market. francine: thanks so much. let's get the latest on hong kong. for all the tumbled since the protests got underway, the countdown to a crucial anniversary makes the next six weeks particularly sensitive. the 70th anniversary of the people's republic of china will feature a military parade by beijing. that has raised fears that xi jinping will try to get hong kong under control to avoid protests stealing the headlines. for more on that, let's get straight to our government editor in hong kong. china has confirmed they have detained a staff member. what do we know about the incident? this has been transfixing the city for the last couple of days. this consulate worker traveled to the mainland, something people do all the time.

he was messaging his girlfriend on the train and on the way back. and then he was never heard from again. his family filed a missing persons replaced -- complaint. now, the foreign ministry has confirmed he has been detained. obviously, this brings back memories of the mysteriously detained canadians. people are still trying to figure out the details. whether this could be some sort of political message to the u.k. , which has spoken out quite strongly on the hong kong .rotest and police tactics at the moment, we know he is detained. we only know it was an administrative detention and that he has been detained for about 15 days. give some about five days left. -- gives him about five days

left. francine: what's next in hong kong? >> there are a few more protests over the weekend. it is unclear how big it will be , especially compared to sunday, which was 7 million people. so does unclear if there is anything of that scale. anything overdramatic. francine: thank you very much, ian marlowe. let's get straight to bloomberg first word news. >> italy's president must decide the future of the prime minister. conte could return as premier, but it is clear from his testimony that the alliance with details of the name is dead -- with matteo salvini is dead.

the eu is pouring cold water on boris johnson's attempt to renegotiate the brexit deal. it says the so-called backstop to prevent a hard border is a vital part of the agreement. it means that with just over two months until britain crashes out, the two sides are completely deadlocked. the u.k. may delay naming the next bank of england governor until after brexit. they also postponed the budget until 2020 if the government is forced into a general election. at the end of january, mark carney is scheduled to step down. he has twice extended his tenure to provide continuity during the split from the eu. norway's $1 trillion wealth fund rose in the second quarter, gaining $28 billion amidst market turmoil. it drove equities lower. the fund holds a .4% of global holds $67 billion of

negative yielding bonds >>. -- bonds. spider-man's place in the marvel universe is facing a bigger threat than thanos. according to the deadline website, disney wants a 50% share of profits going for the -- forward. sony wants to keep the current arrangement. disney gets 5% of box office revenue. global news, 24 hours a day on air, on tictoc, and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine? francine: from wall street to the white house, hopes are high that jay powell kickoff the jackson hole symposium with a speech that signals he is revving up a series of rate cuts. there are also fears he is wildly out of tune with expectations. president trump is deflecting criticism that it is his trade war that is up to the risk of recession.

>> i am doing this whether it is good or bad for your statement about a recession. fact is, some of the had to take china on. i like doing it because i have to. francine: still with us, our guests. when you look at the yield curve inversion, what was it? an impending recession, a quirk in the markets? it is sending the right signal. i don't buy the argument it is different, because it never is. if you look at the correlation, it is exactly what has been for 20 years. it is signaling something that is not good. that does not imply recession necessarily, but it implies risk is high. if the curve is right, you will have much higher volatility and

the s&p being down a similar levels. it will be very dangerous to say this time is different and not to worry is there are reasons to be cautious, especially for next year. francine: do you agree? >> it depends on the definition of recession. in many ways, company earnings are already flirting with recession. is with financial conditions easing that much, will that saved the day? -- save the day? this will decide easing financial conditions will save the day were not. -- or not. francine: what are you expecting from jay powell? the last news conference was strange because it was unclear if he was dovish or not. yes, this midcycle adjustment was not very well taken by the market, so whether you are peace

that or not remains to be seen. far, if fed seekers were not that dovish. but given what has been priced in, that is a partnership to land -- harder ship to land. workers are extremely sensitive. we've seen markets go up despite a earnings recession, and therefore, everything relies on lower global rates. francine: are we at the limit of what central banks can do? that therelem is have -- they have more than 100 basis points priced in. so it is difficult to make the point that suggests a midcycle slowdown. if they do note, cut, the dollar goes higher and we get problems anyway. he is forced to cut and away way but it would not be as dovish as the markets expect because the

economy seems to be doing ok and inflation seems to be stabilizing. so it can be dovish, but they have to give something to markets, otherwise the expectation will be a big problem for equity markets. francine: what is the probability of treasuries going negative? what needs to happen? know, there is still a long way before we get there. we still don't think the fed has embraced the idea of negative interest rates. there has to be a continuation of some kind of inversion because risk aversion is so incredible. , thingshe situation like gold or other things with a negative interest rate could be more attractive. francine: thank you both. up, a 30 year bond with a negative yield.

we discussed germany's historic bund auction. that story next. this is bloomberg.

francine: this is "bloomberg surveillance." but get straight to your bloomberg business flash in new york city. the eu is already probing facebook's cryptocurrency project. the antitrust probe is looking at concerns the system could unfairly shut out rivals. facebook and the european commission both declined to comment on the investigation. goldman sachs is conducting preparatory work for saudi aramco's blockbuster ipo.

the work is ahead of any formal fixing process to secure a role in the offerings. some banks have charged lower fees or even work for free on specific projects. a breakdown in communication, that is what a review of boeing's 737 certification is expected to site, following revelations regulators did not understand key design elements. the panel has that found evidence regulations were not followed, but says it highlights the need for improvement. that is your bloomberg business flash, francine. francine: germany is offering investors chance to buy a peace boonesory it is offering with a 0% coupon, testing continue to demand for haven assets -- continued demand for haven assets. still with us are our guests. i'm not sure owning a peace of

history is a good selling point your clients. what happens to bunds overall? nobody told us about this at school, it just shows that the savings glut is enormous. the fact that nobody sees the possibility of the ecb raising rates in the long-term. therefore, we are getting those, and despite negative yields, owning a boones has been extremely lucrative -- owning bunds has been extremely lucrative. the auction is likely to go well , and until we see clear skies, it will remain negative. francine: where do you see this going? are we negative for long? -> there must be a limits -

limit. it is very difficult to say. what i know is that you normally by bonds for the income. if it is negative, bonds become a speculative asset. it becomes a completely different asset class. course, the sexually not bad. -- and this is actually not bad. i think there is really no value -0.5o buy anything that is because i think there is no value. francine: what christine lagarde be worried -- would christine lagarde be worried about these negative yields in germany? is there anything she can do to try and help? >> not much, really. she has to bet on the fiscal weapon, the one that needs to be used. and certainly, there are signals or little hints. , the new monetary is becoming fiscal around the world.

even in the u.s., trump has been floating certain test balloons. this is the way we are going to go. later, we might be surprised by inflation. the pendulum will swing from one way to the other. cutting rates for the ecb's, it doesn't make any sense. 10 basis points won't make any difference. tltro's would maybe be more appropriate. cutting rates, i don't see what kind of impact there can be, but again, we have to see what lagarde will do. i do think it will be very different than what we have seen before. so i don't think we should expect anything dramatic. francine: how much of a worry is that? and if she is not going to do anything radical, where does

this leave us in 18 months? >> they'll be at least some kind of fiscal package. is going to make a big difference? definitely, ecb and the current .ituation at the end of the day, bank lending is quite strong. it is more on the fiscal side where there is more production. francine: will they do something on fiscal? we had, for the first time, the finance minister saying they have earmarked billions. but they also need to balance the budget. so if they start spending fiscally, does that change investment opportunities? >> it could. it seems they are not really ready to do it. sadly, it might come to light. but the -- too late.

i think the germans should sort of ease up a little bit on the concept. is aa small fiscal package big change. investors out of waiting for germany to become more physically active, if that's the case, european assets will be re-raised. regardless of the impact it will have on the european economy. francine: where do you see value? in this kind of strange environment, what do you tell your clients they should be putting money in? i suppose that when it comes to fixed income, especially for european investors trying to escape those yields. it would mean your s -- u.s. treasury's are more desirable.

quality credit unsecured has couldn't and quality equity, , these the tech industry type of assets. francine: what about you? >> i would not call emerging markets a safe haven, but beyond the area where there is upside, yields are still relatively high. i expect the dollars to peak. i think there is value on some emerging markets. in terms of equity markets, it is difficult to find. but i have to say, the cyclical value stocks, they start to look quite interesting. obviously, has only based on the assumption that will not be a deep recession. cyclical value and energy material the start to dwarf some valuations. francine: what do you do with jgb's.

what do you do with japan right now? >> pretty neutral and not much heavy positioning their. and it canattractive have some attraction in terms of carrie. -- carry. a criticalng at juncture on the tenure around -20 with the boj delivering. they are the last of the letter and waiting for clues from the fed and ecb. francine: thank you both for joining us. geraldine from pimco and luca. next, more frustration for facebook. european union regulators are probing the social networks k'sital currency -- wor digital currency.

that's up next. this is bloomberg. ♪

francine: economics, finance,

politics, this is "bloomberg surveillance." antitrust regulators in the european union are looking into facebook's digital currency. the currency has not yet launched but has regulators concerned. according to documents seen by bloomberg, the european commission is investigating potential anticompetitive hader. -- behavior. facebook was grilled on capitol hill about plans. joining us is our cryptocurrency reporter. first of all, thanks for joining us. i was asking you how we should look at the split a story -- the latest story, you told the this regulator matters. they have been very serious about looking at cryptocurrencies. >> the antitrust authorities in europe have taken big tech to task. fined googleeady

billions and looking to apple and amazon. been before already congress and the whole litany have already critiqued libre and poured ice on it. but these guys, you take them very seriously. i bet and facebook hq, they are .ervous about this they have had every regular under the sun scrutinizing it and they have said we will not launch until everyone is satisfied and we have placated all concerns. will be aat monumental challenge to thread the needle on all of that stuff and make everybody happy. there is a question of whether that will ever get off the ground. you can't make everyone happy with that is a fact of life. facebook is already starting to see that and they will be realizing that in the months to come. francine: very quickly, has bitcoin proved itself a strong store of value? libre has become a whipping

boy for curto currencies -- cryptocurrencies. all of the flack has been poured entirely upon libre and has left bitcoin escaping scrutiny. not be controlled by a central organization or authority, can't really be shut down. in some ways, it is a much better system. in terms of value, that remains to be seen. but more and more are talking about it as digital gold. so it is no use for payments because it's way too volatile, but maybe as an equivalent to gold. francine: thanks so much, we will have plenty more on bitcoin anthony brown. this -- and libra. this is bloomberg. ♪

toncine: to the president

decide whether new elections need to be called. under pressure investors are hoping jay powell signals deep cuts when he speaks at jackson hole. the u.k. prime minister heads to berlin to meet with chancellor merkel but can he make any progress on a new brexit deal? good good morning and good afternoon if you're watching from asia. i'm francine laqua. i was kind of thinking about our editorial and what we are covering. our wall oflls worries when it comes to geopolitics into two days of president trump, from mr. boris johnson. scarlet: our guests this week have all commented,

emerging-market portfolio manager, about how their jobs have been brought into include political analysis. i feel like our jobs have done that as well. intricacies of italian politics staying on top of president trump's tweets, now we are going to be dissecting the g7 results in interpreting what it could mean for the global economy going forward. francine: if you are jay powell you are dancing around the issue trying to figure out exactly what the trade war brings. denmark is not interested in discussing how the u.s. can by greenland. president donald trump delayed a planned meeting with the danish prime minister. the president was scheduled to make a state visit to denmark. he said selling greenland could ease a financial burden on the danes. president trump says he can order a capital gains tax cut

without congressional approval. the president would do that -- it is a move that would largely benefit the wealthy and the foundation says it would do very little to spur economic growth. it could also lead to a court battle. itda -- china informing retained a member of the -- beijing calling the issue in internal chinese matter. in october. global news 24 hours a day on air and on tic toc at twitter powered by more than 2700 journalists and analysts in more than 120 countries.

this is bloomberg. ofrlet: let's get a check where markets stand now because currently u.s. futures, s&p futures are at their session highs. this could mean a recovery from yesterday's decline which was the first in four days after the president showed no urgency in resolving his china trade war. we will get the minutes from the the fed meeting best-performing major european of 1.7%. italy, we discuss more on the road ahead for the italian government whether elections will be held as well, called that is. keep an eye on the german 30 year bund. about 30 minutes the best a long bond at negative yield. the yen falling versus

currencies. francine: when it comes to data, it's a similar data check to yours. if you look at european bonds, they declined european debt -- italian debt rising for a second day after the prime minister resigns. we don't know whether we will have elections. the overarching theme on italy is actually a lot of events -- the next government could be worse than we had so far. i'm not sure that's true but that is a conviction in the markets today. treasury yields higher after retreating yesterday and because donald trump seems to be showing no urgency to resolve trade friction with china we need to look at what jay powell does and how he tiptoes around that. scarlet: as we look ahead to jackson hole and g7, we are casting a weary eye across stocks and bonds. , theility, this is the vix

blue line, and the white line is bonds. you can see at was a sleepy july and things perked up in august let's come back down. strategists say the recent decline looks overdone because the fed and others will lead to a pickup. they say they see volatility no matter what path the fed chooses. francine: i have a simple but effective chart when it looks at the spread between italian bdp's .nd bunds a lot of people saying what we heard yesterday from the prime minister could lead to various options including the president giving five-star more time to talk. blaming his deputy -- after just over a year on the job the former academic signed in his resignation to the president last night accusing sally

irresponsible rebellion. with the biggest political parties start tomorrow. ,oining us head of fx strategy -- thank you both for joining us. i'm a little unclear on why the market is taking this is positive news. do they think because we had such a strange coalition where they did not have much in common what comes next will make more sense? or is it because they don't know what the economic agenda of either party is? >> i think the latter. the factor may be the belief there is the chance of this five-star government being put together, being potentially more responsible. messy, veryery uncertain. we have two scenarios in front of us. election before the end of the

year which would be the case or -- an agenda to postpone until the spring of next year i don't think they can go further than that. to be a: there seems belief in the market that because we've had -- >> 65 governments. francine:francine: in all of that many years. it means nothing can really come up that badly on italian politics but then italian politics is frequently been a thorn in the side of euros on politics and i think the fact that we are seeing market reaction today, albeit one of relief because they think perhaps we are not going to get budget conflict in the near term suggests there is room for disappointment if we do have more of a conflict in the next few months.

clearly there would be a market reaction or there is a market reaction. it is difficult to have this unfold over the next six months without it having some sort of impact on investor sentiment and potentially the euro. scarlet: i want to go back to the chart francine showed earlier the italian bond spread to the boland. we got this huge surge last summer when the lead in the five-star form the coalitions but the exit of salvini barely registers. wire investors under reacting this time? people just aren't around jane:e it is summer? jane: there is this perception that the ecb is waiting on the sidelines in terms of policy support and that really takes the edge off some of the potential for the news to impact of the market.

for prime market focus september. what is the ecb going to do in terms of its policy? perhaps diluting some of this impact we could see further down .he line scarlet: what do potential leaders -- keep it in their back pocket as a thing that will save them? wolfango: i'm not even sure salvini knows what ecb is or what it does. the ecb ish jane, providing this backdrop and allowing politicians to play the way in which they want to play without paying the price for it. the risk here is quantitative easing, going to give three parts to these politicians who

are willing to push things to the limit i think if salvini comes back as prime minister on the fiscal side it would push very hard. .he package of 50 billion euros he forgot to indicate where the zeros will come from. i guess it is irrelevant when you are in election campaign. that is the risk of monetary backdrop makes politics worse than it is. francine:francine: when you look at the real concerns, the idea of parallel currency to the euro with certain advisors put in -- if he is is this in charge as prime minister, how many of these extreme ideas could come to the forefront to mark wolfango: i don't think the ideas will come during the election campaign because they

realize actually talking about nervous makes voters and the popularity of the euro in the last 12 months in italy has gone up whereas the popularity of the european union has gone down. the characters who are now just -- the liket could to attract media headlines. will they really make a push for it? i doubt but it's not going to disappear from the agenda. up later todayg on bloomberg exclusive interview with peter altemeyer. that interview, exclusive. this is bloomberg. ♪

it is a word that certain people, i'm going to be kind, are going to build up. i'm doing this whether it is good or bad for your statement about when we fall into a recession for two months. somebody had to take -- my like would -- my life would be a lot easier if i did not take china on but i like doing it. rate.lly need a fed cut if you look at what's going on with the european union as an example, they are cutting. take a look at germany, what they are paying, they are doing something in verse. nobody has ever seen it before.

that was president trump talking about the trade war with china and fed rate cuts. jayeyes right now are on powell, his speech at jackson hole this week. investors hoping to gain clues about the central banks next minutesh july fomc released later today. you. let me turn to before we get to jay powell we will get the fomc minutes. they are outdated but they may provide clarity on where the central bank had was when they decided to cut rates. what do you expect to learn about powell's comments on midcycle adjustment? jane: taking the minutes as a whole, i'm a little wary. on,market today, risk is yet we do know at this meeting not every member voted for an interest rate cut. there is the possibility that the market might focus on that

first of all in terms of a predictor. did signal the rate cut that we had before was not the start of a more progressive interest rate cut in cycles. i think there is the possibility that we might be disappointed possibility that we might be disappointed overall.

perhaps worse overall than the data from the u.s. the market has very much focused on the fed, the interest rate cuts, the outlook for the u.s. dollar.

this is a dream. you have 700 states, huge political problem, people who have not worked together like president trump and boris johnson. what is the most likely double act he will be watching out for? >> it will be the debate over russia, whether they will be allowed back in.

i think we will got -- get the same we got at the last g7 meeting. francine: wolfango: the possibility. it is only the possibility, speculating on the initial meeting -- there is enough on indicate --o scarlet: francine mention president trump. anyone else could come out of this worse? sending somebody has just resigned. juncker is not well. boris johnson it's the first time he is there.

it is not a particular -- i think putin will be looking at these from outside and wonder whether he will be allowed back . scarlet: as president trump suggests putin allowed back in the g7 one country you could make an argument that should be there is china. let's just say hypothetically, how would that change things up how would that change the tenor of discussions? wolfango: i think they would put think fromda -- i the chinese perspective the first one would be to make the there is not a currency war. they will sell that kind of point. they will raise the issue of trade. these kinds of topics from the

chinese perspective. in terms of one divisive point, would be taxation to digital companies. we have seen trump take in a fairly aggressive stance on that. on europe -- in europe this issue is politically salient. that could be another divisive issue. who francine: has a currency problem along the g7? jane: i would say it is the u.s.. they don't want the strong dollar. francine:francine: i would love to see the g7 leaders talking about currency dynamics maybe with a couple of deviation charts. exit, next. -- ♪ ♪

♪ , this isgood morning bloomberg "surveillance." we are dwaiting the german 30 year bun

sales, the world's largest auction for a negative yielding bond. viviana: china wants to reshape global narrative over the protests in hong kong, beijing sending a lengthy letter outlining its case. the chinese government refers to "violent activities that are aimed to trample the rule of law." protesters say they are seeking more democracy. who voteump says jews for democrats are big new rent or disloyal, his remark after two democratic congresswomen were blocked from entering israel. back democratic candidates. boris johnson is rallying support for george osborne to

become the next head of the imf. he will urge president trump to back the bid. wayu.k. objects to the other e.u. countries dominated for the imf job. 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: germany offering investors the chance for a piece of history today, offering a 30 0% for the first time. by richard jones. i feel like we are selling it that you buy a piece of the berlin wall or the negative yielding bond from germany. who would buy it? richard: everybody who has been

buying german bonds up until now and driving the record low yields will be the buyers of bunds going forward. one third of german bond issuance ends up in the bundesbank portfolio because of the reinvestment from the qe program. you will get qe ramped up again from the ecb and that will be a big buyer of german debt. german institutional investors are not mandated but have to buy highly liquid bonds and they have a home bias so they will continue to be buyers. that combination will probably keep demand reasonably high, at least as high as it has been. that is taking us to record low yields already. francine: germany selling the 30 zero point -- minus

zero point 10. richard: i think the ecb will cut right and reinstate qe. even through reinvestment, we will get one third of german bond issuance ending up with the bund's bank. it is entered -- bund's bank. -- bundesbank. scarlet: buyers are the same ones who have driven the yields to record lows. are there overseas investors putting money into german bonds? richard: there probably are, but you are looking at the more domestic investors, central banks and local german institutional investors as the main buyers. that makes more sense. it is difficult to take on the fx risk and negative yield as a

foreign investor. there will be foreign demand for safe havens but mostly by german domestics. scarlet: richard jones, thank you so much. bondny selling the 30 year at -.011%. -.11%. we keep hearing there is a shortage of german bunds. are we able to quantify how much of a factor that is in driving yields to record lows? jane: it is difficult to be precise, but this is a function of the demand for safe haven asset and a function that the global investor is concerned about the fate of the global outlook, the economy, but also the german economy. the negative print and the second quarter for gdp growth,

there is the possibility we could see that in the third quarter. ,n the economic backdrop clearly is supportive of this movement into safe haven and if we woke up in a month or two with much stronger expectations for the global and german economies, this would be a different dynamic. the way the economic backdrop is now, there is every possibility the yields drop lower. francine: breaking news out of mr. khan who was in charge of wealth management and then quit. ubs is in talks to hire the x credit suisse-- e banker -- x credit suisse banker. ubs is an advanced talks to hire

him. let's get back to the 30 year bund. no 30 year bond has ever sold at subzero yield. what does this mean from where we are right now in the global economy? becoming that it is more and more strange, if not utterly mad. we are talking about central banks during the same thing they did before and it did not really work. there are talks about fiscal stimulus coming. i don't think there is one coming in europe. i cannot comment on the u.s. it shows how the world story is becoming stranger and stranger, and meanwhile the politics is becoming more complicated. the only thing central bankers can give us this time, but it is

not being used to fix the problems. francine: what is the real possibility we find ourselves in negative yields in the u.s.? lookinge u.s. is still at an interest rate differential that if we were to get to negative yields, we are looking at a horrible backdrop for the global economy. i think that question will be easier to answer in six or nine months. is, how badtion will things become over that nine months and what can be done to prevent the global downturn from worsening? wars,swer would be trade we need to recognize this is not all about tariffs. there is a deep-rooted suspicion on both sides of the house about

china as an economic and military parity -- power, suggesting tensions will persist. that is not good news for the global economy. you have trade tensions between japan and the u.s. that have not been fixed and tensions between europe and the u.s. there is a lot to worry about. while i am not seeing particular negative interest rates for the u.s., the yield could certainly go lower. scarlet: yields going lower, should that alarm your clients in how they deploy resources in different countries, say in parts of europe and the u.s., in the long term decisions they make? wolfango: that has been the case a long time. canhave seen investors who and who are allowed by their for new to look

investment opportunities in countries that until recently were considered off-limits. you have seen a huge issuance from african countries in terms of dollars-euro. frontier markets becoming more interesting. theryou look at the returns, the tariffs. maybe they underplayed the politics, regional politics, domestic politics, and sometimes there are nasty surprises. certainly there is a drive to look for a new destination. my recommendation would be to pay attention to the local condition and pay attention to the politics of that. scarlet: wolfango piccoli sticks with us, along with jane foley.

coming up, and exclusive interview with germany's minister of economic affairs and ministry -- this is bloomberg. ♪

francine: this is bloomberg "surveillance." the e.u. has poured cold water on boris johnson's attempt to renegotiate the exit deal, saying the irish backstop is vital. the u.k. prime minister heads to thein today and will ask president and france tomorrow. jane foley and wolfango piccoli are still with us. what is priced into pound level?

i keep hearing 70% probability of no deal brexit. jane: i don't think so. the bookies are little bit different for what is priced into the market. they are a little bit higher. they are suggesting a 60% chance of hard brexit. by aarket is swayed consensus among forecasters which has been the we could still get another delay. that is something which would almost certainly bring down boris johnson, something he has pushed hard against. september will be a telling month. parliament comes back in early september and we have the potential tabling of a confidence vote. volatility in terms of sterling, and on the politics, and which way will it go before the october 31 brexit date?

nothing is ever certain in politics, but you could argue that boris johnson is preparing for an election and the question is whether this comes before or after no deal. wolfango: i think it is about that. the consent is about this election campaign. it was not time to negotiate. it was a moment of grandstanding saying we need an alternative to the backstop. nobody should trust boris johnson on anything. i agree with jane, september is interesting. the two weeks between the european council in october and the 31st, that is when boris johnson will go to brussels and realized the counterparts are not willing to budge, and in those two weeks he will decide whether he goes for an election -- more election

campaigning, no real substance. talk is cheap. grandstanding of and there will be plenty of that at g7. how does boris johnson exploit differences between wolfango: i don't think there will be significant differences between the two of them. merkel will get a very corneal chat at the inner but i'd -- ial chat atcord dinner but not much about brexit. will be not there much at all to listen. the same will be with macron. the line of trying to do this

dividing, they tried it before and it failed miserably. given the prime minister of the u.k., the chances of this to succeed are lower than they were with theresa may. scarlet: very quickly to jane, the u.k. may delay naming the next boe governor until after brexit. does that affect mark carney's ability to guide monetary policy? ofe: i would say the bank england and carney are restrained anyway. we may not get a smooth brexit. they cannot base their forecast on the risk of an unruly outcome. he is already constrained but from the market perspective we will have some consistency. francine: thank you both. both stay with us. as there dropping

oversubscription rate is falling out a 30 year debt seo. -- debt seo. sale. just a couple of weeks ago. we will have plenty more on these negative yields. this is bloomberg. ♪

♪ viviana: this is bloomberg "surveillance." walmart is suing tesla over fires linked to solar panel systems. panelse installing solar on hundreds of stores which led to multiple fires. walmart accuses tesla of failing to live up to its standards. the cinematic future of one of marvel's most loved characters is in the air. -- disney to end is wants a much bigger share of the profit. that is your bloomberg business flash. scarlet: let's head to hong

kong. the next six weeks are important, a crucial anniversary is coming, the 70th anniversary of the founding of the people's republic of china. marlowe fromn ian hong kong. the hong kong dutch the anniversary -- the anniversary is coming soon and a lot of students will be heading back to school. is there an expectation as the school year begins, the protests will wind down? ian: i think everyone thought that during the summer, this was the summer of unrest and everyone in the rallies, there is a huge range of ages but analysts are saying as the school year approached students would go back to class.

when we spoke to people, they said they are going to start strikes at school and they are not just going to do citizens on campus. they are going to -- sit ins on campus. they are going to join main protests in hong kong. this does not look like it wind down as quickly -- like it will wind down as quickly as the government hoped. francine: china confirmed a u.k. consulate staffer in hong kong was detained. how worrying is this? we are trying to figure out what this means. his family had to file a missing persons file. iain: i think everyone is searching for more details. it is unclear what happened. what we know is that china confirmed they had this man in detention. he is an employee of the u.k.

consulate. there are some reports he has an overseas u.k. passport but china does not recognize dual nationals, so they are treating this as an internal matter. they say he is a hong kong citizen and this has set off alarm bells in the city. this is a place where booksellers have gone missing and rumors of people being swept into vans. that was before this protest movement about an extradition bill. the cases highlighting the concerns people in hong kong natureout the mysterious of the criminal justice system in mainland china. francine: thank you so much. let's get back to jane foley and wolfango piccoli. this is something that has kept markets on edge. looking at how the protests evolve and china responds, we now have mitch mcconnell writing

an opinion piece. are we none the wiser about what happens? do we follow it day by day or is there a course we could take? wolfango: i don't think you can trace a course here. it is day by day. there will be potentially attempts by china to reduce the number of people on the streets. 50 will kick in eventually and the numbers will dwindle -- fatigue will kick in eventually and the numbers will dwindle but it is difficult to know what will happen next. we have seen protests in the past and generally they arrest of the u.k. consulate is a mistake by the chinese. more of thelights concerns about the protesters about the rule of law and justice system. scarlet: we have shown a list of demands that the protesters have

made. carrie lam did come out and offer a little bit of an olive branch. how long will beijing keep her in place before yanking her? wolfango: i don't think i can let her go as long as we have people on the streets, and then there will be eventually some sort of delayed exit. for the time being, i don't think she's going to move anytime soon. protesting, that will be a huge blow. is this just going to be more volatility for currency markets until this is resolved? jane: possibly. given the bad news we have, this is a significant global concern. looking at the international ofticism, i agree the arrest the u.k. national is in a mistake.

there were chinese troops at the border and some of the international press was concerned about china's reaction to the protesters. there has been a lot of reactions intheir the 1960's and the 1980's, so there is a significant amount of criticism waiting to happen against china if they were to react too firmly. francine: thank you both for joining us. coming up, we speak with the talk fargo security -- we dollar, pound, and the german bund auction. this is bloomberg. ♪

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prime minister calling it twitch rally.s, but -- btp's investors are helping the fed chair will signal deep cuts when he speaks at jackson hole. the u.k. prime minister heads to berlin to mate with angela merkel -- meet with angela merkel. can they make progress in a brexit deal? this is bloomberg "surveillance." when you look at what markets are expecting from the fed, one of the big worries, we had the german bond auction. the thirty-year negative yield, never anything like it. then you look at jay powell and what he can say. do you wonder that markets are putting too much on his speech? scarlet: that seems to be the consensus, arc it's will be disappointed whichever way --

markets will be disappointed whichever way jay powell plays it. have plenty will more on jackson hole and treasuries. denmark is not interested in discussing how the u.s. can buy greenland, so donald trump canceled estate is it next month. greenland is part of the kingdom of denmark and the site of a u.s. military base. the minister called the idea of buying greenland absurd. the president says he can order capital gains cut without congressional approval. it is a move that would largely benefit the wealthy. wouldx foundation says it do little to spur economic growth, and would probably lead to a court battle.

an employee of the british consulate in hong kong. beijing calling the issue an internal chinese matter and not a diplomatic dispute, describing cheng as a hong kong citizen. in adelaide, the prime minister -- italy, the prime minister will decide if -- still has a career. canill decide if conte return as the head of another majority and whether elections can take place in october. 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. scarlet: breaking news from lowe's, the home-improvement retailer coming out with second versus eps of $2.14

$1.86 the year before. beating consensus estimate by $.14. sales gaining 2.3%. they reaffirmed their full-year adjusted eps outlook and shares move higher in the premarket. lowe's and perhaps retailers. looking at gains overall for futures, pointing to a higher open after the s&p 500 closed yesterday for the first time in four days. we are awaiting the fed and its. -- minutes. the best performing market now is italy, and despite a weaker than expected german bund auction which investors look at as a safe haven. francine: but debt and ed away is rising the prime minister --

hire treasury yields after retreating yesterday. what everyone is on edge about is what jay powell will say at jackson hole and what donald trump will do after he showed no urgency to resolve trade friction with china. scarlet: you put that altogether along with the minutes in the , certainlymeeting the speech on friday will be highly anticipated, and hopes are high he will kick off with a signal he is revving for a series of rate cuts. there are fears he could be wildly out of tune with market expectations. joining us now is nick bennenbroek. the futures market calling for the fed to cut rates 50 basis points and possibly 75 before year-end. does the data justify this? nick: probably not yet.

inflation data is holding up well even if growth data is going down more slowly. we might see growth even slower. in, we forecast one rate cut september but i would not rule out the possibility of another one at year-end. pressing jayle are powell to clarify what made policy adjustment means. what is your take on what it means? nick: that is the real question. i think he might walk that back. the topic is challenges to monetary policy and he signaled a cut. maybe adjusters need it because of the uncertainty. what we are trying to get is an orange light, not red or green. it is not predetermined in the downwards direction.

francine: is there not a danger an orange light is confusing for everyone? nick: possibly. signal a near cut and then signal we are open to developments. openwant to leave the door but do not necessarily want to push us through it. say we willlear to cut if needed. francine: at the moment, is there a concern the markets are pushing the fed to take action and is it something jay powell would not take do? and theat is a concern federal reserve and mr. powell has not pushed back strongly against market expectations. it would be quite a bit of concern about pushing back too strongly.

historically, the federal reserve has largely validated where the market has anticipated things happening. scarlet: if the market is satisfied and so many observers made the observation it is supposed to be dissatisfied, what will that due to the price action in yield curve? nick: maybe the short-term yields will move higher, and the long term, but you have the risk of inversion which the federal reserve is not happy to see. pre-christmask to where there was volatility, and strength and the dollar. most of the action would not be so much in the currency markets. the dollar would be stronger, but more of a shock for equities and bonds. scarlet: what would it mean in terms of demand for safe haven currencies? nick: the yen in particular would do well. it is the strongest performing

currency this year. it has been a consistent safe haven. the swiss franc may be, maybe not. there are indications the swiss national bank is stepping up its foreign exchange intervention. we would be inclined to stay long yen. francine: what does everything mean for the swiss franc? is it impossible to defend? will we have a change in haven status? nick: it is impossible to defend forever, as we found out 124 ony when they hit the swiss franc. i think the swiss national bank will try to slow the appreciation on the swiss franc against the euro and that is the key currency they are looking at, not the swiss franc against the dollar. ais is an area that has been

point of sensitivity before. we will see ongoing intervention likely from the swiss national bank. we will see at stabilizing at the 108 range. downward pressure on the equities markets, a move is more than likely. scarlet: nick benton berkus stick with thing that this -- ben and burke is sticking with us. k is sticking with us. we will be speaking to esther george in jackson hole, wyoming. this is bloomberg. ♪

♪ this is bloomberg "surveillance." giuseppe conte has quit as prime minister, blaming his deputy. after just over a year, the former academic handed his resignation to the president last night, accusing salvini of rebellion." talks with the biggest political parties start tomorrow. joining us from milan as a bloomberg opinion columnist. when you look at the market reaction, i was a little bit confused why they were taking it so coolly. do they think we will get a five star pd coalition? >> the chances of an election have diminished significantly. last night, in this dramatic

debate, matteo salvini acknowledged there would need to be a little way before an election which may not happen until spring. the league is a bit of an unknown quantity when it comes to its position on the euro. the fact that he is no longer ministerhe next prime in italy may reassure them that italy is not leaving the currency. francine: they are asking what italy will become and if they will fight again with the budget law with russell's or keep in line with what -- brussels or keep in line with what they have done before. italy couldve ways go from here? ferdinando: there were lots of

worries. one,ons with brussels is the economy is stagnating, and germany is on the brink of recession. bankthe european central to provide support for years on bonds and with a government that is not seen as openly confrontational with brussels, traders are taking the view this will not be the rough ride we bondsst year when italian shot up above there euro zone years. -- peers. with all of the challenges that remain, traders have a little bit to be positive. scarlet: i do not know a whole lot on matteo salvini but his stances anti-immigration and he likes campaigning and the beach and is proud of his paunch. what do we know of his take on the economy and how to guide

italy towards a better place? ferdinando: you have read a lot. you have right that -- all the right information. his stance on the economy is one of the most mysterious. recentointed out and a conference, there are two leagues, one that wants lower taxes, does not like immigrants but does not want italy to leave the euro. there is a new league coming up the last few years which is full of euro skeptics who think the euro is a burden on the italian economy. both sides of the party agree there should be lower taxes. i said he wanted at least 60 billion of tax cuts. what happens when the european commission says no and the markets turn against italy? we need to strike a compromise

which is what the league has been doing, and others say we should leave the euro. this tension at the heart of the league can spook markets. matteo salvini has not yet resolved. scarlet: it will be one of the central tensions as we watch this drama unfold. thank you so much. nick bennenbroek is still with us. how much does the italian political drama and machinations play into concerns over the euro? nick: in the past, it has been significant. year was thee last ecb was not thinking about the at that point. the german economy was not doing great but it is doing worse now. even though we might see a small negative, it is certainly not helpful for the euro.

the more significant impact is the fact that the german economy is performing poorly and we have rate cuts and probable bond buying from the ecb. those are more consequential. worries you what the most is germany and negative interest rates, is there anything the ecb can do to stop or mitigate that, and what does that mean for europe? nick: probably not a whole lot they can do. there mandate is price stability. they are way overshooting their target. they are fairly blunt and trying to do their best to prop up the economy. in terms of getting positive interest rates and growth, as we have heard from president draghi many times, it comes down to companies in -- countries in policy, and those who have the space to use it to

support the economy along. francine: nick bennenbroek from wells fargo stays with us. germany's minister of economy affairs and enemy -- energy. we will talk about the imminent risk of recession and countermeasures the government could implement as well as negative yields. this is bloomberg. ♪

♪ this is bloomberg "surveillance." another sign sky high prices and year of recession are having an impact on the housing industry in the u.s. ago others says from a year , purchase agreements fell 3%, worse than expected. orders and california plunge 36%. megaba may launch its share sale in hong kong as soon as october. sharentended to list the but protests in hong kong have resulted in a delay. francine: thank you so much. world leaders pack their bags for the g7 gathering. andhe table, no deal brexit tensions with a round. president trump canceled a state

visit to denmark after his offer to buy greenland was flat out rejected. joining us as kevin cirilli. if you look at the u.k. papers talking about a possible alliance between president trump and boris johnson. in germany it is how president trump reacts to angela merkel. what does he want to achieve at g7? kevin: this is an opportunity for the president to arrive in france and lay out the economic mission of the united states, and reading the global headwind. you mentioned the different situations in europe, and the german economy looks a miss. italians -- mass. -- mess. boris johnson is assuming power in the u.k. and it is a

fascinating dynamic. boris johnson and donald trump, how will they interact on the global stage? lastly, on the issue of global security, how will the countries were gather? with chancellor merkel on her way out, emmanuel macron has to assume a new position within the global ranks. francine: if you had to ask president trump, is he going to try to muster support for huawei sanction or support on iran, or is it diet -- dollar dynamics? kevin: it is a little bit of the last two and last the first one. the president has offered a 90 day reprieve in terms of businesses being able to do business with huawei in the u.s. europe has not followed the united states to lead despite the national security concern.

on the issue of the dollar think thed iran, i administration is going to try to work with the european counterparts to bolster more support and cohesiveness. on trade policy, you look at the members of the g7 that the president has actively fought for new trade deals, virtually all of those nations. scarlet: i cannot let you go without asking you about greenland, the president canceling his meeting with the danish prime minister over her unwillingness to entertain his offer. how important is this or was he looking for an excuse to postpone the meeting? kevin: the united states has a large military base in northern greenland dating back to 1951 following world war ii. the u.s. has a large military presence on that base.

larry kudlow speaking earlier , he said greenland has a lot of minerals and potentially a lot of energy development. it caught everyone off guard. this chatter has caught everyone off guard, the president saying he wants to talk about it and greenland saying they do not want to talk about it. scarlet: kevin cirilli, thank you for talking to us about it. premarket movers in the u.s., lowe's second quarter profits beating estimates. this is "surveillance." ♪

♪ i think the word "recession" is an appropriate because it is just a word that certain people

-- i am going to be kind -- certain people and the media are trying to build up. whether it is good a bad -- good or bad, the fact is somebody had to take china on. my life would be easier if i did not take china on but i like doing it because you have to do it. you have to be proactive. we need a fed cut rate because if you look at the european union as an example, they are cutting. germany, what they are doing and paying, they are doing something inverse nobody has ever seen before. francine: that was president trump talking recession fears, the fed, and the trade war. scarlet: target coming out with results. some people would describe it as a smaller more upscale walmart. target is coming in with second quarter sales that meet analyst

estimates. year-over-year. 30.6%, slightly higher than what analysts were looking for. , target of the outlook sees full-year adjusted eps from $5.90 to $6.20. it does raise its full-year eps guidance, which is pretty much which -- what walmart did also. perhaps walmart's results heralding what target could announce and target living up to those expectations. joe feldman is with us. i know you were pleased with walmart's results. inget is up about 6.4% premarket trading. how much higher did expectations

get after walmart's results? joe: the expectation did reply your. the consensus was a three and people wanted three and a half after walmart, and they just did that. they beat and raised on the eps, very good results. the markets should be pleased. scarlet: beat and raise from target and walmart. the big question is how the trade war will affect target customers who are a little more upscale than walmart. does target have the leverage over its suppliers that walmart does? joe: walmart has a larger scale and purchasing power. to homeas more exposure goods and apparel than walmart. walmart is a bigger grocery business. that will have to be watched in

the second half and into 2020. curious to hear what they have to say about tariffs on the call this morning, because that will have a big impact, the mix of merchandise they have. a lot of it is private label so they can negotiate with vendors better. the broader impact could be tougher for target relative to walmart on tariffs. francine: overall, does target have the ability to charge more for some items? soause walmart has focused much on always lower price tags, it would be more difficult for walmart to raise prices than target. joe: that is fair. in this environment, for any discounter it is hard to raise prices whether it is the dollar stores or walmart and target. target for sure may have more flexibility, given their customer base and given that a

lot of the product is private label and idiosyncratic to target. you can only get it there, so if they adjust prices, it is a little tougher for someone like walmart because they lead with price. they have this price perception they are the lowest and need to maintain that. francine: how much better could they do in terms of digital, selling things in their stores? joe: the digital side has been good for target and walmart. you are seeing a lot of improvement. people mistake digital retail is only just amazon and it is not. growth is happening at target, walmart, costco, home depot. we would expect double digit growth for a while from a lot of these guys. the pick up at the store is a big advantage which drives sales

and traffic. scarlet: joe feldman on target's beat and raise, target shares up 6.5% in premarket shares. first word news. viviana: embattled president nicolas maduro says for months government officials have been hosting secret meetings with would like to and speak directly to donald trump. the trump imposed sanctions on the regime and supports the venezuelan opposition. boris johnson is rallying support for george osborne to become the head of the imf. he will urge president trump to back the bid. the u.k. objecting to the way other e.u. nations nominated someone else for the imf job. china wants to reshape the global narrative over the

protests in hong kong, sending a lengthy letter outlining its take. they refer to "violent activities aimed to trample the rule of law," and link protesters with "foreign forces." 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. ,rancine: for more in hong kong joining us as our bloomberg asia reporter. confirmed at china u.k. staffer has been detained, what do we know? iain: we are waiting for details on what he has been detained for. he is being held under an administration -- administrative detention law which allows china

to keep things -- people up to 15 days. it includes a wide range of and froms -- offenses narcotics possession. he is allowed to be held for up to 15 days, but this is sending off alarm bells in the city because this is a place where people have gone missing before, shuttled into mainland china. china has used detentions of people to send messages. everyone is waiting to see whether this is a political message or someone who got mixed up in the shuffle at a time when everyone in the city is focused on the protests over the extradition law that has been shelved. francine: i think we are also understanding from some hong kong press that carrie lam, the hong kong leader will meet to

discuss a platform for dialogue. is china hoping this will just de-escalate? been --do: there has iain: there has been what some politicians call this golden window of opportunity, a peaceful protest on saturday where 1.7 million people estimated marched through the city. that was a change from the violent protests in recent weeks so people thought this was carrie lam putting out and olive branch. it looks like that may not happen and has been rejected by the protesters who look to continue. there may be school strikes and other things as students and protesters get organized. ui -- let's bring back nick brennan book -- nick

bennenbroek. which the scenario in peg might be under threat because of the ongoing political unrest? nick: you make a good point, it has been around since 1983 and we have seen several try to bet against the peg and it has held. even before the political unrest, the hong kong dollar was at the weaker end. is there a scenario? it is difficult to see one. if the fed cuts interest rates and we have political volatility, i don't think they want to inject market volatility as well so i suspect the peg will remain. as the renminbi weekends, it it will beweakens, easier. francine: nick bennenbroek stays

with us. --next, marianne bartel's mary ann bartels. she joins us next. this is bloomberg. ♪

♪ bloombergthis is "surveillance." let's look at some of the morning movers. this is premarket trade and we are focusing on u.s. retailers. we have lows coming up reaffirming its outlook for the year. comp sales were up 3% as expected. there seems to be a turnaround

that is back on track for lowe's . a similar rise for target after this retailer -- i was trying to figure out how to describe it to the international audience -- retailer it cheap chic -- they are not worried about the trade war, up 7.8%. scarlet: that is why they called target tar-jay. mary ann bartels is joining us. trend youhighlight a pointed out. the 2-10 spread inverted. it is at a hefty 4.5 basis points now. how should investors play the inverted yield curve? line, the the white

energy etf and vgt is the blue line, which covers technology. the purple line is the s&p 500. why would you position with defensive and growth sectors? mary ann: we are looking backwards and saying every time inverted,ield curve how did the sector performed 12 months forward? energy was the bright spot which was a surprise to us. it is up on average 7%. it is the worst performing sector. it has deviated so much from the market that you can get a mean reversion. it is not something we would invest in for the longer term, they mean reversion can happen. if crude oil prices go down, it will not help the sector, but

what has deviated the most and what performs 12 months out is energy. technology is not the best performing, but tech is different. tech is leadership in the market. we are leading to a digital world and we want clients to stay positioned within technology. it can be volatile but 12 months out can perform well. scarlet: you are picking the vanguard etf as opposed to the -- you need to look under the hood at all of these etf's. why would you pick vgt instead of xlk? mary ann: our model is the etf on etf's. we look at e which is efficiency, f is fundamentals. that is how our analysts are

rating the stoxx. strategistsow our are waiting the sectors. monthechnicals, a 12 technical model. when we combine that and roll it up, the winner is vgt. francine: let me go back to something you said about energy stocks. historically in the 12 months -10 andng each of the 2 followed, buthave isn't this time different? we have trade and what is going on with iran. mary ann: it is difficult in the u.s. on how i can supply oil to the market, but if you look at how displaced energy is relative to the market you can get a slight mean reversion, meaning the sector has the ability to outperform.

should the markets go down, we don't think energy will go down because you have volatility as the yield curve inverted. we are not recommending energy for a long position. this is more of a tactical position based on the yield curve. francine: if you go back to where you look for signs of a recession, how quickly could a recession take hold and in currency is there a pairing you need to look at? nick: when you look at the yield curve and say it could be 18 to 24 months out once it inverts, from a currency perspective you are probably looking at the safe haven currencies like the japanese yen. curve, and yield terms of its predictive power, there is a lot more central bank emphasis on yield curves around the world.

u.s., but not so long ago. at this point, it is a combination and reflective of what central banks are doing and what does less reflective of what the markets are saying. thankt: nick bennenbroek, you so much for joining us. mary ann bartels will be sticking with us. since we were nerdy out on etf's, if you want more insight, tune in every wednesday for "etf iq" at 1:00 p.m. new york time, 6:00 p.m. london. this is bloomberg. ♪

♪ viviana: this is bloomberg "surveillance." ceo greg heckman expects a giant agriculture business to have -- since taking over, he overhauled management, centralized trade activities, and formed a biofuel venture with bp. a cinematic feature of one of marvel comics beloved characters is in the air. threatened toy end their production of spider-man movies because disney wants a bigger share of the profit. scarlet: thank you so much. we are back with mary ann bartels. futures are pointing to a higher open, at their highs of the overnight session. the s&p 500 is at 2900. that is about five percentage points away from its record high in july. you were looking at a couple of different things but one thing that must be held is the 2700 level. why is that? mary ann: it is technical. from 2700, break

there will be momentum sellers who come in and drive the market, so from a technical standpoint, that is critical to hold. if you break that, it will get harder to get up to higher levels later in the year. scarlet: in terms of volatility, the vix has picked up to above 25, doubled the level in late july. it has now eased once again. you don't see that lasting? mary ann: we think there is risk of episodic volatility and a lot of this is based on geopolitical events. we don't have a trade deal with china. we have to deal with brexit. we just had the prime minister resign in italy. as you enter the most seasonably -- seasonally challenging time in the market, we think you can

have periods of volatility, episodic volatility. there is an indicator we have it think of america merrill lynch called the critical stress indicator. that gave us a risk off signal on august 5. when we look at our model called the global wave, which for 16 months has been rolling over signaling that local economies are slowing, is still rolling over, still crashing. until we get global stabilization, we think there is risk of volatility but we maintain our year-end target of 2900. we have a positive outlook for the year. we are just telling clients, if you have issues dealing with volatility, you may want to rebalance or look at your portfolio to adjust for volatility. francine: should i just go to

gold? gold to reach 2000. mary ann: gold is shining again. it is interesting because the commodity space is very flat, but gold has technically broken out. we have a high-end target of gold of 2000. for clients who are also looking to hedge a portfolio, gold traditionally is considered a hedge and we think that is a hedge that can actually work tactic they now. -- tactically now. francine: do you because we bee longer-term outlook over the next 3, 5, 10 years remains positive, we don't think you have to go to cash, but you need to make sure your portfolio is aligned with your risk tolerance. and is not necessarily cash, but do you have the right mix of

stocks, bonds, cash alternatives including gold, it would be the thing to look at. francine: mary ann bartels, bank of america merrill lynch, thank you. ,oming up tomorrow on bloomberg we speak to the kansas city fed president esther george at jackson hole. a lot of people want to know what jay powell can and will say . also, keep an eye on what is going on in germany, the 30 year bond saw weak demand. this is bloomberg. ♪

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history. yearmpany sells 30 debt at negative yields. and it is the fed versus everybody else. the san francisco fed president says the u.s. is not headed toward recession, while barclays sees three more cuts this year. and stocks set to open at a record after killer quarters from toys to groceries. david: welcome to "bloomberg daybreak" on this wednesday, august 21. we will not have a state visit from our president to denmark, and why? alix: because greenland is not for sale. david: he's offended. he's supposed to go for a state visit, but he wants to buy greenland, basically. alix: this sort of took everyone by complete surprise. one of the leaders of the government parties was,