nejra: good morning from bloomberg's european had orders. this is "bloomberg daybreak: europe." recession swirl, but three fed presidents question the need for more cuts. one of them is esther george. economy is -- it is not yet time. i am not ready to provide accommodation without seeing an outlook that suggests the economy is getting weaker. nejra: cold water. the bundesbank says it is not the time for stimulus in germany.

the french president tells boris johnson a new brexit deal is not likely and italy has a few more days to cobble together a coalition. we are live from g7. week japanese inflation stokes talks of further boj easing. meanwhile, the rbnz governor tells bloomberg it can afford to be in wait and see mode. >> we can afford to watch and observe what is happening. we have taken a preemptive double cut. matt: good morning. matt here in berlin. we had a slew of fed speakers yesterday that pulled back expectations for a big rate cut, if any at all.

that really changes things in markets. nejra: you saw adjustment in pricing in terms of futures. have we just heard from the hawks? what is jay powell going to do? is he going to push back from -- we know historically jackson hole speeches can give signals of monetary policy in the future. matt: interesting we continued to see gains in u.s. stocks. the s&p 500 closed down a little bit, but it was not too bad. now we see futures pointing to gains at the open this morning as well. look at the bloomberg dollar index. we have seen the dollar index .overing around 1290 it is climbing further as expectations for cuts are less than. talkingd adrian orr about no need for rate cuts there. they had their surprise cut last time.

now you see the new zealand dollar also gaining in u.s. dollar terms. a lot of green on the screen. nejra: the 10 year treasury yield has been rising the past three days. we have seen that move higher with some of these fed presidents pushing back on market expectations of more cuts. a keyyesterday above technical level in the short-term on expectation with traders a brexit deal can be reached, or the prospect of no deal could decrease. we are pulled back a little bit. european futures on the front foot after we saw some red for european equities yesterday. now getting back to jackson hole, waiting for jay powell's speech today. it will be closely watched for any clues on if the central bank chief sees july as the midcycle adjustment or the start of something bigger. the chief economic advisor at allianz said the easing cycle may not be what the economy needs right now.

>> for markets, it is important. markets are looking for a cycle that goes at least 75 basis points. some argue even further. the reality is it will not do anything for the economy. it may boost asset prices in the short term, but increase the risk of instability around the world. nejra: while investors have priced in the 25 basis point cut next month, three fed policymakers have voiced resistance, with a fourth saying he wanted to avoid further action. one of those dissenters is esther george. >> as i look at where the economy is, it is not yet time. i am not ready to begin to provide more accommodation to the economy without seeing an outlook that suggests the economy is getting weaker here. >> hiring has slowed. health care companies struggling to find workers -- or are they limiting hiring because of the uncertainty about where the

economy is going? >> the reports we get our businesses are having trouble finding people. they are wrestling with wages and thinking about how to compensate a workforce they needed to be productive. i think that still is one of their largest concerns. keeping the workforce they have and figuring out how to compensate them in a way that will keep them. pressureis that wage we should be seeing that you have been looking for? >> we are seeing higher wages. but for a number of years, even though the unemployment rate came down, we are not seeing a pickup. over the last couple years, you have seen that pickup. as productivity has gotten releases recent suggest inflation is not going to pop up in a way that will undermine workers' ability to realize gains around wage growth. >> let me ask you about monetary policy. you were an advocate of raising

rates to get ahead of inflation. if you are not ready to cut, are you happy with where rates are given that inflation is lower than anticipated? happy to leave them at this level for quite some time? >> that is going to be a process of judging how the economy unfolds. where rates are right now relative to the unemployment rate and inflation suggest we are at a sort of equilibrium. i would be happy to leave rates here seeing some weakness or some strengthening, some kind of upside risk that would cause me to think rates should be somewhere else. nejra: that was esther george speaking to bloomberg at the jackson hole symposium. joining us for the hour is the global head of credit strategy at bnp paribas. great to have you with us. youmuch of a risk event for is jackson hole this year? event for twok

reasons. across not just equity markets, but credit markets. two, i don't think the fed can afford a big market crash because of the impact it would have on the economy. , the bond markets have been pricing in rate cuts over the next 12 months. the equity market and the credit market are at very high levels, and that has been because of multiple expansion, not because earnings or growth are improving. there is a lot at stake in terms of market valuations. and then the fed is now thinking about insurance cuts. it is doing so against a backdrop where they have more bullets than other central banks, but they don't have a lot of bullets because corporate leverage is quite high. they have been cutting. mortgage refinancing is lower than it was -- then it typically is.

they are in this situation where a big market crash could have really adverse implications for financial conditions, consumer sentiment, so forth. they are in a tricky position where the stakes are high as powell goes into this. matt: i want to draw your attention to this chart hillary through together for us. it shows the federal fund's effective rate in blue, and in weight, market expectations -- white, market expectations. you see a dip after president trump tweeted he wanted 100 basis points. now we are back to the rate. the do you expect from federal reserve next? of the i suspect some pushback we have had from regional governors are not necessarily new positions. they have already been among the

hawkish in the fomc. in some respects, that is not news. my expectations would be that the fed chairman tries to stick to this narrative of midcycle cuts. what he needs to do, or what he probably should be trying to do is essentially convey that the fed is willing to cut until it reaches its economic goals. regardless of what it thinks the market outlook is. balancevery challenging for the chairman to strike here. touspect he is not going sound as dovish as the market might want him to be. nejra: the market might be prepared for that, given the regional presidents we have heard from. say andl does what you

reiterates the midcycle adjustment and does not give signals we are going to get a more aggressive cutting cycle, what does that mean for rates? as you know, we have had a drop in yields globally. some people are pointing to the fact that has been driven by this has climbed to a record long across the curve. when you bear this in mind along with asset managers and real money going into treasuries, how much of an aggressive move could be see if powell does say what you said he might say? viktor: the real risk is in the short-term of the curve. the risk is you get further inversion of the yield curve, which re-ignites a sense that the fed is behind the curve. there is a real growth scare going on, which they cannot do anything about. that would then be coming

alongside a correction in the equity market and the credit market as well. expectations are very high that while earnings are slowing materially, that is fine because the fed is ahead of the curve and cutting earlier. pushback, it risks all markets. matt: you're going to stay with us. viktor hjort, our guest cohost for this hour. coming up, we are live from jackson hole as investors take positions on how fast and how far the fed will ease. we have a stellar lineup of interviews with a host of fed presidents. first, james bullard at 1:00 p.m. u.k. time. then watch out for robert kaplan and patrick harker. later today on bloomberg television as markets continue to try to gauge the federal reserve's next move. let's get now to bloomberg's first word news.

takes.ever it that is what new zealand central bank governor says he will do to support the economy. invoking mario draghi's famous said thedrian orr inflationary impact of this month's rate cut before considering further easing. >> everyone is telling us the global growth is slowing. let's get ahead of this. let's reduce the possibility of having to do more later. we are pleased with where we are. >> italy's centerleft democrats have until tuesday to form a coalition with the five-star movement after the country's president said he was giving more time to form majority. sergio mattarella has the power to appoint a president or hold elections. a host of the largest global exchanges are stepping up their

calling for saudi aramco. senior officials have been pitching the saudi oil giant in recent weeks. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. bloomberg. nejra: thank you so much. franceeaders gather in this weekend for the g20 summit -- the g7 summit against the backdrop of growing uncertainty, the meeting will provide a chance to address worries. these include tensions between the u.s. and iran and risks of a global recession. joining us now is bloomberg's maria tadeo. looks like a contentious g7. what is at the top of the agenda? a lot of issues. >> good morning. there is a very tight security operation here. this has been a very difficult

year for emmanuel macron. the french are taking no chances in what could be an unpredictable g7. officials will tell you we are going to focus on climate change, we want to focus on any quality. what they really -- on any ty.lity -- inequali what they really care about is the economy. trump brings an element of one pricked ability -- unpred ictability. you have brexit, you have italy headed for an election. there are a lot of unknowns. i have to say, the bar is so low. we are already being told the whole point of this g7 actually is to have a debate. matt: there is going to be surely at least from britain a debate about brexit. what are we expecting in terms

of what for the europeans must be the third or fourth or fifth most important agenda item? aria: that is a good point. the reality is european officials who will gather today, and jean-claude juncker will not be making it because he had a surgery over the weekend, do not expect to see any kind of breakthrough. if anything, maybe a meeting between donald trump and boris johnson. if you look at the mood music paris, it is and down to boris johnson. he needs to come up with the alternative to the backstop. the united kingdom has not brought anything to the table that would satisfy the europeans. it is interesting because many told me they are curious about the dynamic between donald trump and boris johnson. they want to see this g7 become the g2 versus everyone else.

matt: thanks very much. sorry, we both thank you. [laughter] matt: maria tadeo live from paris. coming up on bloomberg, we are live from jackson hole. investors take positions on how fast and how far the fed will ease. we have a stellar lineup of interviews with fed presidents. very interesting as a lot of them have pushed back. bullardirst up, james at 1:00 p.m. u.k. time. then watch out for robert kaplan later today on bloomberg tv. ♪

this is nejra: "bloomberg daybreak: europe." matt: let's check on the markets in asia.

for that, we go to juliette saly. juliette: all eyes on jackson hole. theg rise in the kiwi after speakingrnor orr was to kathleen hays on the sidelines of the symposium saying the rbnz is willing to do whatever it takes to support the economy, even though we have already had 50 basis points of cuts this month. the nikkei is up by 0.4% in late trade. we are seeing a rebound in aussie stocks as well. holding onto those gains from yesterday. hong kong's market has been fluctuating, but it is up by 0.5% in the afternoon session. reinhardt,ing from saying to kathleen hays at jackson hole that potentially hong kong has the threat to throw the world and global recession. recession.bal

>> these are global consequences. what could be a tipping point that could trigger a very significant global slowdown, even a recession. those concerning words after we saw the hang seng index hit a death cross where we saw the 200 day and the 50 day moving average cross. todaye seen a rebound after stocks hit that ominous level. the hang seng is on track for a weekly gain of 1.7%. a little bit of reprieve for investors after four weeks of losses in the wake of protests. thanks very much. juliette saly in singapore with a look at the markets. and the effects of the protests in hong kong. leaders gather for the g7 summit, set against a

backdrop of growing uncertainty, the meeting will provide a chance to address major worries. this agreement between the u.s. and european countries over relations with iran are expected to be at the top of the agenda. leaders will be addressing trade and the risk of a global recession. brexit will land on the table as boris johnson makes his first appearance on the international stage. finally, the issue of russia's return to the summit is likely to crop up again. five years after the country was excluded over its annexation of crimea, it has become a regular topic. viktor hjort from b.n.p. paribas still with us. what is your view on boris johnson's strategy in terms of the brexit discussions? brexit is about growth. prime minister johnson has gone

to angela merkel and emmanuel macron. angela merkel sent him back saying, we are happy to discuss alternatives, but you need to come up with those to the backstop. look. in many ways, it is a u.k. issue. the backstop is there because we have not figured out what the future relationship between the u.k. and the european union is going to be. if the u.k. wanted to remain in the customs union or a single market, you would need a backstop. if it chooses to be outside, there isn't any technological solution for it. you're going to end up with a hard border. if we knew what the end game was, we would not need this today. i do not since there was any progress other than, look, if you have a solution, we are prepared to listen, but you have to come up with it. really jumped on that slim possibility there less be a deal, at least prospect of no deal.

you see that in cable. short-term resistance level, 122 in yesterday's session, jumping more than 1%. we also saw gilt yields backup. in your world of credit, a number of people are saying gilts are overvalued here. they would be wanting to short guilt. how do you look at the fixed income world? >> the context for the pound among is that it has been all the g7 currencies, by far the most shorted. therefore, it has scope to respond positively on headlines like this. the other markets, there is more complacency. if you look at the corporate are market, our estimates that the market is pricing in no more than a third at most or a chance of a hard brexit.

it is on the low side, if you ask me. our official forecast is for a 50% chance of a no deal brexit. i think there is complacency in credit markets. issues.is is one of the from the u.k. standpoint, a huge one. everyone else, not so much. trade is the real problem berlin is dealing with. donald trump will be there as well. what do you think will come out of these talks? viktor: not very much, i'm afraid. chinaalplayer in this is and china is not going to be there. it is really about the u.s. and china and what will come out of those ongoing negotiations, which so far are not making much progress in my view. the problem with trade and

tariffs is that the impact on the economy is nonlinear with no time and the magnitude, in other words, if it does not get better, it gets worse for the economy. start to adjust and make long-term decisions about where they source products. the weight on the economy gets worse even if there is no particular escalation as such. linee is further down the for the white house. has been signaling that trump sees europe as another source of contention, but probably also doesn't want a fight. going into an election campaign here, which by all intents and purposes has already started. nejra: viktor hjort stays with us for the hour. don't miss our coverage of the g7 meeting. we will be bringing you live

updates from biarritz. matt: when you are traveling to work, tune in to bloomberg radio . if you are in london you can hear it on dab digital. ♪

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matt: this is "bloomberg daybreak: europe." we all wait with bated breath for jerome powell's speech at jackson hole. questions whether he's going to push back on market expectations of fed rate cuts. matt: you have already got his regional presidents pushing back against expectations for a big cut. three of them for any cut at all and another one saying, we will cut if we need to. with that many dissenters, you have got to believe 50 basis points is not happening. we did see a:

reaction in markets. we have seen a backup in yields. yesterday, the curve inverting again. that is taking on board with these more hawkish asset -- hawkish fed president did say. what sort of tone is jerome powell going to take? years, he actually does that the path of monetary policy, or will he just tell a very fine line. on,: don't forget, later james bullard is talking. the interesting thing i think is yesterday we got this push back against cuts. the s&p continue to rally and is being led by bancshares -- bancshares. the economy is getting better and that interest market will not be as compressed. it will be good to see what the reaction is today. futures are positive. let's check on markets from

around the world. joining us from our bloomberg partner in mumbai is niraj shah, and in london, annmarie hordern. give us a look at stocks in india after we got this big red headline. >> a much-needed release. yesterday was a big bank cut down. indian markets were down and out. session, a percent and a half. the nifty bank, the one in the red, down 5%. the finance ministry official has told bloomberg there could be a reconsideration on the tax and the surcharge levied on investors in the budget gone by. between a saying

change in economics and a change in tax, they will be happy for a change in tax to bring a change in sentiment. it will happen on monday and that could provide much-needed relief. let us see if that happens. back to you. have a great weekend. annmarie hordern looking at commodities. >> it is really the morning of the day we have all been waiting for. the anticipation going into this jackson hole speech, what will jerome powell say? will he offer guidance on u.s. interest rate cuts? how are we positioned? equities are climbing. china csi up. hong kong stocks rising. foreign exchange, look at the new zealand dollar. it is up 0.3%. orr,berg spoke to adrian

and he was saying they will only cut if it is warranted. have alreadyn they taken two preemptive rate cuts. sovereign bonds, you have yields coming up across the region. the u.s. ten-year trading one spot 64. ton ore higher up 6%, $86 a after falling below 80, it has been a wild ride. been a bit of a flip-flop. you have gold holding its rally, really lingering around that key psychological level of $1500 an ounce. we have oil set to make a comeback. in'sirst back to back rise june. we have a flip-flop in the commodities market heading into this very important central-bank party in wyoming. much for that.ry

annmarie hordern with a look at the markets as well as niraj shah. today we are asking the emily of question of the day, how close -- the mliv question of the day, how close is the end of the bull market? reach out to us that the mliv team. bouncingthat rates are along the bottom here and prices may be at a top. now let's get the bloomberg first word news. >> lining up against additional rate cuts. three fed presidents have voiced their opposition to lower interest rates. a fourth said he will only take action if, quote, we have two. that is at odds with the market, which is pricing in a quarter price reduction in september. jay powell could provide more guidance today when he speaks to jackson hole. >> as i look at where the economy is, it is not yet time. i'm not ready to begin to

provide more accommodation to the economy without an outlook that suggests the economy is getting weaker. >> japan's prime minister has accused his south korean counterpart of damaging the relationship between the two countries. pulls out of seoul an intelligence sharing pact with tokyo. and abby has pledged to work with the u.s. to maintain security cooperation. >> there is no doubt the shared important. japan are we hope each of these countries can begin to put that relationship back in the right place. >> italy's centerleft democrats have until tuesday to form a coalition after the president said he was giving the parties more time to farm test to form a majority. can appoint alla new prime minister or hold

elections. the battle over the world's largest ipo is heating up. senior officials from london, new york, and hong kong have been actively pitching the saudi oil giants in recent weeks. 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. nejra: germany's central bank does not see the need for fiscal stimulus. despite its expectation, the economy will string again this quarter, entering a technical recession. fiscal --z compares prepares fiscal measures for if the outlook worsens. viktor hjort is still with us. what are the risks to the market if germany acts too with stimulus? -- viktor: a big selloff.

there is the view that if italy has a recession, it is bad for markets because it creates risks germany has a recession, it's good for markets. germany has the capacity to do fiscal spending and encourage fiscal spending across europe. in many ways, that is the remedy european growth shortage problem. does that seem imminent to probably not. newhere a scenario where a ecb president christine lagarde jointer central-bank and starts going around capitals and say, look, we are prepared to offer this big package of easing, but we cannot generate growth out of that, you have to help us, yes, there is that prospect, but is it a 2019 scenario? i don't really think so. 2009 you mean?

viktor: no, is it going to happen between now and year-end? matt: do you expect germany to fall into recession? do you expect two consecutive quarters or more of contraction? strong i don't have a view on exactly the number of negatives they are going to have. as long as global trade is slumping and as long as china in particular is weighing on global manufacturing, these are super important catalysts for germany and its economy. as long as they remain negative, i don't see how germany pulls itself out short of a substantial fiscal package. have seen italy being one of the beneficiaries of ecb stimulus. talk to me about how you would play that in terms of what you would buy? viktor: i'm quite bullish on italy and italian credits. particularly the italian banks

offer real value, especially on the credit side. peel away the political noise and the headlines and you have a nice de-risking story under the hood for the italian banks. they are finally doing with the rest of the european banks did for five years ago. -- four or five years ago. they are ahead of the curve. potential for qe, it helps. it is questionable how much growth it generates, but it really does help italy. that is number two. yes, there is a lot of political noise, but i think it is just that. it is noise. a is possibly we will have classic italian political bickering for the next six months. i think that will work in the background. i don't see that as a market driver. i'm quite positive on italy. 131 basis points, that is

high-yield for 10 years at of a european country. do you like italian yield at this level? there is an excessive risk premium compared to other assets across europe. nejra: you write out -- you layout how it is going to play out. first, investors second-guess what bonds. they start getting pushed out to other markets. talk to me about your strategy. to buy those markets that are going to be bought when the bonds run out? there is more upside in trade. potential -- the particular value is in european financial bonds.

the ecb are not going to buy these bonds. they look very compelling. also if you are someone who is worried about downside risks to growth, because i think what we have today is following years and years of capital rating is a system which is stable, just not profitable. view, credit point of very attractive value also with a view on ecb. wasn't anybody front running the german auction? germanytotal failure of to sell 30 years at with a 0% coupon? i realize it is returning nothing, but the play has been to buy the stuff because --rybody wants to ration

duration. viktor: they probably have been front running the last 10 years. i think you are right. at some point, maybe there is this suspicion that germany could surprise with a fiscal package. obviously in that scenario it is growth back on the table, it is a steeper yield curve. maybe that played a role here. but it is one data point. nejra: you talk about liking financial credit, but what about other aspects of credit markets yet -- markets? corporate have done a lot of deleveraging. is that going to continue? do you want to stay invested? or even the lower rated parts of investment grade? strong there is a distinction between anything defensive and anything cyclical. anything like how you -- like

high-yield, cyclical industries like auto and retail, that has to wait until you see some kind of evidence. the rest of the stuff looks attractive. the conversations i have with investors about ecb easing is, that's going to happen, there's going to be a big qe package. but it won't work. it's not going to have much impact on growth. what they are implicitly saying is europe is going to turn into some version of japan. that is roughly what has been the case in japan. the central bank has offered the private sector, the corporate's, a lot of cheap money, but the corporate's took it. it.he corporate never took that is the implicit scenario investors have in mind. forefore extremely bullish corporate bonds in the euro zone. i do not think europe is as buteme as japan quite yet, there are elements of it, which

is ultimately the real support for the corporate bond market. quite bullish. matt: thanks so much for joining us. viktor hjort from bnp paribas with us this morning for the hour. coming up, a world of worries as g7 leaders gather in biarritz. we discuss what is at the top of the agenda. nejra: traveling to work, tune into bloomberg radio live on your mobile device or on dab digital radio in the london area. ♪

matt: this is "bloomberg daybreak: europe." story.back to our top investors are cautious as they await jerome powell's address. witheen hays caught up

esther georgia head of the event and sent us this report. >> under pressure, that is how it is looking as the kansas fed kicks off its symposium. markets have been looking for another rate cut, but the voices of dissent have been growing. the president of the kansas city fed esther george, who dissented at the last meeting, spoke earlier and said she really does not see the need for the economy to take out another rate cut of insurance. she is not worried about signals from the market. >> i understand why you see uncertainty right now. that is not the metric i feel we have to focus on. we have a clear mandate. view we haveg-term to stay focused on. >> it is clear jay powell has quite a few. the question for markets is what people will say when he opens the symposium with remarks where

he has two opportunities. he can signal another cut is coming or signal he is watching the economy to see what happens. that is an outcome that can certainly move markets. matt: that was bloomberg's global economics and policy editor. the value of having experienced reporters like kathleen hays and michael mckee out there at jackson hole. interviews including a host of fed presidents you see here. will bring the dovish case to the argument. robert kaplan has been pushing back as well as patrick harkin. we will hear from loretta mester on bloomberg television. let's get the bloomberg business flash. >> deutsche bank is paying over

$16 million to settle ftc allegations it hired relatives of overseas government officials to win business. 2006iring lasted from until 2014 and focused on the asia-pacific region and russia. the lender agreed to settle the case without admitting or denying wrongdoing. societe generale is considering options for its asset management business. these include a sale or a merger of the unit that oversees about 150 billion euros. it may kick off in the fourth quarter. to shore up its finances. goldman sachs is getting the cold shoulder in i would be. -- abu dhabi. and has not been invited back. goldmanhe 1mdb scandal, has struggled to win business

since the emirates wealth fund suspended activities with the bank. that is your bloomberg business flash. matt: thanks very much. trade wars and the global economic slowdown, that is the background of this year's g7 meeting and the french resort of biarritz. adding to worries, the increasing chance of no deal brexit and disagreement with how to deal with iran. let's get the view. bloomberg experts around europe. first off, joining us from berlin, our senior editor ellen crawford. let me first turn to you and asked, by the way, you wrote a book on angela merkel. you are familiar with this chancellor. what do you think her priorities are going to be here? fact germany is export oriented, it has to be the trade war.

terms, she's going to be looking to shoulder with thenuel macron -- with italian prime minister, looking to try and get a front at least to get some kind of agreement on what should be done in terms of trade war. nejra: the trump administration would like to see a move to obsession with balanced budgets. as president trump likely to upstage this meeting again? >> there is every signal that he will. in the preseason so far we have seen him blow up a visit to the denmark. talking aboutim germany and the economy. he has also said he wants a special session.

we can be certain he will be there, that germany will be in the crosshairs, and it will be part of his narrative. it is not so much to do about germany. it is his narrative with the fed and trying to get more fuel for that fire. more ammunition. matt: all right, alan, let me pick up quickly and ask, i have been wondering a lot lately. germany is under pressure to spend. it does not look like berlin is going to. when you started covering angela merkel, the european union unity was one of her big priorities. it does not seem like she is behind the union right now, at least in terms of fiscal responsibility. >> we have seen this before.

the financial crisis, then the economic crisis in 2009, germany would take its time before it spent money. there is a bit of a disconnect between how the situation is viewed here in berlin among the policy elite and how it is viewed among economists outside. there is no doubt whatsoever in my mind angela merkel is for eu unity. whether that means spending now are waiting a little bit longer than -- i think it will eventually come in. nejra: in terms of boris johnson being at the meeting, what kind of discussions might we have around brexit? seen the tonehave of the brexit conversation and the substance, really. again, talking disconnect, i saw this morning again in the times

of london that boris johnson came away from paris with optimism. that's not really my reading of it. i think he was told the situation, which is no renegotiation of the withdrawal agreement. there is a willingness to discuss measures that may help remove the need for this backstop, which he does not take -- which does not take us anywhere. thank you. you have been covering the heck out of angela merkel for a number of years now. thanks very much to mark champion in london. we are going to cover this important g7. is there still importance to the g7? that is a question we will be asking as well. with bloomberg for

full coverage this weekend. we will be live in biarritz as world leaders including donald trump and boris johnson arrive. bloomberg users can interact with all the charts we have shown using gtv . ♪

3 good morning from bloomberg's european headquarters in the city of london. this is bloomberg daybreak: europe. these are today's top stories. iraq and a hard place. jay powell needs to strike a fine balance at jackson hole. fears of recession swirl. three fed presidents question the need for more cuts. >> i look at where the economy is. it is not yet time. i'm not ready to begin to provide more accommodation to seeing any without outlook that suggests the economy is getting weaker.

bund bank says it isn't time for stimulus in germany. the french president tells boris johnson a new brexit deal in 30 days isn't likely. italy has a few more days to cobble together an unlikely coalition. we are live from a busy g7. plus, setting the tone. we could japanese inflation. talk of further boj easing. the kiwi climbs as the rb governor says bloomberg -- says it can afford to be in wait and see mode. >> we can afford to watch, weight, and observe what is happening. we've already taken a preemptive double cut. ♪

nejra: welcome to daybreak europe. we are all on tenterhooks ahead of jackson hole, waiting to hear from jerome powell. the fed rate cuts are the big question. matt: absolutely. we've heard already a number of regional presidents, three , say they don't see the need for fed rate cuts at all. not just that they don't see the need for 50 basis points. they don't think the economy needs it right now. i can't imagine that the fed would go ahead with a big cut with that kind of dissent. seen awe've certainly reaction and bond markets over the past few days. the curve, to tens and version again yesterday. it in theprevaricate u.s.. coming intoentum

european futures after we saw weakness on the stoxx 600 yesterday. u.s. features on the front foot as well. green on the screen as we head into jackson hole. if this is a big risk event, perhaps some of this green might look vulnerable. matt: let's take a look at the bond futures. we did see yields climbing back up in terms of the u.s. 10 year. that could continue. they are at the bottom of your screen. they are down. investors are likely to sell the cash bonds and push the yield of further. the bund yield looks like it will come up further as well. italian 10 year bond futures are up. with 131 basis points and a 200 basis point spread over boones, you can understand why investment -- investors would want to buy those in this kind of low yield world. i check in on the markets in asia. let's go to juliette saly in singapore. juliette: i'm really watching

the kiwi. it is the best-performing g10 currencies today. they are in a wait and see mode. also they are willing to do whatever it takes even though we have had 50 basis points of rate cuts. the kiwi up by one third of 1%. asian stocks tracking higher ahead of jay powell's speech. australia higher for another session as well on the close. hong kong's market has been gaining in late trade, up high 0.1%. on track for a weekly gain. kong,t comes to hong kathleen was speaking at the jackson hole symposium on the sidelines. she was warning about the protests in hong kong and what they could mean for the global economy. not segmented regional effects. these are global consequences. what could be a tipping point

that could trigger a very significant global slowdown. even a recession. juliet: fairly ominous words there from harvard university. we saw a pretty ominous sign in markets. you are seeing a rebound in hong kong stocks. earlier, we saw the hang seng form a death cross. we have seen a rebound over the course of this week of 1.7% for hong kong stocks. a lot of concern about the property developers about the retail stocks. it has been about four weeks prior to this week of very severe losses for the hang seng index. plus the climb. a death cross. that is pretty dramatic. thanks very much for that. investors wait for fed paid -- chair jay powell's speech

today. it will be closely watched for clues on if the central bank sees july as a midcycle adjustment or the start of something bigger. chief economic advisor at allianz says and easing cycle might not be what the economy needs right now. >> for markets, it's really important. markets are looking for a cycle. they are looking for a cycle that goes at least 75 basis points. some would argue it should go further. the reality is, it will do anything for the economy. it may boost asset factions in the short term but increase the risk of instability down the road. matt: investors have priced in a 25 basis point cut next month. three fed policymakers have voiced their resistance. the fourth saying he wanted to avoid taking further action, quote, and less we have to. is thethe dissenters host of the jackson hole symposium. >> as i look at where the

economy is, it's not yet time. i'm not ready to begin to provide more accommodation to the economy without seeing an outlook that suggests the economy is getting weaker. matt: joining us now is david riley, chief investment strategist at bluebay asset management. what do you expect, especially after hearing all of these dissenters? they are publicly voicing their opposition to rate cuts. >> i think it does highlight the extent to which the fomc is divided. that was highlighted by the minutes of the july meeting that we got yesterday. that being said, i do actually think having three hawkish speakers from the fed in the run-up to jay powell's speech is actually helpful for him. it has taken a little bit of the fluff out of the short head.

i think it will be very hard for jerome powell to deliver or validate market expectations. i still think it will be perceived as being more on the hawkish and. what he will desperately try to id is a situation where you get a further inversion of the yield curve. the minutesain, highlighted that there is some concern around that as well. i think he will be wanting to emphasize that the economy is in a good place. it still is a midcycle adjustment. we are open to further rate cuts. if the yield curve even slightly steepened the little bit, i think he will be pretty satisfied going into the weekend. nejra: at -- difficult for jerome powell not to sound hawkish. is the market going to be disappointed by the fed beyond today? i do think that the market is

pricing too much in terms of fed rate cuts. pricede 75 basis points to the end of this year. actually, 100 basis points or so over the next 12 months. when you see the retail sales data and consumption data, then i think that is hard to justify, particularly with inflation starting to pick up a little bit. you know, the downside risks are there. they are meaningful. one of the things which they are providing some insurance against is an escalation of trade risk. president trump got that insurance package in july and said, great. i can be more reckless and then imposed an additional 10% tariff on 300 billion of chinese imports. there clearly is a slowdown in global trade. trade policy uncertainty remains elevated.

the market is overpricing the likelihood of rate cuts. nonetheless, there are downside risks. matt: is there any hope for help on the fiscal side in the u.s.? tax cuts, for example. or more spending. we saw, there was some discussion around potential cuts in payroll taxes. think the fiscal stimulus that we got through the trump cap -- tax cuts were ill judged and ill-timed. it has meant, it encouraged the fed to raise rates faster than they otherwise would have done. it has eroded some of the space that the government had to provide additional fiscal support. year, the federal

government is going to be borrowing $1 trillion. i know i'm a bit old-fashioned about these things. i think that's a lot of money. that there isure a lot of scope at the moment, at least in the near term. when you look at global fixed income up -- markets and the big moves we have seen, what is your biggest worry? the huge amount of negative yielding debt? the amount of duration and portfolios? the and -- amount of money moving into credit? >> it's the amount of duration that has now gone into portfolios. investors have not been so much in a grab for yield, in terms of piling into credit and riskier assets. where they have been gone into credit, the more defensive and higher rated sectors. they really want duration.

they want that to provide protection against risks to their gross sensitive assets within their portfolio. if we get even a modest backup and yields, accurate levels, that will be quite painful for a number of investors. it will be a source of volatility in the market. it is not a bubble in fixed income. what it is, particularly within europe, investors are saying, more needs to be done to deal with declining inflation and declining growth. hey, government, spend a little bit of money. in order to encourage you, i will pay you to borrow. then we have the bundesbank saying, don't do that. sure when they would be happy to do so. nejra: investors trying to help governments. thank you. we will discuss more in a moment.

great to have you with us this morning. coming up, we are live from jackson hole where we have a stellar lineup of interviews with a host of fed presidents. first up, james bullard at 1:00 u.k. time. watch out for robert katzman and patrick harker, later today on bloomberg. let's get the bloomberg first word news in london. hey, naomi. naomi: whatever it takes. that's what the new zealand central bank governor said he will do to support the economy. invoking mario draghi's famous speech. adrian or says he will gauge the inflationary impact of this month unexpectedly large rate cut before considering further easing. >> looking forward, we were saying, everyone is telling us we need to be lower. global growth is slowing. let's get ahead of this. let's move now and reduce the probability of having to do more later. we are pleased with where we are. naomi: undermining trust.

japan's prime minister has accused his south korean counterpart of damaging the relationship between the two countries. that's after so pulled out of an intelligence sharing pact with tokyo. shinzo abe has pledged to work with the u.s. to maintain security cooperation. the battle to host the world's biggest ever initial public offering is heating up. a host of the largest global exchanges are stepping up their courting of saudi aramco. we are told senior officials from london, new york, and hong kong have been actively pitching the saudi oil giant in recent weeks. global news 24 hours a day on air and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. matt? matt: thank you very much. coming up, a world of worry. g7 leaders gather. we discuss what is at the top of the agenda.

there's a lot to put there. we are live from the summit, next. this is bloomberg. ♪

nejra: 7:18 a.m. in london. we are 41 minutes away from the start of cash equity trading in europe. let's check in right now on the markets and see what's going on. first off in the asian trade, if you look at what happened after we had so many regional presidents pushback against a rate hike, rate cut in the u.s.. you saw the dow close off and the s&p mildly down. asian stocks gaining across the board. dollar up after the central bank head say they can afford to wait

and see right now. they had a big surprise cut last time. the u.s. 10 year yield coming back up to 1.6%. nejra? nejra: that backup we have seen in 10 year treasury deals has been buried in bunds as well. the bundesbank saying that fiscal stimulus is in needed yet. euro stock 50 futures on the front. green on the screen for s&p futures as well. historically, the s&p 500 has had sharp moves during jackson hole. we wait to see whether that will happen today. let's get the bloomberg business flash with naomi. hasbro is setting its sights on becoming a media giant. the toymaker is spending $4 billion to buy entertainment one, a small studio that makes movies and animation. it's getting big children's plans including pepper pick. pig.ppa hp's chief executive is being

replaced by the head of the companies printing business. the new boss is looking to make changes. he's been working on the global review of the company and will share some of his conclusions at a company event in early october. a bloomberg scoop. options for its mixed asset management business. these include the sale of merger or unit that overseas 150 billion euros. the process may kickoff in the fourth quarter. socgen has been cutting costs and selling assets as it seeks to shore up its finance. that is your bloomberg business flash. matt: thank you. gather in the french city of beer us this weekend for the g7 summit. set against the backdrop of going -- growing uncertainty, it will provide a chance to address some of today's major worries. this includes tensions between the u.s. and iran as well as a

trade war with china and risks of a global recession. joining us now is maria tadeo. it could be a contentious g7. what of all of those issues is at the top of the agenda? >> good morning. it could be contentious. it could be a difficult, unpredictable g7. officially, the french government in particular says they want to focus on climate change and social and income inequality. this is part of the new agenda from president macron who has had a difficult year in terms of big protests we saw. this is a city that is in lockdown. the government is taking no chances. in real terms, when you speak to officials, they tell you they will worry about trade and the state, the shape of the global economy. they worry about politics. it looks very unstable pretty much everywhere. they are expecting to get tweets

from president trump. there is the threat of a note of brexit. the italian prime minister will be here. anything can happen. they do expect to see big disagreement between the united kingdom, the united states, and everyone else. to the point that we are not actually expecting a committee. the french government would rather have debate than actually a water down version of a statement. nejra: you pointed to a number of disagreements. let's talk about brexit. are we expecting any kind of breakthrough at the g7? this has been presented by downing street as a key meeting for boris johnson. this is part of his international debut. he said, we will leave deal no deal. in terms of a break, look at the music that came out of paris and berlin this week. the europeans did not expect to see any kind of breakthrough, at

least not now. issue of thes backdrop has to be solved by the united kingdom. none of the solutions on the table will actually satisfy the europeans. not be here. he had a surgery over the weekend. there's not that much in terms of meetings that could take place. the one thing i would say, european officials are curious about the personal dynamic between donald trump and boris johnson when it comes to this meeting. they fear this could turn into a g2 versus everyone else. nejra: thank you so much for joining us. david riley is still with us. let's pick up on the brexit question. we saw a rally in sterling yesterday. above 122. you recently have taken off you are short on sterling. you had that for three years. why? >> we've had a short sterling bias across a number of our

portfolios since before the eu referendum in 2016. we've now got to come in our view, levels where it becomes much less asymmetric from our perspective. we think sterling is not pricing in something like a 40 plus percent of a no deal brexit on the 31st of october. to us, it's now looking like a lesser attractive -- less attractive position to take. in the medium-term's perspective, guilt is a better trade. we do have that reflected in a number of portfolios at the moment. matt: what do you expect for the euro pound? the european economy is in an equally week position. the european camp -- economy is in a weak position. weren manufacturing pmi's 43.6. very bad. does the euro still have a

chance to gain against the pound into october 31? see a lotgoing to more volatility in sterling. if i wanted to take a position right now in terms of sterling euro, i think being long volatility is better than being outright long euro versus sterling or sterling versus euro. difference --ey this is why i have a bias towards being short guilt between the u.k. in europe. in the euro area, inflation is substantially below target. inflation expectations have been weakening. the u.k. is one of the few countries in the world where inflation is actually above target and where they face more of a stagflation rate problem rather than a deflationary one. nejra: there's negative real yield in u.k..

elsewhere, what areas of european credit would you be positive on based on your expectations for the ecb? likedo think that we do the sovereign periphery. we have had and continue to have a long position in btp's. valuationsven the and the euro exit risk that was being priced in, on a fundamental basis, italian bonds look attractive. in addition to that, we will see substantial qe coming from the ecb. that is unambiguously positive for sovereign bonds, particularly on the periphery. in antigen -- addition to that, european credit. their yields are extremely low. spreads are still 50 basis points wide. matt: great to have you with us

today. nejra: coming up, live from jackson hole where we have a stellar lineup of interviews. you do not want to miss it. this is bloomberg. ♪

matt: welcome to "bloomberg markets the european open." the markets assay, is this the beginning of the end, or the end of the beginning? germany's 30 year bond auction and resistance to rate cuts has investors contemplating the end of the bond market run. the start of cash trade is less than 30 minutes away. ♪ matt: a