manus: good morning from dubai. comics "daybreak europe of i am manus cranny. >> and i am nejra cehic in london. the fed is expected to cut rates by a quarter point today, but health messaging will be the story again. and the dot plot. , our guest gives us his take on central-bank policy. >> the effectiveness of monetary policy is not guaranteed. it needs to be complemented with other policy instruments. never fished a short-term shocker, the fed meeting is overshadowed by first move into

many -- many markets in a decade but it falls short. , saudier the attack arabia attempt to move beyond the worst oil shortage of bloomberghe ceo tells will be back online soon. ofas i said, by the end september, we will be a capacity. ♪ ♪ manus: it is daybreak europe. we had an irruption in overnight funding. we touched on it yesterday, nejra. up she went, double bang. back inpean market came and quelled the market.

was it all to do in paying taxes are paying the auction, or is there a tightness in the dollar market that we are underestimating? but is the debate. nejra: absolutely. this is crazy, was one quote from one of the traders on wall street. it also raises questions about the fed meeting today. the timing couldn't be worse. they are likely to be asked questions about it in the news conference. on fxs the interest reserves and whether we will see some balance sheet expansion to do with this, because we also saw the fed fund rate being pushed toward the higher-end. manus: yes, one analyst says this was a warning sign to the u.s.. we will talk about what he thinks very shortly. three-dayk at the move, still pricing in geopolitical risk, 7% of the geopolitical risk.

we will hear also about secretary of state mike pompeo's visit. 70% of reduction will be returned, that was a critical number, and it soothed the nerves of the market. i thought we would have a look at the dollar index, the repercussions of the first in a intervu -- first in a decade intervention. they added yesterday, the new york fed added liquidity cilia that is a trade war. i think maybe we have forgotten about it. of the bit of a move on the yuan. socgen, a loving note from them saying this morning, 7.5 by the third quarter of 2020. . trump said even before the election or maybe the day after. so just to remind you, in case you got we laid by oil and all the action on the trade war.

nejra: cannot forget that, manus. we are seeing a mixed picture ahead of the fed. yesterday we saw a little strength coming to the s&p 500. futures pointing lower. and the 10 year yield, two days of declines. it has been dropping, but right now we are study on the 1.80 handle. sufferingeed, after the worst oil disruption in history, all eyes are focused on saudi arabia. the long-awaited update from the kingdom give the market clarity on the severity of the damage in the world's biggest oil processing plant. while capacity has been partially restored progress has been slower than expected. as a result, crude prices remain elevated despite coming off the highs. the ceo said crews had mobilized around the clock to deal with production topect

be back at capacity live this month. >> project management is huge for saudi aramco. we do make projects all over. so when this happens, immediately after -- overnight, that weur workforce have subject matter experts, engineers, professionals, operators and craftsmen and we work to fix each stream that was impacted. each stream has a full team working on it from a tizzy to restore it, and the manager of the operation of the plant was given full authority to execute with whatever resources required from him. that will put the facility back up. >> will you be at full capacity? >> yes. >> by? >> by the end of september, we will be a full capacity.

>> are you able to meet your shipments to international customers? >> we are able to meet our shipments to international customers. interrupted,ly was we used our storage facility in the kingdom. manus: that was the ceo of saudi aramco speaking to our middle east energy and markets reporter anthony depaul affiliate we go to my cohost of daybreak: middle east, yousef gamal el-din. we are in saudi today. you have a big day ahead of you. he talked to anthony about how long it will take to get back to full output. a dramatic few hours late into the night when we saw the press conference. the visuals are very clear, signaling that the intent cannot be misunderstood or misinterpreted -- the ceo of saudi aramco, the minister of energy, and the chairman of saudi aramco who is also the

head of the country's sovereign wealth fund. 2 billion of the 1.7 billion barrels that went off-line initially come back online immediately. the breakdown after that looks that by the end of the month, he will be up to one million barrels a day, then restoration of full capacity at 12 million barrels a day will only be available by the end of november. they are also pulling back on the domestic use my some of the refineries to reallocate crude exports.d nejra: thank you for joining us, yousef gamal el-din, our middle east anchor. chris ralph onset, ceo of st. james place management services. how do you put the risk of attacks and escalations? chris: i think we should be cognizant that there is an increase in rhetoric between the u.s. and iran. if iran is the cause of the attacks or some organizations it is working with, then they may

want to further escalate because clearly, there is a trigger point of supply and disruption that could cause disruption to the global economy. that could lead to a terrorist organizations, and it is a good pull.for them to manus: good morning. what is the inflection point where oil becomes a risk to the r word, to recession? me -- goodeems to morning to you 20 -- it means to be below $70 a barrel. it is emphatic how quickly the saudis responded. i guess they are saying or listening to words from the chinese central government saying, guys, we need supply back on really quickly because you don't want any further slowdowns in the chinese economy price.by the high oil

and where the u.s. is now in net exporter of oil, it is not going to be a good position for the u.s. government to be if oil is highly prized. the u.s. dollar surges further and that provides an inhibitor to continuing u.s. growth. nejra: to follow on that train of thought, at what point does the oil price become a risk to other risk assets? yesterday we were talking about the fact that j.p. morgan saw a pain point for the s&p 500, again, at $80 a barrel. we are at $59 a barrel now. would you see a similar number where you start to worry about reserves?n the u.s. chris: what is causing some uncertainty is the growth outlook. and clearly, what a big day, with the fed announcing later today that we have already been talking about the repo rate. so there's a lot to discuss in terms of what is happening with the global growth outlook. but clearly, there are much higher oil prices and those are

not good. manus: speaking of which, the world bank has been speaking in the past 24 hours about their concerns for global growth not even making it to 2.6% in real terms. it is amazing how oil takes our minds away from the risk of slowdowns. do you think this is a fresh warning in place from the world bank? chris: i think it is just a reiterated warning that we need to be careful about where we are going with global growth. that we should not be too relaxed about the recovery we have seen in treasuries and in --opean and bond markets european bond markets in the last few weeks, but actually, there are still concerns for global growth. i think it has been a while a terroriste seen incident that has caused such a spike in oil prices. i think we should be prepared for another systemic shock to

the market, other systemic shocks and the impact they could have. manus: absolutely. 2019 growth is going to miss the banks earlier projection of 2.6%. i would like to be factually correct. chris, stay with us. we have more to discuss. let us get your first word news. naomi. >> naomi: good morning. israel's election does not look to have broken the political deadlock. primer is minister benjamin netanyahu, nor his rival, benny gantz look to vote.otten the majority official results are expected on monday. cannot be a government that means on arab and anti-zionist parties that negative the existence of israel and the democratic state. parties that praise bloodthirsty terrorists who murder our

soldiers, citizens and children. naomi: oaktree capital is looking to china amid a drought debt. they investment firm is scooping up nonperforming loans in the world's second-largest economy. saysofounder howard marks investing in distressed debt at the moment is a struggle. >> i wouldn't even use the term opportunities. investing in distressed debt is a struggle today. the economy is too good. toocapital markets are generous. it is hard for companies to get into trouble and if they get into trouble, the capital markets are happy to bail them out. naomi: in the. u.k., lack of england governor mark carney may have to extend his term is brexit is delayed. the financial times. reports that naming a successor

is less and less likely. mark carney originally planned to serve only five years but has extended his term twice to help prepare for brexit. global news, 24 hours a day, on air and at tic-toc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. . >>. >> naomi carnival in london, thank you so much. coming up, the fomc's two-day meeting and today, with a 25 basis point cut anticipated. we will discuss. this is bloomberg. ♪ is is bloomberg. ♪

♪ ♪ bloomberg: -- is this is bloomberg daybreak: europe, i am nejra cehic in london. manus: and i am manus cranny in dubai. the latest from singapore.

>> manus, asian stocks are lower a third session today. the fact that you are seeing japanese stocks down is weighing on the overall asia-pacific index. the topics snapping its longest the quest, in the red for the first time in nine session, due to disappointing data. that asx 200 is also in the red for the first time in six sessions. oil stocks falling after the reversal in the crude price. hong kong's market is also pretty flat in late trade. we saw a mini squeeze in. rates.g kong hibor the csi 300 internet is being .5% in late trade by some of the consumer markets. the big picture in japan, the continuing story on the ongoing effect of the trade war on this region. we have seen exports falling for japan. month in a row in

they were down by 8.2%, better than the estimated 10% drop. -- says thisof will be a big squeeze coming through from the manufacturers who have already seen a lot of pressure. there is also softness in the global tech sector and shipments to china suffering the second-largest drop in the last three years. the other risk for these export-related companies is the fact that japan is gearing up for the new sales tax in october. not a pretty picture when it comes to exports in the region, manus. manus: it is almost shakespearean. juliette, thank you very juliette saly joining us from singapore. the fomc's two-day meeting ends today with attorney five basis point cut. the fed has delivered easing when the markets have expected it. this comes amid positive signs from the manufacturing sector, with output in august beating

expectations. nejra: however, the decision risks being overshadowed by the federal reserve injecting cash into the u.s. money market of first time in a decade yesterday. ahead of policy is conference, we spoke exquisitely with the former governor of the back of mexico. we asked him about the challenges. to monetary policy today. >> the real conundrum that monetary policy faces right now is that monetary policy has been tremendously accommodative. we are at very low rates of interest, a lot of search for yield, but we still are not fully there in terms of economic recovery. >> that is what i want to get at. can monetary policy, as it could past, perhaps engender a recovery? have they run out of options? it seems bearish for these central banks, sentiment. >> i think of the more can be done. as a matter of fact, we have seen many advanced economic

central banks facing a situation of inflation still below the objective and growth still not where it should be. the effectiveness of monetary policy is not absolutely guaranteed. therefore, it needs to be complemented with other policy instruments. policiesthose other you have referred to would be the fiscal side of things. how -- it a bit about varies country by country, but tell me, what type of fiscal measures would you be looking at generally speaking? for have talked about perhaps using unconventional policies such as helicopter money, or actually putting money back into bank accounts. tell me. agustin: before talking about fiscal policy, the elephant in the room, especially in this region, is fed policy. central banks would not be pushed so much if it was not for

fed policy, toward accommodative monetary policy. so. monetary policy would need to deplete its honesty space. moving to fiscal policy, i think policiesth-inducing would be adequate. i think many country's infrastructure -- many countries ' infrastructure spending would be positive. to induce more private investment, say tax policies, would be adequate. to makes fiscal and monetary policy through something like helicopter money, i don't think it is needed at this stage, as a matter of fact, i don't think should go in that territory. rishaad: what has changed in the world, from central banks fighting inflation to now trying to fight deflation? agustin: it is basically a huge shock. the financial crisis was huge, and it was basically global. it is the first major global crisis that we have needed to

fight. there has been some coordination, probably not as good coordination as we would hope for, but i think that has affected the capacity to grow, and we haven't still fully recovered from it. manus: that was our exquisite conversation with the bank of international general manager and former governor of the bank of mexico, agustín carstens. we continue with chris ralph from st. james place wealth management -- asset management. i want to touch on the inflation discussion. i put this into the gtv library. here is something that is going on that maybe we are not sufficiently flagging. inflation in the united states of america at a record level has gone up 12.3% in three consecutive months, not seen since 1995. state street just said efficient

is getting uncomfortably high. does this through a spanner in the fed's midcycle agenda? chris: i think it does. this is the challenge the fed has in its discussions about how quickly it uses the remaining firepower that has. we talked for so long about the fact that when rates got up to their highest level before the federal reserve started cutting, he actually got relatively limited firepower. that is the problem, that if the inflation story picks up over the next 12, 18, 24 months, and the fed have already used his ,irepower -- it's firepower which, remember, the president of the united states is saying we should use today, than the fed has a problem, because it will have nothing left to fight the inflation story with. manus: we will get the decision and the dot plot today. >> could we get a cut delivered

but with maybe not hawkish but neutral to hawkish signals sent from all the other pieces? chris: it goes without saying that what we are expecting is a 25 basis point cut. it would be a shocker if it was anything but that. the message will be the statement that jerome powell is making, my reading is not considering the last statement he made or the last press conference, which was fairnstrued by the market, to say, markets were very volatile doing the press conference, there will be more focus on the press conference and reaction to the statement on. the dot plot itself jerome powell have to be very careful with the phraseology he uses during the press conference, because a lot of commentators were laughing at the idea of a midcycle correction. manus: chris, i want to show you the vix, which is the bond volatility and the equity volatility. is the risk to the market,

coming from what nejra just said, that we have perhaps an unnecessary restrictive tone and an intimation from the fed about the. lot and that causes more bond volatility? chris: there is certainly a risk to that. remember where we have gone in terms of, let us look at the 10 h, wefrom 1.50 to 1.80-is are still below every this time last year when rates were -ish, andt 3.20 everyone was saying the next spot will be 3.5% or 4%. i am not surprised at all to see bond market volatility because of the level the rates got down past.the recent nejra: we have to round off the conversation by asking you about the drama with the repo rate. it has released -- it has

really stunned wall street. the fed'sou expecting reaction to be, other than injecting more fluidity today. are we talking about the overnight repo rate, or perhaps even expression of the balance sheet? chris: we will watch what powell does. he has to be careful not to spook markets. this is oil being provided to the gearbox mechanism that is monetary policy. the oil flowing smoothly. so a small adjustment, i would be surprised if we hear about an overnight repo rate. nejra: chris ralph from st. james place wealth management stays with us. and stay with bloomberg is a bring it the latest coverage from the fed's latest policy powell's pressy conference starting at 7:00 p.m. london time. we will have our eyes trained on it, manus. manus: do will come in did. i suppose it will come back from that -- it will come down to the

tone from jay powell. we are with our viewers and or bloomberg customers every step of the way. bloomberg radio, live on your mobile devices and on dab digital radio in the london area. i miss london. this is bloomberg. ♪

♪ >> we are not forecasting are expecting a recession. the most likely outlook for our economy remains a favorable one, with moderate growth, a strong labor market, and inflation back up to our 2% goal. i think part of the reason that outlook is good is that the fed has over the course of the year seen fit to lower the expected path of interest rate and that has supported the economy, the consumer has been strong, the service sector has been strong. the manufacturing trade and business investment side has been weaker, and is in fact now sideways to slightly down. trade policy uncertainty will be weighing on business investment

decisions and that sort of thing. as we move forward, we will continue to watch on these factors and all the geopolitical things happening, and we are going to continue to act as appropriate to sustain its expansion. manus: those were some of the fed chairman jerome powell's outlook remarks earlier this month, reinforcing expectations of another rate cut ahead of today's decision. a little breaking news for you. by the way, i am manus cranny in dubai. breaking news from this side, seeking bids for part of their trading unit is nissan, expected to be a billion-dollar deal. they do businesses in south korea, mexico, the u.k. and china, 37% of their revenue comes from vehicle components and materials. so you are probably looking at net proceeds of around ¥676 billion in revenue, so big

changes at nissan throughout the year. this is just the latest headline to come through. nejra: absolutely, and nissan is set to choose a buyer as early as october. so we have the breaking news, the fed meeting, and of course, the repo rate, a risk that it could overshadow jerome powell is new conference. projecting $1 billion of liquidity into the market today, big questions over what it means rate and perhaps even for the expression of the balance sheet. manus: yes, it is an unprecedented move, one analyst called it a pandora moment that my force the fed to start thinking about quantitative easing. up auctions with the treasury, or is there a risk off or actually some kind of dollar shortage? those kinds of moves do not disappear from nowhere.

never: you are right. the thing is, if it goes unchecked, there are concerns that it could impact borrowing costs for consumers and the broader economy. if fans are pushed to the higher-end. manus: i think you summed it up, the last being the need is the fed hanging around there. about the let us talk global economy, because the president of the world bank says that gdp growth this year was poised to drop more than previously estimated. he says the expansion will fall short of the banks june forecast of 2.6% in real terms. meanwhile, shares in fedex tumbled 10% in late trading as the career,/their profit outlook blaming the global economy. but the cofounder of blackstone, steve schwarzman cited a hopeful

note about the trade dispute saying that china,-u.s. tensions are likely to ease because it is in everybody's business interests. he spoke to jason kelly. >> people are rational on a certain level. these two countries see that it is not working for them, they will come to the table, which is what is happening now for the third time. and they are doing it not to just be helpful, they are doing it as they recognize that the short-term in china can remain ,ine with policy adjustments but they are borrowing from their future. long-term, if you really go off on your own and decouple and have a slower-growing world, what is the win in that? that is not a win. >> what can you, steve

schwarzman, due to help that along? >> well, i think there are a lot of people who know both countries, and they think it is important that people understand where this is ultimately going, which is not in their interest. and ultimately, i believe that people will act in their self interest and there will be an adjustment. no one can predict the media wants, what is going to happen in october brickwork right -- >> right -- >> it is really about primarily china. they have their hard-liners, they have their reformers. >> right. >> but what do they actually want to put on the table? nejra: that was blackstone schwarzman.teve let us get back to our guest, chris ralph, ceo of st. james place was management.

how do your fund managers feel about the cycle at the moment, because i spoke to august yesterday who sees a botto bottoming in the manufacturing cycle, therefore a weaker dollar and trades like value of performing growth. aris: firstly, we have had very extended cycle that we talked about on many occasions, and therefore, there are about whatd a worry will be the signs for the end of the cycle. the second part two that, one of the implications of it, does it mean will see this long waited-for switch into value assets, because we have seen the growth versus value since going back to the 70's. we have seen a bit of that reversal in recent weeks. a fund manager, it is really, really tricky out there. we have just been talking about the impact on al oil markets.

it is tricky for a wealth manager and if you are positioned the wrong way when oil moves like that. if you're talking about it in terms of broad asset allocation, this is not the time to take on excessive risk, i think it is a time to be very, it is the time bradleya really well, distributor portfolio that has an equity part in it, because growth is slower but it is not falling off a cliff, but it is more cautiously distributed than it might have been when growth outlook is more certain. manus: i want to get your sense on what is more rational. it is a very broad word translate it. for me, everyone is a winner. stocks, bonds, commodities, currencies, all positive returns so far this year.

so if i am rational, which asset class do i want to be the longest on, because i will get a fed cut, i will get kiwi, possibly -- i will get qe, rate cut. chris: is very tricky. what we say to our clients is they should still have a view of taking a long-term position in equities. they are trying to make these timing movements, and it is tricky to get it right. we could have said at the beginning of january this year or maybe on christmas eve last year, that all bets are off, we should be out of equities now because it are about to be caught because of challenges to the global economy, and that would have been a very bad trade. so stick with the equity path in

the portfolio and that would be good for clients in the long-term. nejra: how much are you looking more now than six months ago at public markets? than: the answer is more six months, but definitely, we are really looking at private markets. there is no question that the private market world is increasing in size and opportunity. we just formed an arrangement raised quiteh has a lot of money for our clients within the past 6-12 months, and we are keen to continue because the opportunity for allocation to risk markets in those types of assets, as we think over the medium to longer term, pretty exciting. manus: private versus public markets, chris, thank you very much. chief investment officer of st. james place wealth management. let us check in on the markets for the rest of the world. with bloomberg quint, we have our partner in dubai, and in london.

annmarie hordern, good to see you this morning. how does that trickle down to india this morning what is going on with the fed? >> a good day to you. we are looking at consolidation. especially after the weakness we saw yesterday, for now, there's a bit of a break after yesterday. as far as brother markets are concerned, we are looking at small amount of gains from the banking index, but a lot of this governing ofe short positions made yesterday. the indian rupee is stable at around 71.8 or 71.9 mark. we have seen the weakness against the dollar last year, or the big move we saw in crude oil. a lot of analysts are of the opinion that we will have to watch and wait before we see any

stability in the rupee. so for now, the markets are quiet. , justarie, what agam said about markets being quiet, look like we are in a holding pattern because of the fence. all aboutyes, it is the fed today, they are set to cut by 25 basis points, and that will be the key driver of the markets as we move away from the weakness in the global oil supply. it is a mixed picture, the csi is higher in china, but japanese lower.s are notably the foreign exchange risk-off, we are seeing a higher dollar, and commodities, crude is stabilizing. wti about $59 a barrel, this after the plunge yesterday. last night, we heard from saudi officials and the ceo of aramco about the timeline of restoration. we have them covered both in

riyadh and in jeddah. i am looking at the whirlwind of the repo market yesterday, a market that we don't really get to talk about, but it is crucial for billions of dollars and borrowing. when we saw the repo rate spike, we saw a number of spikes associated with that. for example, this morning, the overnight financing rate futures, this is the volume, it has spiked the most since the rate was even introduced. this was a huge story yesterday. crazy.der called it it is going to be a big story today especially against the backdrop of the fed. it can guarantee that jerome powell will get a question about this later today. manus: yes. oil is on the news conference yesterday. in dubai,, agam vikil and annmarie hordern. let's get the first word news with naomi in london. you.: thank

saudi arabia has restored almost half of the output lost of the world's not just oil refinery after this weekend's attack. crude flow is back up to around day, and therels a chief executive of saudi aramco is optimistic about the return to pre-attack levels soon. >> we will be at full capacity by the end of september. naomi fish in the u.k., bank of england governor mark carney may be asked to extend his term is brexit is delayed, according to the financial times. the prospect of a snap election is reported to make his departure less and less likely. he has extended his term twice brexit.repair for spain is headed for its fourth election in as many years after the king concluded that there was no ended it with enough support to form a government. the nation has not called for a new ballot on october 10 after

the prime minister failed to seal together a left-wing coalition despite having almost twice as many seats as the main opposition. global news, 24 hours a day, on air and at tic-toc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. nejra: naomi, thank you so much. coming up, we speak exclusively to the ceo of aviva investors. you do not want to miss that conversation ahead of the fed and investing in the negative rate world. this is bloomberg. ♪

manus: just some of the auto executives speaking about the future of electric vehicles all this week on bloomberg. we will be joined by more than 200 media organizations in the covering climate now initiative, leading up to the u.n. family summit on september 23.

we will also be watching auto sales data. this is daybreak: europe, i am manus cranny into by. nejra: and i am nejra cehic in london. coming up, we will have the u.k. some a price index inflation figures for august. it is forecasted that headline cpi inflation drop low the bank of england 2% target. manus: the all-important federal open market committee, a cut in interest rates is expected, and all eyes will be on the rhetoric and signals on policy action in chairman jay powell's conference.n press >> later on, the brazilian central bank will also make a decision on interest rates with low inflation, weak growth. there is little doubt among the analysts we serve it that policy makers will drive the lending rate to in your record low.

let us get the first word news with naomi kerbel in our london hq. naomi gold may be trading at a six-year high, but barry gold, chief executive, says there was much milder chatter at this week's gathering in denver, and added consolidation would be good for the industry. he also touted a possible deal by year-end. >> africa has performed extremely well, as he expected it to, strong cash generator within the portfolio. australia, nowin far down the road in creating a -- asset. naomi: fedex slumped in late trading after cutting its growth forecast for 2020. it is the latest sign that the trade war and global slowdown is starting to hit u.s. corporate titans. fedex is also preparing for a drug on remedies after severing most of its ties with this

company. virgin atlantic says it will add more than 80 destinations including in china and australia, if the expansion of london heathrow comes with a shakeup in the way stocks are allocated. the airline is pushing for a model to create a second carrier to rival british airways. the stock steam is already under review. that is your latest bloomberg business flash. manus: naomi, thank you. let us focus on the challenges of portfolio construction. blackrock, there are no more than 48,000 funds based in europe, almost double the number a decade ago. with so many products to choose from is it possible to pick managers, who consistently outperform the market? our next guest says regulation and technology demand a rethink technology demand a rethink

of portfolio construction that will revolutionize the role of index strategies. joining us is ursula marchioni, the chief strategist for emea at blackrock's ishares. what really brings to my mind when i see the paper is looking at the technology, looking at regulation. in the past number of years, often times we have gone after the rock star active fund manager. much to our peril. what do we need to improve upon with data and regulation? or absolutely. good morning. asset star managers will always be important. i always read about active versus passive, but that is not the point. i guess it is just a different way investors are thinking about their choices. if you look at portfolio construction and portfolio returns, there are asset allocation choices which we discuss every day,, then there is timing from one area to another, and then, security selection, and i think it is

difficult to be excellent at all for them. what we see investors who work with doing is focusing on the areas where they really excel, , it iss asset allocation a great way to express their views. and partners with great active managers on their area of expertise. it is about blending and using different tools in the toolbox, which, to your point, manus, is ever-expanding so why not take the language of more options? nejra: you point to the false dichotomy between active and passive, and you say that really, it is about blending index factor and alpha streaking strategies, you say that active what follies start with indexing. how? ursula: it sounds like an oxymoron, but i believe that in terms of expressing as the traces from an asset allocation perspective, differently from 10 years ago, nowadays, you can use

active to do that, and what is more active than choosing one region over the other, going long u.s. versus regional markets? you can blend that with true alpha, leave away from benchmark huggers who do not do much, and going into growth, real strategies that are worth paying for. it is a big shift we are seeing in europe. andou follow etv flows mutual fund flows as a whole, i think this trend is able to explain a lot of what we're witnessing, which is a paradigm shift. -- you saidell me indexing will accelerate from the current level, of around 10% penetration within european wealth portfolios, to approximately 50%. my question is, i understand the momentum and the drive in the growth, but is there a concentration risk in indexation

accelerating to such a level? ursula: i don't believe so. so we have read a lot about the topic as well, regulators have looked into it for the last five years, and i think every possible that has been done has had a possible outcome. the idea of diversification concentration for index products is different from active, because, again, the types of clouding effects you might find, capacity constraints, are different if not there at all. so, the short answer would be, i don't believe that is the case, i think we have a great ways ahead of us. is it going to be. 50 or 45, difficult to call, but we are definitely leading in that direction. and i think it is more exciting. nejra: is there a risk of over diversification? ursula: absolutely. over the last couple of years, we have looked at over 1500

portfolios and that is actually one of the areas where we see investors actually tripping a must themselves. if you put together a portfolio with 50 great active managers, you actually end up with an index, but you pay alpha fees for it. so, again. , we do need to think about diversification. it is good to see it in portfolios, but at the same time, it can trip us up. nejra: very interesting, thank you for joining us. coming up, working around the clock. saudi aramco tells bloomberg backthe plant should be to a pre-attack capacity by the end of the month. manus: great work by anthony dipaolo there, according the ceo of aramco. we will court another ceo, euan munro, ceo of aviva investors joins their and myself at :00 a.m. to discuss the markets.

it has been the worst monthly performance for the bond market since 2016. opportunity or threat? euan munro digs deep into the book of knowledge on bonds and shares it right here on daybreak: europe. this is bloomberg. ♪

nejra: good morning from bloomberg's european headquarters in the city of london. i'm nejra cehic. manus: i'm manus cranny. this is bloomberg daybreak: europe. these are today's top stories. the fed is expected to cut rates by a quarter-point today. jay powell's messaging may be the story. >> the effectiveness of monetary policy is not absolutely guaranteed. therefore, it needs to be

consummated by other policy instruments. manus: the fed's meeting is overshadowed by the first move in some money markets for a decade. another $75,000 is on the docket today. ondi arabia attempts to move after the worst oil disruption in its history. aramco's ceo says it will be back to business soon. >> we will be at full capacity, of course. september, we will be at capacity. ♪ nejra: welcome to daybreak europe. i feel like this week, we've had a sense of rapture. first with the oil markets. we got an update from saudi aramco on that.

and then the action in the repo yesterday. one trader said, it's crazy. manus: the rupture in the oil 7%kets is still priced in, above where we were at the close of business on friday. what level of oil will be brought to bear on a ron -- iran? how are your cards looking? nejra: what we have here is falling. the biggest monthly drop for 2019. that's the august number for european car sales. i'm taking a look at the european futures. we are also looking ahead to the fed decision today. perhaps even expanding the balance sheet. some of those questions could over shallow -- overshadow messaging.ll's

yesterday, the s&p 500 closed a bit higher. we were flat on the stoxx 600. much more volatility in treasuries than u.s. equities at the moment. futures pointing slightly negative in europe. we are in a holding pattern ahead of the fed. the debate.is i need a little bit more detail on those auto numbers you gave us before we touch on the bonds. you have vw, sales dropped by 8% year on year. line downng my eye the numbers. nissan sales dropped 47% year on year. date.7.5% year to the pain is for the german producers and likewise on some of the japanese. let's check in on the rest of

the markets from around the world. we have the bond futures there. talking about that volatility in the bond market. we've had the worst month since november 2016. the bloomberg bond index is down 82%. the question is this. long treasuries. 1.5 to 1.8. that's the right one. juliette saly standing by in singapore. juliette: nissan numbers not adding to the already downed mood we are seeing in japan. the topics lower for the first session in nine. we see a lot of those exports took a heat -- it today. commodity currencies being sold off ahead of the fed as well. you have the asx 200 closing lower. its first loss in six sections. pretty flat on the hong kong market. we have been watching what is

happening in the one-month. a little bit of a squeeze coming through in hong kong today as well. in china, consumer stocks lifting the csi 100. data has once a been been a story of the export shock coming through in the region. japan's exports fell for a ninth straight month. coming down with a drop of a .2% in august. that's actually the biggest drop weve seen since january when had a slight pickup coming through in exports. is bloomberg intelligence saying this will start to hurt the manufacturers a lot more because we are seeing the squeeze, the effects of the china trade war. they are also being hit by weakening demand in asia for autos. domestic demand is helping to offer some of the shock but that could be affected when the new sales tax comes into effect in japan on the first of october.

another disappointing export reading coming through from asia today. juliette saly in singapore. after suffering the worst oil disruption in its history, all eyes have been on how far saudi arabia can restore production. an update from the kingdom did markets clarity on the severity of the damage of the world's biggest processing plant. output has been partially restored. progress has been slower as expected. crude prices remain elevated. bloomberg aramco told the company has mobilized teams around the clock to restore operations and expects the plant to be at paris attack capacity by the end of the month. management. we do megaprojects a rover. -- all over. happened, we put our workforce.

we have subject matter experts, engineers, professionals, operators, craftsmen. team worked to restore it as a project by itself. the manager was given full authority to execute with all the resources required for him 24/7. that helped us put the facility back on strength. >> [inaudible] >> of course. >> [inaudible] september, itof will be at capacity. >> will you make your shipments to international customers? >> we are able to make our shamans to international customers. we used our storage facility in kingdom and out of kingdom. the ceo of saudi aramco. so, those were the soothing words from data.

our economy and government reporter joins us now. you, dotion i have for the numbers stack up. -- up? >> we have to wait and see how able they are to restore production. they are expecting by the end of september, they will actually restore 11 million. to focus capacity, we are talking about the end of november. we go back to 12 million barrels per day. this is a lot more pessimistic than the initial estimates that came out right after the attack on saturday. we are looking at a situation where people are still waiting to digest to see what actually happens in terms of the actual work on the ground. we have been seeing that they need a lot of specialized made-to-measure equipment that would all have to be shipped from the u.s. and elsewhere. so. nejra: great to have you with

us. talk to us about what the longer-term outlook is for aramco now. things that we were basically looking at aramco for is the expected ipo that was supposed to be happening sometime in november, according to our sources. now the company is saying, this will continue on within 12 months. saudi arabia right now is also dealing with the bigger question, how to retaliate? how to secure its facilities going forward? they are dealing with a president whose very hesitant to go to war. what we know is that the pentagon is preparing a report that would come out within 48 hours to lay the blame and provide evidence to what actually happened there. saudi arabia said it's joining an american coalition that will secure the gulf and shipping routes as well. affirmation ofhe

what the world wants. coalition from a policy response. we will keep our eyes on this story. there's only one story for the markets today. the end of the two-day meeting of the fed. 25 basis points is probably anticipated. historically, the fed has delivered easing when the market has expected it. comesve comes -- moves among positive signs from the manufacturing sector. decision risks being overshadowed by the federal reserve injecting cash into u.s. money markets for the first time in a decade yesterday. powell might be asked about that repo rate. we spoke exclusively with the bank for international settlements general manager. we asked him about the challenges to monetary policy today. conundrum that

monetary policy faces right now is that monetary policy has been tremendously competitive. we are at low rates of interest. we are still not fully there in terms of economic recovery. >> that's it. that's what i want to get at. can monetary policy perhaps engendering recovery? have they run out of options? the toolkit seems to be barren for a lot of these heads of banks. >> yeah. a little bit more can be done. many advanced a company -- economy central banks see inflation below objectives. growth is not where it should be. the effectiveness of monetary policy is not absolutely guaranteed. therefore, it needs to be complemented with other policy instruments. policies youother

have referred to would be the fiscal side of things. >> absolutely. ittell us about how -- varies country by country, of course. what type of fiscal measures wouldbe you9 would you -- you be looking for generally speaking? tell me. talking about fiscal policy, i also think the elephant in the room, especially is trade policy. central banks would not be pushed so much towards accommodative monetary policy. deplete itsed to policy space. that was our exclusive conversation with the bank of international settlements general manager and former governor of the bank of mexico. .t is fed decision day

our next guest says the argument for easing is that the global economy has continued to slow with manufacturing and trade to give early week. always great to get you on the set. fed day. the question i have for you is, how hawkish will this move be from the fed? they might cut. you said they need to move on this. you have quite a take on it. take it away. >> we think they will move. 25 basis points, as you say. that is noncontentious. i think it will be enough for the market. the market is expecting quite a lot of monetary stimulus. that's ourt, while forecast, we're actually not -- we don't really believe that the

only solution to the world's problems are central banks doing further interest rate cuts and quantitative easing programs. i do agree with the last speaker. some kind of fiscal response and easing of uncertainty caused by trade will be essential if we are going to get demand backup. nejra: it's interesting. good morning. you do expect this material downward revision to the dot plot. others say, you are going to get the 25 basis point cut. drop house messaging might come across as neutral to hawkish. that might cause volatility. in your portfolios, in terms of the expectation for high volatility from everything else going on out there, how are you managing the risk from high volatility? >> higher volatility, we often run portfolios where you've got a combination of what we would characterize as risky assets, exposure to equity markets and credit risky bonds, and we

offset that with risk off transactions. 30 year treasuries were a wonderful risk off trade that has worked superbly well. now, we feel that monetary policy is reaching its limits. we still need to find risk off trades. we certainly think tips, real bonds are more interesting. as nominal interest rates are coming down, breakevens have also come down. some of the characteristics of the slowdown, things like raising tariffs, trade disruption, these could actually lead to inflation if they were actually ever fully implemented, particularly in the u.s. economy. we think pets are better balanced. you have a combination of exposer to inflation as well as exposure to a further easing interest-rate background. a pretty've seen

amazing move in the bond market. i started the show by saying the bloomberg market treasury index is down nearly 2%. that's the worst since november 2016. i suppose the speed with which this bond market re-prices. what can you tell me about that? do you think that is dumb? >> i think the characteristic of bonds, particularly long bonds, is people get crowded into the trade. my view is, central banks have certainly been helpful in their activity of lowering interest rates to the front end of the curve. helpful longerow dated qe activity has been. is, that has imposed a huge burden on the private sector. if you are reckless enough to promise people pensions as a corporate in the last 20 years, the decline in interest rates is

a huge burden for you. that just massively explodes the liability you are answerable for. pension funds, anyone who was given a guarantee, have been crowded into this trade as long dated bonds have come down. about,s like to think who are the marginal actors in the market at any point in time? professional investors, people running liquid alternative strategies, didn't like strategies -- treasuries from the start of the year. we were all quite long. what is crowded now is the liability owners that have had to hedge their positions as interest rates have got lower than anticipated. nejra: that takes us into a conversation about negative rates which we will have in a moment. how are you managing risk at the moment? are your fund managers having to take on more risk to generate returns? how would you want to position that risk, if so? >> i don't think so. we have been able to find the

right balance between risk on and risk off trades. -- so far, we have delivered good returns with variable volatility. i saw an interesting piece of analysis looking at simple 60-40 balance funds based on u.s. assets. 60% net with 40% in fixed income. the tenure rolling return on that simple portfolio construct is as high as it's ever been in terms of a bus grid -- above risk free. the return per unit risk is also less generous as it's ever been. you could say that investors have never had it so good if they are in a simple strategy. the message for me is, if you are in a simple strategy or if you've been relying on being exposed to markets, maybe a combination of equity and fixed income which is the default position of most people, you had a fabulous return. that explains a lot of the

powerful growth in passive. passive has worked incredibly well. to see, starting with negative interest rates on 70% of the bond market in europe, looking forward to that same asset construction, is a xi going to deliver the same outcome over the next 10 years? that's a longer-term investor -- question. a lot of investors are in strategies that are going to disappoint unless they change positioning. mathematically, you can't get the returns from bonds that you had in the past. nejra: we will talk more about this in a moment. our guest is staying with us on the show. coming up, getting a return in a world of almost $14 trillion of negative yielding debt. we will discuss that further. this is bloomberg. ♪

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manus: it has just gone 7:22 in london. you are 37 minutes away from the start about -- of the european trading day. we will bring you everything first and. here. the market value of the world's negative yielding bonds have ticked lower in recent days on stronger than expected u.s. economic data and renewed hopes for a trade deal. our guest is still with us. and howyou investing are you navigating this negative yielding world? >> you need to distinguish between investors who need to invest to meet financial obligations, pension liabilities, insurance guarantees. when rates go negative, it is still the reference rate for liabilities of that nature.

if you are an insurance company, you've given some commitments. payments out into the future, risks go negative. you are a force buyer of bonds to hedge those liabilities. if you don't hold them, you will have to a lot -- hold a lot of sovereignty to mitigate against the fact that you are not truly hedged. there's a lot of people being squeezed into those. serve fordo they modern savings products? as we move away from defined benefit type pension entitlements, a lot of people would've of had a guaranteed level of pension linked to their final salary, for example. we have moved away from that now for a decade. younger thanat -- 40 don't have any divined pension entitlement. with all about defined contribution. , wheren that setting they are responsible for the

reliability, bonds used to be what you bought to provide income. negative yielding bonds are clearly not the feeling that purpose. my view is, we are to have to build portfolios to produce income. equities still produce really attractive income. you have to defang equity volatility. the other income-producing assets are private asset, real assets. you do get income but you have to deal with the fact that they are not liquid. you have to persuade clients to invest in something with daily liquidity. those are the two sources of being able to build sensible savings and retirement propositions in the future. it's not where people are at the minute. of our population are in investment strategies that have worked well but are not going to do the job for them. as we look forward into the future. manus: time is against us here. do you expect a pivotal moment

of pushing back against negative bonds? will there be a seminal moment in the bond market? i think there might be. central banks might struggle without ever expanding balance sheets to control the long end of the market. central banks to have a lot of power at the front-end to pin the curve at the front-end. it's the longer dated bonds that will struggle to control. negative, ip it suppose, at the front-end, as long as that is their policy choice. persuading people to tie up their money for 30 years at close to zero or below zero, that's going to only -- you need to have forced buyers in order to do that. diminish, and you have modern savings products, you wouldn't need that. manus: thank you so much.

daybreak europe bloomberg markets european open is up next. promote i will see you in 10 days. nejra: [laughter] ♪

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nejra: good morning. welcome to "bloomberg markets: european open matt miller in berlin. >> good morning. the markets say give us a cut and we will break records. of anp 500 sits within 1% all-time high ahead of the fed meeting. equities begin the day on a cautious note. futures point lower ahead of the european open less than 30 minutes away. ♪ anna: easing expectations.