everything the ecb had been looking at has worsen.ven though the divide is there in the ecb, as it is in the fed, if you look at the data, i think they will have to ease. the question is can they ease a lot on the right front? points may, 80 basis be the level which the ecb should not cut anymore. so what do they do? they cut 20 basis points and then they cannot say that we are out of bullets, which is why we think they will have to do qe. jonathan: basic case for the ecb september 12? gregory: i think their policy has been a disaster. theirre hollowing out insurance companies, they are making it difficult to fund pensions. they should stop doing that. but i think they are going to. let's talk about the what is their objective with quantitative easing? bunds at 10 year -70. ig barely over 25. what are they trying to accomplish? jonathan: quite remarkable stuff. greg staples, priya misra, james athey staying with us. we will be talking about china and tariffs. what a month it has been. treasuries, not a massive moves, down a basis poin

going into september, who cuts more in september, the ecb or the fed? the ecb or the fed?es: the fed, unquestionably. priya: the fed. stuff? priya: the fed. gregory: the fed. jonathan: do you stick with quality in credit or do you go down the ladder to the junky priya: stick with quality. james: neither. you buy treasuries. gregory: stick with quality. jonathan: does anyone think the treasury will issue anything longer than a 30 year anytime soon? gregory: anytime soon, no. 2020, strong possibility. priya: it is a mistake but i think they'll probably do it. james: no, i think t back will say no. jonathan: james athey, great to have you with us, alongside greg staples and priya misra. that does it for us, from new york city as we round out the month of august. i will see you in september. same time, same place. this was bloomberg "real yield." this is bloomberg tv. ♪ . . ♪ from the 5am wakers, to the 6am sleepers. everyone uses their phone differently and in different places. that's why xfinity mobile created a wireless network that auto connects you to millions of secure w

. >> eurozone bond yields hit fresh record lows as the ecb's olly renn signals the bank is ready to hit a significant someti stimulus package. >>> and hong kong prepares for more protests. >>> good morning it's friday. we made it to the end of the week it's been a volatile week for markets. mostly in fixed income space but also u.s. equities yesterday, looking at the u.s. equity close, you would think it was a muted session. the dow was eking a gain of 0.4% s&p slightly up in the green nasdaq slightly in the red that belied a lot of the intraday volatility we saw yet the theme was bid for fixed income a lot of fear gripping the market as we see money pour nothing tha pouring into that space. you may notice there's a lot of black behind me. that's unusual the reason that's the case is ftse 100 has not yet opened due to a technical failure we don't have the opening levels the rest of the heat map is trading solid. definitely a lot more positive than on other days of this week. stoxx 600 up two-thirds of a percent. finally getting back into positive territory the big driver overnight for e

be easinge ecb should policy.arly europe is exposed to weaker global growth and weaker manufacturing. germany is a real problem economy right now. willcb i think should and act at its next meeting. i think the danger is, and president trump is kind of right in this, that as you get lower and lower, closer to zero bound or negative rates in the case of europe, the real mechanism through which you are getting some kind of stimulus is really coming through the currency, and the danger is that we kind of descend into, if not explicit currency war, at least a sort of implicit stealing of growth of the other. guy: how do you feel about the president's meeting later on regarding europe? there is some feeling that the president is waiting for brexit, but you get the feeling that europe will be under attack by the president at some point. the manufacturing sector is already on the floor, if not below, particularly when it comes to germany. if we were to see that attack happening, if we were to see german cars being targete

david: for the ecb it does matter.is why they are thinking about doing more quantitative easing. the currency tends to move before we get qe occurring. all good news. the eurozone is an open bloc. but mario draghi looking out for his legacy. he wants the eurozone to be anding when he leaves christine lagarde takes over. matt: he has the problem no matter what he does, he controls monetary policy and is not on the same page with anybody in terms of fiscal policy. we talked to the german finance minister who says there is no crisis with the german economy and he is not planning on spending more are cutting tax rates. what can draghi really do? he provides some support for the economy, but interest rate have gone a long way down. lending is accelerating. quite but, not getting closer. this is true of several other countries in the eurozone itself. line that will lead to financial stability risk. lendinglooking at bank growth of this magnitude and interest rates in germany going negative. you have to worry about financial

i am wondering whether the ecb -- well, can the ecb turn it around? you can see the u.s. the euro zone is well down in the red. can the ecb turn it around without fiscal help? bob: my simple answer is no. just to be clear, what is the expectation on what the ecb will do? i think they will cut the negative deposit rate further. move,k there will be a points.ibly 15 basis i think they will inject further liquidity into the banking system. question, ask the will the banking system want to take that liquidity? that has been somewhat disappointing. in recent months i think they will give guidance on qe being started again. as we were discussing earlier about the discussion at jackson discussion is big the effectiveness of monetary policy. i think everybody recognizes this. draghi commented on this in his last statement, which is that monetary policy on its own is proving challenging at the moment. therefore, a fiscal boost is required. i do think you will see intense pressure, particularly on germany, to boost fiscal policy. obviously, the german fiscal position is today very

this is standard fare for the ecb. spoke andlagarde also she was much more in line with mario draghi. . you always have these people who do not completely agree with one another. once they get around the table and the leader of the pack tries to push them in a certain direction, the ecb comes around. not everybody is in the same page. let's see how it goes. poor,ta for europe is especially germany. from that point of view, they can probably justify another lowering of rates. it needs a few more people to come around. that is what she is therefore. she is there to win hearts and minds. >> the question is, is going more negative on rates going to quantitativeas easing? thank you for joining us. a bloomberg mliv strategist. the tradeback to story. the u.s. chamber of commerce xiing presidents trump and to withdraw tariffs. footwear and other apparel will be the target. china will slap a duty on u.s. soil. joining us for more, judy schneider. keep tabs on which tariffs for which goods. waserday, donald trump saying there w

they do meet before the ecb. it is like 10 or 20 from the ecb.robably think at least, 10 to 20, perhaps more. ,he policy rate in switzerland it is now -.75. -- loads of room, we can cut rates and intervene. with intervention, there are limitations. the s&p balance sheet is already 110% of gdp. in theory that can go higher but they found in 2015 you can lose a lot of money. also the wildcard out there is the currency manipulates report from the u.s. treasury. in 12 months if you do any more than 2% of gdp than you are triggering one of the three criteria. the s&p in theory might only ever a intervention of 14 billion swiss francs. one billion toid 2 billion over the past couple of weeks or so. at 120, the floor euro-swiss. i think the market is really going to be focusing on euro-swiss in the run-up to what should be the fresh round of qe from the ecb in september. vonnie: if we take a birds eye view of the whole foreign exchange market, what is it exactly that is dominating flow? guy was mentioning yield and the search for yield and i think refer

help if the ecb lowers the rate even more negative? quite weird to positive foro be growth. markets.for the research from our economists shows the reversal rate, at which point they are not supported for lending, is lower than where we are now. 40 basis points. he would argue you could cut further and spur lending. japaneseow the scenario. negative rates don't necessarily have the positive effects we would like. they have a lot of negative side effects. could argue the actual growth impacts are limited. markets seem to still like it. it can push down the currency. >> i am struck by what you said about the reversal rate. others have been more concerned. i want to finish with a chart i love. high-yield bonds have yet to signal a slump is coming. generally, you are underweight government bonds. do agree? in my opinion, will you get a recessional? indicators flashing red. they have not been perfect. the credits fred had is a good track record. so far, it has been anchored. that is the thing i am watching the most. >> thank you so much for

is that what the ecb will have to signal?e: there is a debate because there's so much question . a lot of other global central becauseve at this point they have eased so much. the question is how much room to they have. when it comes to the ecb, there is little room for them to move on the rate side. it is opening a can of worms that is qe. arguably you have christine lagarde coming into the ecb presidency in october. she has been known as adept politician when it comes to negotiating with governments and getting them to come together to the table. the argument is she will be forceful behind getting governments to do a little bit more. el-erian telling bloomberg yesterday you can talk yourself into a recession if you're not careful. what is in the reaction to that. yields continue to drop. katherine: there is a point to be made -- there is low liquidity right now, so the moves are building up each other. with trade headlines, there has been a lot of anxiety in the market. the point remains that we are breaking through big tec

that is a real challenge for the ecb.is saying they want to overshoot expectations and right now, it might be very difficult to do that if they are only buying bonds. marketis the bond telling us we should be worried about deflationary pressures globally? i think the bond market is telling us there will be a global recession and that part of that will drag inflation down. and in places like europe where the starting point for inflation is already low. riskswould be deflation in that environment. there is a question as to whether that is where the trade war will go. what it is a risk the market is counting. michael metcalfe, thank you for joining us from state street. protests in hong kong against the controversial extradition are enteringng -- their third month. let us look at the economic in act -- economic impact. terri announcing a stimulus package saying the economy will struggle to grow at all this year. this week, the administration to its 2019 gdp forecast 2.3%. a drastic cut. nejra: the benchmark hang seng timesis

below the ecb key deposit rate or the first time.oeingunited states, selling $5.5 billion worth of in its largest ever dollar-denominated offering. in its largest ever dollar-denominated offering. a third and final issue, daimler getting more than 6.5 billion in its second multi-tranche offering of the year. pricing tightening at least 10 basis points on all the tranches. staying in europe, the in its sd multi-tranche offering of the year. battle between the weaker fundamentals and qb continues. skye bridge has a warning for investors. >> putting the fed or central bank has been a losing battle post crisis. every short position you have had including lower quality deteriorating fundamental credits has worked against you. 2011, 2015, q4, fundamentals matter. since the start of this year they have not. the tablewith me at is oksana aronov, priya misra, robert tipp. fundamentalsetween and qe, how difficult is it to get your hands around that in europe? oksana: they have divorced each other, there is no relationship between fundamentals

it is probably not the end of the qe process for the ecb. vonnie: we are at 0% in spain, portugal, mind a 70 basis points in germany. portugal, -70 basis .oints in germany btp's are low. alberto: you can put a billion euros in a cubic meter of space and essentially, you will get zero rather than paying -70 basis points. , and is a physical limit that is also the reason why the ecb should focus more on the real economy. for example, buying more corporate bonds or bank bonds. if you keep interest rates negative for too long, you can have deflationary effects in an environment or people need to say for their pensions. if they see that returns are lower come of they are actually going to save more if interest rates are lower. we don't believe so much in the rate cut story as a push for but the growth, competition of qe and fiscal stimulus is key. for that, we need some leadership on the fiscal side by the eu and germany, and we haven't seen that yet. vonnie: on that, we have the bundesbank saying there's no need for fiscal stimulus, even after r

ecb accounts due today.r, meeting emmanuel macron over lunch. powell takes the stage at jackson hole. the g7 summitnd, in france which has the potential to unsettle the international order. scarlet: we are still with dana peterson from citi and robert hormats from kissinger. 1970's,the mid-70's -- you were a sherpa at the g7 so you know what goes on in the back rooms when everyone is trying to get together and hammer out this communique. my question is the relevant today. does it work in the age of the strongman later? how do you prevent a donald trump from hogging the spotlight and playing the spoiler role? sherpa -- we are having it in france again. scarlet: full circle. robert: there was a notion among leaders they needed to work together. there was an oil crisis and concern of a global recession. they needed to work together and american leadership, you also german,trong french, and japanese leader at the time. -- theyerstand it understand they had to work together. the u.s. was the leader of the global

nejra: what should the ecb response be here? john: the ecb has shot most of its bullets.g at asset purchases, they won't move the needle. it is on the fiscal side of things to bring stimulus to the table. that will be the question after november 1 and we have the new leadership in power. matt: what kind of crisis do you see, then? here is only one quarter of contraction. do we see a recession in germany? is that your expectation? john: it is. it is not necessarily a deep recession, but the export sectors are in a deep recession. it is going to go back to spreading recession risk across the eu, and all the risk we have revisited since the e.u. sovereign debt crisis that was never really solved, just papered over by draghi's program of money printing. nejra: do you expect much of a reaction in bunds? we got to -60 yesterday. john: given what happened yesterday with trump's conversation, we had a little more of a risk on, maybe a consolidation. a thought we would see negative trend in german recession. i do not expect much from germany today. nejra: speaking of the risk on,

before the break you suggested it doesn't come down to the ecb at this point.all on schultz that we need to be watching what are you expecting at this front? >> the government already adopted a budget for next year which will see it stays. the government doesn't want to borrow that limits the scope of fiscal stimulus at the federal level. we'll probably allow them to do a little bit of stimulus and we'll have to watch what the state governments and municipalities will do that's a good thing because there was tightening i think bigger stimulus will only come in 2021. that's when they said it for many households. that could be the platform for a bigger stimulus. >> your point about more coming from the regional governments i want to ask you about the story coming through overnight considering less strict than previously thought rent freezes in berlin. german property stocks strongly on the back of this. how significant is this development in your view >>> well, in a way it shows the dangers of an election in germany where the left, so the green and the left party

you have the ecb supporting zombified businesses essentially.hey don't have any catalyst for going through a default cycle. what we see in the u.s. in high-yield this month has been a nearly 1% pickup in defaults. we are now, at the end of july, looking at 2.5% of defaults. not that far from 3.5% annualized average that we have seen over the last couple decades. in spite of that, you see $15 billion of inflows into high-yield bonds in the u.s. you continue to see inflows in europe as well. so certainly, there is a tremendous amount of complacency out there. with respect to risk, at a time when bb's are at 2.40. high-yield overall is in the mid-threes. what are you going to make on these positions in the absence of central bank support? priya: from a macro standpoint, and i am a government analyst, i'm supposed to worry about everything out there, but what worries me is, are we going to go from a reach for yield to a default getting repriced in the u.s.? in th as that fades away and global growth starts to impact the u.s., does default risk sta g

guy: could the ecb spark that? i'm looking at september and, given the data out of germany that are bad, that the ecb is going to have to go big. the currency in germany is flattening rapidly. the signals aren't great. if the ecb pulls out the bazooka in september, how does the white house react? do we go from lukewarm to boiling pretty fast? viraj: the euro is pricing in quite a bit of ecb charity right now. the ecb might not want to engage in a currency war. fromwill take the cue data and deliver what the market is probably expecting. we even heard from some outgoing central-bank members that may be the market is expecting a bit too much. there's probably risk of a disappoint here. i think the risk of an ecb led move seems quite low. tariffs ore's something that come to bite the euro. vonnie: will we see unilateral intervention in a currency around the world at some point this year? if so, who will do it? reluctant to say that anyone will engage in a unilateral fx intervention. right now it seems like a zero-sum

the ecb will do everything. the market moves kind of a little bit. el,"comments from "der spieg saying germany would be prepared to deficit spend in the event of a recession. monetary policy has hit the end of the road. what is your reaction? bhanu: two points to make. .1, this is a textbook definition of a liquidity trap. when you go to school, these people teach you fancy things like the curbs, and in a liquidity trap, the only thing that works is fiscal policy p of that is why it is no surprise that fiscal news is getting the greater reaction. point 2, are they going to get fiscal spending anytime soon? that is the bigger question. it is possible the market may be talking itself into creating hopes of fiscal easing in a more imminent and larger fashion that is -- than is likely. the german on appointment rate can go up but has not gone up as yet. the next step is fiscal policy, but we will have to be more patient than the market leaves. it is not time to buy euro stocks because of fiscal policy. the causality may be exactly different. vonnie: exac

powell and the ecb and pboc. ecb you don't have much tools left. the fed is in a stronger position. russ: my colleague spoke about it a few hours ago. this is the challenge for central banks. the ecb policy rate is already deeply negative and creating enormous pressure on the banks. the european banking index has undercut the december lows and is back to where it was 2016. it is not clear going further into negative territory will be the right course. francine: what does it mean, if president trump goes for germany with tariffs for carmakers and if angela merkel does not put fiscal policy in place, what does the ecb look like in 18 months? russ: you will see them tools -- use tools at their disposal. it will be difficult for a global economy to rebound if the only tool being deployed is a further cut interest rates. at this point with yields where they are, it will be less effective than five years ago. tom: this is like modern fiscal portfolio theory. francine's question on the degrees of freedom that we have, w

what is the ecb going to do in terms of its policy? diluting some of this impact we could see further down .he line scarlet: what do potential leaders -- keep it in their back pocket as a thing that will save them? wolfango: i'm not even sure salvini knows what ecb is or what it does. the ecb ish jane, providing this backdrop and allowing politicians to play the way in which they want to play without paying the price for it. the risk here is quantitative easing, going to give three parts to these politicians who are willing to push things to the limit i think if salvini comes back as prime minister on the fiscal side it would push very hard. .he package of 50 billion euros he forgot to indicate where the zeros will come from. i guess it is irrelevant when you are in election campaign. that is the risk of monetary backdrop makes politics worse than it is. francine:francine: when you look at the real concerns, the idea of parallel currency to the euro with certain advisors put in -- if he is is this in charge as prime minister, how many

dollar 1.1140 this is exactly the level we were at going into the ecb meeting a few weeks ago.here. there hasn't been any movement in the currency, though there's been a lot of movement in equities and fixed income. finally, u.s. futures. the mood today is pretty somber. we have the dow opening up 300 points lower on the session. s&p also down about 40 points. respectively, all of them down more than 1% declines we're looking at today. we're getting towards the end of earning season here. we're 85% of the way through for s&p 500. the main catalyst for performance are going to be what happens with these trade discussions between china and u.s. with china obviously retaliating overnight, the mood is not so pretty >>> top executives at renault and nissan are working to forge an agreement to reshape their alliance, according to the "wall street journal." the "journal" cites emails saying nissan wants renault to lessen its stake fiat is happy to start negotiations but also fine to go at it alone. although a deal with fiat is of the table for now, it would have created strong new syn

>> i don't think we are, bearing in mind september ecb, we are looking for a 20 basis point cut.hat will take us to a 60 negative dpo rate. getting into a 70, 80, 90 number could be quite easy from here. of people areot buying these assets for capital appreciation and direct appreciation in there for leo's. if you are u.k. investor buying assets, you get a positive pickup from the foreign exchanges. still plenty of demand around. we will get a wave of new issuance from corporate's in a couple of weeks. it will get taken down very well. t, what is your perspective when we look at the incredible amount of negative yielding debt out there? are you finding it attractive, going into those areas with negative yield? do you view this as a bubble? how do you reconcile this with the history books? matt: if you need to own it, you need to own it. swap back into another currency and still have a positive yield, we do that. ultimately, we think the experiment has a problem with the outcome mechanism. we have not seen growth or inflation revised. we think you'll see a bottom to negative yield

vonnie: how does the ecb and shore there isn't -- you'd the ecb -- how does the ecb ensure there isn'trreach on the part of its members? ferdinando: ultimately, the president does do regular hearings with the european parliament, where he is asked questions, much like the chairman of the fed does with congress in the u.s. clearly, the ecb president is bound to be a more political figure. he will need to rein himself, anyway, and draghi tried to do that when he set up the outright monetary transmissions, which is the basis of the whatever it takes proclaim he made years ago to save the euro. when he created that set up, he made sure that countries have to ask for help from the euro zone government, and these conditions are negotiated with the government. that means the central bank is not making the man's on its own -- making demands on its own on governments that need to be rescued, like greece or ireland. this is a way to make sure that they central bank doesn't overstep its mandate. but isaiah said, the institutional structure of the euro -- but as i said, the institutional structure

cheryl: and the futures jumping in europe, on the ecb news, possibly more stimulus coming from the ecbney. they may be get itin getting itm europe. we have a 3 basis point jump for the 10 year. a little bit of a dip in bond prices, that's good for equities. lauren: tensions in iran continue, the price of oil up. cheryl: a lot of the news that crossed happened after asian markets closed. there's green arrows across the board. the only market a little bit in the red was korea's kospi. lauren.lauren: let's check oute open in europe, the cac is up 1%, up 1% for the dax. the ftse a little trouble, a technical glitch at the open, but it's trading higher by two-thirds of 1%. cheryl: developments out of china continue to rock markets. china reportedly is turning to south america for some farm products to import. china placed a large order for soybeans with brazil. china stopped buying american soybeans due to the escalation in the trade war with the united states. also on the trade front, again, jp morgan warning this morning that the latest round of u.s. tariffs set to hit september 1st china

alix: which is exactly what i think the ecb is talking about.ver the last three days, a lot of differing views on ecb councilmembers, including incoming chief christine lagarde. "there's no need for qe." "we look at market expeditions to closely." that's the point. will further negative deposit rates actually do any good? will qe actually do any good? i feel like they are really up against it. lisa: you are hearing the hawks come out and say, we don't want more quantitative easing. we are good. i love this quote in a piece on bloomberg today, where they are saying, "you start hearing from the hawks more when they are going to lose." this is their last gasp before being snuffed out, so we can probably expect that bazooka. [laughter] david: there's this back-and-forth at the ecb on what they will do in september. does that show up in flows at all? are people trading on what the ecb is likely to do or not to do? rachel: there's a lot of talk about how far the ecb will go. are they going to have a rate cut? are they going to have a rate cut and qe?

you are pretty aggressive in expectations for the ecb.ark: there are a lot of moving parts, obviously. got the g7 this weekend, and a lot of horse trading that may go into what comes out from a policy response across the zone. it is hard to predict exactly what the ecb is going to do. my point was that it is hard to bet against an activist ecb. alix: how do you invest in europe? mark: in a variety of ways. clearly there are a lot of dedicated european funds in the equity and fixed income space. they have to own that marketplace in a diversified manner. certainly, owning longer has helped. now people have started to retaliate given the growth concerns we have, offset somewhat by expectation to more stimulus. it is a very tricky environment. on top of that, you have pretty decent returns in a number of distant essex -- a number of different asset categories. i think people want to be less aggressive than they were earlier in the year, and owning quality over dispersion, if you will. what you have now are situations we were talking about in

about the german potential fiscal stimulus, we're also heading into that september meeting for the ecbwidely anticipated to be a crucially big one where they could announce another big bazooka. that would be a boon for the sector as well let me take you back to what's been happening generally, more broadly with markets we had a positive epd to the session on wall street on friday another positive session for asia a couple of things at play one is as we just heard president trump looking to down play concerns about the weakness of the economy down playing concerns of a recession and reiterating that talks are on going with china, even though they're not yet close to signing a deal. that's given a little comfort to the market and then over the weekend we had china as well indicating further policy stimulus and size tweaking their new lending rate which is is a strong indication they're willing to go down the route of further stimulus for the economy. overnight in asia, markets were trading positive new york today, most of the heap behind me is green for the week last week, remember we ha

luke: i don't think we are, bearing in mind september ecb, we are looking for a 20 basis point cut.will take us to a 60 negative depo rate. so you know, getting into a 70, 80, 90 negative number for the german ten-year could be quite easy from here. you think, a lot of people are buying these assets for capital appreciation and for extra duration in their portfolios. if you are u.k. investor buying euro assets, you're getting a positive pickup from the foreign exchange as well. there is still plenty of demand around. we are going to get a wave of new issuance from corporates in a couple of weeks. it will get taken down very well. lisa: matt, what is your perspective here when we look at the incredible amount of negative yielding debt out there? are you finding it attractive, i mean, are you going into those areas that have negative yield? do you view this as a bubble? how are you sort of reconciling this with the history books? matt: basically, if you need to own it, you need to own it. if you can swap back into another currency and still have a positive yield, yes, it makes sense a

to be honest, i think the ecb is aware they could do this. this came up before when we were in the euro crisis, when people were worried about recession in 2016. they have done the thinking about this. the problem is they are very reluctant to do these things because the probability of political resistance and confusion. but these options are available and very powerful. nejra: what impact do you foresee there being, on the market, globally, of a move like that? these are big changes, and others have hinted at them before. we had blackrock talking about the prospect of helicopter money in europe. plea i think hildebrandt's in the blackrock piece is important. you cannot get a more mainstream, authority of macroeconomists than stan fischer. i studied his test books -- textbooks. these guys are the mainstream of central banking, and they can see what is becoming pretty much obvious to everybody, which is, qe, the marginal impact is negligible. forward guidance was always questionable. stage really has to be about transferring money from the cen

i also want to ask you about the ecb and brexit. john ryding, rdq economics chief economist, stays with us. let's check in on the first word news with kailey leinz. kailey: dorian is aiming to become the first major hurricane to slam into the florida coast in 15 years with winds of 115 miles per hour and drenching rain. it is already carrying winds of about 85 miles per hour after racing past puerto rico and the u.s. virgin islands wednesday. 1020 20 democratic presidential hopefuls have qualified for the next debates, but -- 10 2020 democratic presidential have call if i for the next debates, but for others, it is the end of the line. kit digital brand is among those who will not take the stage next month -- kiersten gillibrand is among those who will not take the stage next month. the trump administration will tighten its policy for children adopted overseas by u.s. military personnel. adopted kids will no longer be guaranteed citizenship. previously, these families were considered to be living in the u.s. even while stationed ove

at the helm of the ecb, more dovish, more qe to come clearly the ecb are intent on relaunching the asset purchase if you own bonds, that's a good thing. isn't there an inflection point where the situation on the ground becomes so tenuous whereby eurozone action does slip into recession and that the feeling and the mood to want to own these less safe credits like italy actually shifts because people are concerned about the pick up in defaults, about rising nonperforming loans and about the knock-on effects that could have on business sustainability >> that's the biggest risk now in owning corporate debt, if you start seeing economic deterioration, that will lead to defaults, that's the tail risk right now we're not seeing that. i think if we were start moving in that territory, it would take a few years for that knock-on effect to happen >> we had economists on this program eventually talking about a buy fifurcation of economies n europe, what's going on in different parts of the continent. but in terms of the spread between bunds, that was huge focus last year and people were concerned a

particularly as embodied in the ucb -- in the ecb.er, they twist around and they go out and they spend. i have spent enough time with ceo's of german and european companies and i always ask a question. if the ecb were to reduce race -- reduce rates by another 20 business points, would it matter to you? and they say no. quite the opposite. likewise, if my 90-year-old mother was going to change her savings behavior, if she has to pay -- if she gets negative rates, no, she will save more in order to make up for it. it has the reserves -- it has the reverse effect. the observations do not fit the theory. the dogma is there, and central it will particular -- give way. it is a question of time. nejra: do you get a sense that perhaps that dogma is shifting and the ecb is accepting that more unconventional measures might need to be used in this environment? david: i think we are in for regime change. , am a fan of christine lagarde who ran the imf, my former place of employment. she has done a tremendous job. she is not a dogmatic economist.

i be shocked if hear anything like this out of the ecb. mentioned king, and earlier, they were talking about danny blanchflower and adam pozen, they're always accusations about mark carney and brexit. i would not be shocked to hear this about the bank of england. are they much more political? kamal: it's interesting you mentioned them. ,he obvious one is the ecb seeing as though they have appointed an actual politician and have clearly created situations in italy and possibly greece. but i think mark carney has done a fantastic job ring together the pra, the sca, and indeed, the classical bank of england role. where he has perhaps been less good is in clearing a fine line or the brexit mess by failing to give clear strategy is obviously going to be a demand shock. and any analysis on the staggered types is possibly unhelpful. clearly, the bank of england does not want anything to do with brexit but they have roles to do. whereunately, that is they could have perhaps steered a wider line on this one. you will expect to see carney giving it

in euro-dollar, it will depend on with the ecb is doing.re is not that much they could do. four fed rate cuts expected this year or the beginning of next year. 75, 100 basis points. the market is expecting around 40 basis point cuts by the ecb right now. maybe further quantitative easing. maybe looking at the 10 year yield level, there is not that much expected they can do to lower yields in europe. the downside potential in yields and also the u.s. dollar looks more on the u.s. yields in the u.s. dollar, more attractive for if you look at what central bank still can do to easement terry policy. ease's monetary policy -- monetary policy. manus: there's a lot of notes out this morning, people upping their view in terms of gold as a haven. you look at the end, you look at gold. are you guys talking about it as an alternative? how is it playing into the conversation? >> particularly we are looking at the japanese yen. japanieve the bank of cannot do that much to ease monetary policy. however, gold is a traditional safe haven. in these uncertai

they're hugely missing on the inflation mandate here are you confident that what the ecb will deliver in september will be sufficient to give markets a short-term boost >> i think certainly there will be reassurance that happens. that's what we tend to see looking back to u.s. and what's happened there, you know, people are saying was 25 basis points enough should they have done more there's always that deliberation but i think within the ecb we tend to get greater agreement and certainly there is not maybe the political headwinds that we face in the u.s. in terms of that decisionmaking >> the sectors you like now in europe, any specific sectors you're focused on? >> we're quite diversified across sectors certainly we are looking at more defensive sectors, so healthcare also thinking about the currency exposures as well. looking at currencies outside of the euro whether that's the swiss franc or also within the nordic region as well. >> those safe haven currencies have done well the last couple of weeks we'll leave it there louise dudley from hermes investment management. >>> coming u

how would the ecb and the rep react? this is something we haven't seen since the ecb was created. guy: you bring up the ecb and germany. we had -60 on the german ten-year this week. in big a week has this been terms of signaling where germany is? i see a slew of economic data that is absolutely horrible. i've come a german ten-year that is -60 -- i've got a german ten-year that is -60. is germany in recession? christian: on one hand, you've got an extremely weak dataset when it comes to the typically cyclical industries here in germany, which tend to drive growth, so industrial production is weak, pmi is weak. all of these things clearly point to a recession. but then you look at private consumption, you look at services, and there is no recession at all. we just had retail sales very strong in june. overall they expanded into the second quarter. the pmi looks strong. we still have this divergence between a to economy that looks resilient, and a week many factoring sector. on balance, it is probably just above the zero rate, growth lines are. i don't expect a recession, but very w

and after announcing he's stepping down — who will the ecb turn to in replacing england women's headch mark robinson? also coming up in the programme... as climbing prepares for its olympic debut why british hopes are in safe hands. news on another medal at the world championships. hello and welcome to sportsday. he was a major doubt — diagnosed with delayed concussion after a blow to the neck in the second ashes test — cricket australia confirming today steve smith will miss thursday's match at headingley having failed to recover in time. the man of the series so far, his are big shoes to fill, with australia needing one more win to retain the ashes. patrick gearey reports. for most of the series steve smith has been in the middle of things. but at headingley he was here as a spectator, not sufficiently recovered from concussion to face the quick bowlers selected this week he will not face england either. if he's not ready to about five days after being hit byjofra archer should he have gone out to do at the same afternoon? i asked him over and over and we have a duty of care to oui

i don't know that the ecb has got a bazooka, to be honest.ransfer of wealth mechanism, which isn't going to happen. they need to go into deficit spending during a recession for some time, at least until they can turn their economies around. you can't ask the fed to play central banker to the world. while that may be detrimental to the u.s. economy in favor of global economies, it may play well to the white house, but it will not play well across the states. is this kind of difference in willingness to use countercyclical policy or outright stimulus, is this something that, as a portfolio manager, does tilt you more towards the u.s.? steve: i think you have to be tilted towards the u.s. here. just look long-term. there are two themes going on. the first is we have population growth. people forget our population growth has slowed, but you have it. you have decline in almost all of the rest of the developed world, including china. longer-term come of elation growth is a key ingredient in growth -- longer-term, population growth is a key ingredie

they looked as though they were all going to come into play with the ecb. we are still quite cautious. we've been saying since the ecb and the fomc that if you're going to buy the dip, probably want to do it in the options space. options were very cheap going into last thursday. habit just has that nasty of delivering a nasty surprise. vonnie: volatility has completely come out of its summer doldrums. i wonder what you are doing to take advantage of fx volatility, rates volatility, for example. more one tend to focus the equities space, so from an fx perspective, one of the things we look at is what is it saying about our own market. if you look at, for example, the went from 1.5. we are actually using these to indicate whether or not we think there's been a reasonably large stock as to whether or not we p.ould buy the di you seen these technology moves across other markets. credit has been the one where it is sort of suspiciously absent, particularly in europe. credit has tended to follow duration as opposed to the risk, but everything else at the moment,

what do we think the ecb is going to do?inancial crisis a decade ago because the eurozone is into a slowdown, the industrial economy led by germany has been any prolonged downturn allowed by global trade falling as a result of geological trade frictions between america and china. europe has the third largest dating engine and generator which is now almost certain to graduate the session, the industrial slowdown has reached the top line growth figures which leaves an impossible choice because they have ecb has done business to stimulate the package which ended in december but never exeter quantitative easing, still buying government bonds but not increasing the overall amount and we have negative interest rates in europe yet the ecb today signalled that they have to do more that they cannot simply sit back and watch the growth output deteriorate particular as inflation is very low. what they are doing is looking beyond signalling rate cut next month, the trying to communicate with the markets which have been feeding recession

shores up the ecb.t will be interesting to see next, whether governments who are not getting paid tomorrow will decide to go ahead and pull the trigger and start issuing more. francine: andrea, thank you so much. he stays with us. protesters rally for an 11th straight weekend and hong kong but this time it is peaceful. president trump meanwhile's -- truck warns the situation could threaten any deal. this is bloomberg. ♪ francine: this is bloomberg surveillance. protesters are rallying for 11th straight weekend in hong kong pick organizers claim 1.7 million people took to the streets and what was a large and peaceful rally. stephen engle joins us. what is the situation after what appeared to be peaceful? stephen: it was a pretty peaceful weekend. no teargas was fired. we are listening in to the regular police press conference and getting the latest news. keep in mind there were vastly difference on the sides of protest when there was heavy rain. it was quite large. organizers say it was upwards of 1.7 mi

guy: we've just had some comments from the ecb, from olli rehn. i just want to read them out because i'm curious as to how you think what the ecb does next will distort what is happening in the united states. olli rehn saying, "better to overshoot then undershooting on stimulus. we need a significant easing package in september. it is important to announce an impactful policy package in september." what do you think of that? inthe ecb goes big september, will that further distort the bond market situation in the united states? andrew: it definitely seems to be impacting the u.s. market already. if they go big, they will continue to lower rates around the world. at this point, i think it is more about the financial markets and central banks. central banks can support the financial markets, but the real economy needs to have impact. you need to see improvement in germany, improvements in italy, and that is going to have a much longer effect on how the financial markets play out. easing central banks can support the financial markets and short-term,