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Speaker 1: This is Bloomberg Surveillance. Surree orientation of the Chinese economy

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Speaker 1: is one thing that's maybe helping demand growth globally. Most

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Speaker 1: of what constitutes emining advisors work the bread and butter

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Speaker 1: is actually selling companies. It's not buying companies. No matter

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Speaker 1: what the FED puts into action, it doesn't always accomplish

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Speaker 1: its goals, so its actions should be looked at with

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Speaker 1: something to grain of salt. Bloomberg Surveillance your link to

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Speaker 1: the world of economics, finance, and investment on Bloomberg Radio.

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Speaker 1: Good morning, It is seven am on Wall Street. It's

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Speaker 1: four am in California. Were just in the last hour.

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Speaker 1: The state's been called for Hillary Clinton. She beats Bernie

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Speaker 1: Sanders for the biggest prize of all. There four hundred

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Speaker 1: fifty three delegates out there. We'll see how they are apportioned,

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Speaker 1: but basically she is the Democratic nominee and the presidential

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Speaker 1: battle is now formally joined. Fear and cash meanwhile flowing

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Speaker 1: through markets. This morning, the ECB begins corporate bond buying.

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Speaker 1: German yields fall to new lows, and the term premium

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Speaker 1: for U S. Treasuries is now at its lowest since

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Speaker 1: nineteen sixty two. There's an auction today, twenty billion on offer.

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Speaker 1: Let's start with bond deal, as long as we're talking

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Speaker 1: about it. In Germany, Tom's been all of this. The

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Speaker 1: two year yield a new low of negative fifty four

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Speaker 1: basis points. The ten year is at six basis points

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Speaker 1: this morning, Commerce Bank says it is possible that before

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Speaker 1: too long we could get to zero on the German tenure.

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Speaker 1: The dollar, though, is falling. You would think if it

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Speaker 1: were a risk off morning, people might be piling into

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Speaker 1: the dollar or the pound that the d X Y

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Speaker 1: I mean, are they the end of the X Y

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Speaker 1: and an three down two tenths of eight percent? The

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Speaker 1: yen one oh seven oh eight is now UH, down

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Speaker 1: by three tenths. It was at one oh six seventy two.

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Speaker 1: But going the other way, the euro one seventy three

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Speaker 1: the one that is strengthening to a UH and it

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Speaker 1: sounds again when you look at equities like it's not

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Speaker 1: a risk off day. Either depends on where you are.

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Speaker 1: The stock six hundred is off by a point four tenths,

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Speaker 1: but here in the U, S S and P futures

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Speaker 1: up three two tenths. It's a one tenth game for

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Speaker 1: down futures, they're up twenty six and nastac on mini

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Speaker 1: futures are up four points a tenth of eight percent.

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Speaker 1: And we should mention Oil West Texas has crossed the

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Speaker 1: fifty dollar barrier now fifty one oh five, up one

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Speaker 1: point four percent, joining Brent, which is all the way

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Speaker 1: up at twenty this morning, one and a half percent rise.

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Speaker 1: We'll talk about that later today with Robert Campbell of

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Speaker 1: Energy Aspects, and of course Dennis Cartman will be joining us,

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Speaker 1: and you want to hear what he has to say

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Speaker 1: about commodities going forward. You said the term premium is

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Speaker 1: back to nineteen sixty two. That is correct, nixty two.

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Speaker 1: I vaguely remember this New York Yankees one, San Francisco

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Speaker 1: Giants zero. It was one of the best world series ever, ever, ever, ever, ever. Yes,

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Speaker 1: it was long, there was rain, um, I'm looking here

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Speaker 1: at the box score. Ralph Perry, be Jack Sanford. Yeah,

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Speaker 1: And that was basically sort of the the end of

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Speaker 1: the Yankee dynasty. There was in sight. They did not

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Speaker 1: win again for quite a while. Tony Kubeck was the hero.

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Speaker 1: He grounded into a double play. That's how tight it was.

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Speaker 1: We could spend talking about all that old stuff. But

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Speaker 1: they don't pass to do that. They passed to talk

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Speaker 1: to Ira Jersey, who came in here his portfolio manager

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Speaker 1: now Oppenheimer Funds. Uh. He came in here. We thought

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Speaker 1: we were just going to talk about it, you know,

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Speaker 1: a risk off day or risk on day, or what

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Speaker 1: the fetist doing or something, and now you got this

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Speaker 1: crazy mixed up. Some things are up, some things are down,

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Speaker 1: and it doesn't seem to be necessarily a rhyme of reason.

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Speaker 1: I can't. I can understand what's going on in the

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Speaker 1: bond market, um with. You know, money's got to go somewhere.

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Speaker 1: But then why isn't the dollar doing the same thing

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Speaker 1: as bonds to do it? Yeah, so the dollar has

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Speaker 1: been sometimes turned around this year where you know, you'd

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Speaker 1: expect in places like Japan, where the Bank of Japan

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Speaker 1: took yields negative, you'd expect the end to actually sell

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Speaker 1: off versus the dollar instead of rallies. And at some

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Speaker 1: at some points, I think a lot of these uh,

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Speaker 1: a lot of these things have to do with positioning.

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Speaker 1: It's just you know what position or investors in or positions,

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Speaker 1: you know, what are the risk positions? UM, and if

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Speaker 1: the risk positions are really sewed one way, then you

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Speaker 1: wind up getting the opposite reaction all the time. I mean,

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Speaker 1: it's it's gonna be but you know, I take an

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Speaker 1: example for one of the things that's happening right now

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Speaker 1: in currency markets is going on with the pound, and

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Speaker 1: that's that a lot of people are buying disaster protection.

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Speaker 1: So they're buying options for if the um UH, if

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Speaker 1: the UK leaves the euro the European Union, that they

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Speaker 1: think that the UM that the pound is going to

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Speaker 1: go down a lot. So they're buying basically out of

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Speaker 1: the money puts, they're buying apt the money puts on

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Speaker 1: the on the pound sterling. So if you were to

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Speaker 1: get a no vote, the move would probably be more

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Speaker 1: muted than you might think. And that would surprise a

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Speaker 1: lot of people, I think. And it's because you know,

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Speaker 1: the markets are trying to anticipate a lot of these things.

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Speaker 1: And I think that's that's happening in UM you know,

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Speaker 1: in in the dollar quite a lot. Now is just

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Speaker 1: all this positioning and UM for different disaster scenarios. What's

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Speaker 1: the biggest disaster that people are are worried about? Now,

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Speaker 1: what's the blackest swan out there. Well, the most immediate

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Speaker 1: one continues to be Brexit, right, that's the I think

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Speaker 1: that's kind of the known unknown is um. You know,

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Speaker 1: if if there is, if there is bregit, what does

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Speaker 1: it mean? How bad is it? And it's not even

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Speaker 1: from my perspective, it's not even the UK leaving the

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Speaker 1: European Union that that in and of itself is is

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Speaker 1: that big of a deal. Operationally, It's not like they're

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Speaker 1: not a euros They're not in the Euro so they

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Speaker 1: don't have to worry about all of the all the

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Speaker 1: payment systems needing to change over and and all of that.

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Speaker 1: But what it does do is it says, okay, well,

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Speaker 1: if the UK can leave, why can't there's leave. It

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Speaker 1: also potentially brings back the Scottish breakup because Scotland wants

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Speaker 1: to seems to want to stay in in the European Union.

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Speaker 1: So do they come back and wind up voting to

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Speaker 1: leave the United Kingdom. There's winds up being a lot

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Speaker 1: of repercussions that that politically that come from that and

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Speaker 1: that type of um, and that ends up being very

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Speaker 1: volatile for markets. When I'm gonna be rude and push

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Speaker 1: Thomas Ide for one last quick follow up on that

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Speaker 1: Brexit thing is that the volatility is understandable, but is

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Speaker 1: it a lasting volatility to do we have a couple

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Speaker 1: of days of oh, this is crazy and then everybody

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Speaker 1: realizes whatever happens. Yeah, I would suspect it to be,

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Speaker 1: you know, basically a couple of days. Although we probably

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Speaker 1: reprice some UK assets in particular lower, there's gonna be

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Speaker 1: a lot of questions of things like you know, UK

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Speaker 1: based banks, like what happens to London as a financial center. Um,

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Speaker 1: we don't think it's that as big of a deal,

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Speaker 1: and some people are making out and but nonetheless there's

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Speaker 1: there's still that risk. Alright, you can be rude because

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Speaker 1: I'm reading Jesse Marshall on the Penn's blog about Phil Kestle.

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Speaker 1: As we go to Game seven with the Penguins tomorrow seven,

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Speaker 1: Game four or five, I've been route enough. You may

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Speaker 1: have you may have the distinguished gentleman. The Penguins may

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Speaker 1: have the floor Bloomberg Surveillance flows. Good morning has brought

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Speaker 1: to you by Investco. Don't settle for average in your portfolio.

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Speaker 1: To Investco, the right approach means investing with high conviction.

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Speaker 1: Find out more it investco dot com slash high conviction.

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Speaker 1: I don't buy it for a minute, folks. I'm looking

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Speaker 1: at the heelds on the screen. I haven't seen it,

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Speaker 1: and I were Jersey. They're not in my textbook. You

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Speaker 1: mentioned earlier on television, the idea of the mystery of

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Speaker 1: credit demand. You've got to convince me that central bank

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Speaker 1: action and what I see in the Bloomberg terminal is

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Speaker 1: going to somehow goose credit demand. I don't I think

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Speaker 1: that's the intent. I don't actually any Oden's gonna work.

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Speaker 1: Very modest evidence. Uh, there's certainly evidence that UM, that

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Speaker 1: you've stabilized UM, you've stabilized inflation and growth in places

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Speaker 1: like Europe. You know, one of the things about Europe

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Speaker 1: time that we keep on forgetting is that growth there

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Speaker 1: has actually and and you know, Mike will confirm this,

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Speaker 1: that growth there has actually done better than expectations. Still

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Speaker 1: not good, it's not not good by any church of

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Speaker 1: the imagination, but it's certainly done better than UM. It's

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Speaker 1: done better than expectations. And and big part of that

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Speaker 1: is this expectation that the ECB will continue with its

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Speaker 1: easy money policy for some time so you know, they

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Speaker 1: keep on filling up the punch bowl here and and

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Speaker 1: I thought it was very interesting. I'm John Raith on

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Speaker 1: your programs the TV this morning from UBS said they

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Speaker 1: are raising their growth forecasts for Europe. Yesterday the World

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Speaker 1: Bank cut. There's with people in the markets raising them.

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Speaker 1: I'll go with that, But all of our listeners worldwide whatever,

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Speaker 1: there's sophistication and math and economics, get the idea that know,

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Speaker 1: the punch bowls not full, it's overflowing something. William M.

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Speaker 1: Jesse Martin never understood the cost of negative rates. Who

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Speaker 1: is it borne by at this moment. It's not borne

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Speaker 1: by depositors, but isn't in confidence borne by business It's well, yeah,

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Speaker 1: and it's born by the financial sector quite a lot.

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Speaker 1: But in a in a way, negative rates are really

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Speaker 1: attacks on um, on the business sectors, who on the

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Speaker 1: business sector, on the business sector. But then therefore therefore

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Speaker 1: the consumers, right because presumably they'll some of those costs

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Speaker 1: will be passed along. So it's things like fees on deposits.

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Speaker 1: So you say it's not depositors, but I challenge that

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Speaker 1: if you wind up making a large deposit in a

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Speaker 1: financial institution, that um that that has to pay negative

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Speaker 1: rates on on their reserves to central banks. That means

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Speaker 1: that they're going to charge fees. It might not be

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Speaker 1: in an actual interest rate. The interest rate on that

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Speaker 1: account might be zero, but they'll charge you, you know,

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Speaker 1: tend dollars. Can you push them open? If you've got

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Speaker 1: a lot of money in a bank, you can at

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Speaker 1: some point. But but quite frankly, they've tried that here

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Speaker 1: in the US too, particularly for large corporate deposits. So

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Speaker 1: there were have been some custodial banks that have attempted

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Speaker 1: to have tu get of interest rates and or um

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Speaker 1: andes on large deposits. If very quickly, my nominal yield

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Speaker 1: in Switzerland is negative for twenty years, I presume disinflation

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Speaker 1: or deflation, which gives me a positive real return for

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Speaker 1: twenty years. If I mean, that's what the market's telling you,

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Speaker 1: is that interest rates. It's not necessarily that that you

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Speaker 1: think inflation is gonna be negative. It's more that you're

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Speaker 1: going to have it's the thinking that is that the

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Speaker 1: central bank is going to keep it. We'll come back

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Speaker 1: Irod Jersey with us in these most unusual times. US

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Speaker 1: futures up three this hour surveillance brought to you by

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Speaker 1: Westchester Subaru. Is it Westchester Subaru dot Com. Here's John

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Speaker 1: Tucker with news headlines and Michael and Tom. Hillary Clinton

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Speaker 1: being buoyed by a victory in California, the Wind confirmed

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Speaker 1: just this morning after an aggressive campaign by Bernie Sanders

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Speaker 1: in hopes of a signature win there. She also won

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Speaker 1: Tuesday's primers in New Jersey, New Mexico, and South Dakota.

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Speaker 1: In a defiant speech the supporters in California, Sanders says

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Speaker 1: he'll continue to fight through next Tuesday's primer in Washington,

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Speaker 1: d C. And unto July's Democratic Convention in Philadelphia. And

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Speaker 1: Afghan official this morning says a dozen recent abductees are

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Speaker 1: dead now at the hands of their Taliban captors. The

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Speaker 1: twelve were captured in recent ambushes. Most of them were

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Speaker 1: police officers, and the Mona Lisa is high and dry,

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Speaker 1: waiting for visitors, along with other famed work seeing the

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Speaker 1: Louver in Paris, which reopened today following the city's worst

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Speaker 1: doing the backstroke. Oh, don't even joke about that. Have

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Speaker 1: Bloomberg Business Flash and I'm Karen Moscow. This updates brought

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Speaker 1: more at a d R dot org. Bonds rising with

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Speaker 1: every fifteen minutes throughout the trading day on Bloomberg, futures

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Speaker 1: are r SNP, EMNI futures up three points, DOWI Mini

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Speaker 1: futures up twenty nine dows, Documity futures up five. The

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Speaker 1: dacks in Germany's down half per set ten. Your treasury

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Speaker 1: up one thirty second. The yield one point seven one

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Speaker 1: versent yield done, the two year point seven eight verseent

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Speaker 1: nim X screwed oil up wanted a quarter percent or

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Speaker 1: sixty three cents to fifty dollars ninety nine cents of

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Speaker 1: barrel comics gold up eight ten percent or nine dollars

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Speaker 1: sixty cents to twelve fifty six sixty announced. The euro

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Speaker 1: A dollar thirteen seventy eight. The end one oh seven

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Speaker 1: point oh nine. That's a Bloomberg business flash, Tom and

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Speaker 1: Mike Karen, thanks so much. I usually with us before

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Speaker 1: we get to a conversation with Prime Minister Blair Brexit.

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Speaker 1: Does it get in the way? Is it a side

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Speaker 1: show for guys like you know, it's very it's very important. Um.

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Speaker 1: You know, when when you run a global debt portfolio,

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Speaker 1: as we do, one of them, one of the countries

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Speaker 1: obviously winds up being the UK, and I think the UM.

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Speaker 1: You know what happens if the UK leaves the euro

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Speaker 1: and how that might affect places like Catalonia and some

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Speaker 1: of these other independence movements, winds up mattering and UH

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Speaker 1: and changes some of the political dynamics within UM with

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Speaker 1: within Europe. We forget that Tony Blair was Prime Minister

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Speaker 1: for ten years. I had forgotten that to two thousand

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Speaker 1: and seven he has been acquired voice of course John

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Speaker 1: Major speaking earlier preceding Mr Blair as Prime Minister. Our

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Speaker 1: John Michael Twade for years of The Economist, editor in

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Speaker 1: chief of Bloomberg, had a recent conversation with Mr Blair.

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Speaker 1: Here's their conversation. If Britain leaves the day after, you

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Speaker 1: are going to get the beginnings of what will be

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Speaker 1: in a serious economic shop for the country. You thought

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Speaker 1: you literally cannot dispute that because you will put them

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Speaker 1: on the table. Your entire relationship with the European Union,

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Speaker 1: that's going over four decades of interlocking trade agreements, service agreements,

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Speaker 1: all of that has then got to be renegotiated or scrapped.

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Speaker 1: And given that half of trade is with the European Union,

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Speaker 1: how can you not think you're at least going to

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Speaker 1: suffer several years of economic uncertainty. Tony Blair in conversation

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Speaker 1: with John Michael SAT will have much more of that

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Speaker 1: interview through the day across Bloomberg Radio. Michael, no question

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Speaker 1: about it, Mr Blair, I think no surprise in the

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Speaker 1: same camp as Jamie Diamond, which is remain well, Ira Jersey.

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Speaker 1: You suggested that we would see volatility in the markets

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Speaker 1: for the reasons that the former Prime minister is talking about,

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Speaker 1: But you were fairly saying when about how long that

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Speaker 1: volatility would last, whereas he seems to think the disruptions

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Speaker 1: to the economy go on and on. Well, so I

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Speaker 1: think the markets replaced immediately because that's what markets do,

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Speaker 1: because they're going to anticipate all of the problems that

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Speaker 1: the former Prime minister mentioned. There's there let me stop

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Speaker 1: you right there, because this gets to the sort of

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Speaker 1: the timing of it. If they vote to leave, there's

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Speaker 1: a two year period to negotiate rethink in their relationship.

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Speaker 1: So what Blair is talking about could go on and

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Speaker 1: on and on. There could be lots of news headlines

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Speaker 1: about various aspects of this over two years. Are you

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Speaker 1: saying the markets immediately go to the most negative viewpoint

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Speaker 1: and and try to price all of that two years in. Well,

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Speaker 1: that's probably the initial reaction, but then you wind up

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Speaker 1: at some steady state that says, well, maybe some of

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Speaker 1: this isn't so bad. Maybe the UK could look like Switzerland,

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Speaker 1: it could join the European Free Trade Area, but there

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Speaker 1: will be negotiations that have to go around that. I mean,

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Speaker 1: we we have to remember. So the European Union is this,

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Speaker 1: you know large, um, you know, the one of the

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Speaker 1: largest free trade areas in in the world and one

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Speaker 1: of the um But but there's other free trade agreements

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Speaker 1: that the European Union has with other countries. So Iceland

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Speaker 1: and Switzerland, for example, are in the European Free Trade Area.

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Speaker 1: Now the UK would be the largest of those, not

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Speaker 1: your non European Union members that are in the European

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Speaker 1: Free Trade Area. But that's a possibility. Now, would Europe wanted,

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Speaker 1: would France and Germany be willing to negotiate with the UK?

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Speaker 1: Those are all the uncertainties that create that kind of volatility,

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Speaker 1: But but it's possible, and in an outcome like that, um,

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Speaker 1: it's not necessarily the worst thing in the world for

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Speaker 1: the UK economy. So they vote to leave. And a

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Speaker 1: shokamotive from Princeton who was with this yesterday, who said

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Speaker 1: the same thing Olivier Blanchard said, which is what everybody

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Speaker 1: calmed down. Um, these are not economically abrupt decisions. It's

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Speaker 1: about culture in politics. Mike McKie, if one was to

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Speaker 1: have a baby bell cheese from the Euroregion of France,

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Speaker 1: you're telling me Ira that the United Kingdom would have

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Speaker 1: to renegotiate their agreement with many baby bell cheeses of France.

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Speaker 1: If so, if they have four or five of them,

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Speaker 1: like you know in And the thing is, even though

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Speaker 1: there's two years to renegotiate trade agreements, we know how

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Speaker 1: long trade agreements take to UM take to be implemented.

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Speaker 1: How did I respond to Olivia Blanchard's saying, would everybody

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Speaker 1: calmed down? Tony Blair is not calming down. I I

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Speaker 1: think that it's it's I think that that there's more

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Speaker 1: here to worry about than there is to be optimistic about.

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Speaker 1: Right so in in a guest vote for brexit. So

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Speaker 1: if if the UK leaves, the uncertainty is very high.

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Speaker 1: Markets don't like uncertainty, markets like certainty. So because of that, UM,

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Speaker 1: I think that yes, it's not as it's not as

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Speaker 1: dire probably as some people are projecting to try and

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Speaker 1: get the politics done, but it's still creates a lot

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Speaker 1: of uncertainty that needs to be dealt with and and markets, um,

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Speaker 1: markets will will be volatible because of that. Unfortunately, I

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Speaker 1: have a minute left, but I gotta ask you about

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Speaker 1: the US presidential election. Dennis Lockhart of the atlant Offensives

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Speaker 1: business isn't talking about it much yet. I don't know.

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Speaker 1: People in my business are talking about it quite a lot.

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Speaker 1: You know. It ends up being that. I think one

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Speaker 1: of the questions is is that if we have, you know,

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Speaker 1: too presumptive candidates, Now, if you know, what are the

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Speaker 1: potential policies that each of them will um uh well

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Speaker 1: will go out and espouse, and how will their relationship

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Speaker 1: be with Congress? Um you know, in a in a

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Speaker 1: former life, I actually studied political science so um so,

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Speaker 1: so I still keep my ear to the ground a bit,

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Speaker 1: and I suspect that Congress will broadly remain Republicans. Certainly

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Speaker 1: the House of Representatives will, So if Hillary Clinton gets in,

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Speaker 1: you're probably likely to have more of the same types

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Speaker 1: of policies. Um that you've had under under the Obama administration. UM,

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Speaker 1: we still don't know exactly what Trump wants to do specifically,

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Speaker 1: so we have no idea what his relationship would be

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Speaker 1: the Congress. I suspect it will be more contentious than

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Speaker 1: UM other potential Republican candidates, the more mainstream people. So well,

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Speaker 1: we'll come back. I read Jersey with us. Thank you,

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Speaker 1: Umber Funds. This is Bloomberg's surveillance, Stay with us. Bloomberg

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