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Speaker 1: Global business news twenty four hours a day at Bloomberg

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Speaker 1: this is a Bloomberg Business Flash and I'm Karin Moscow.

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Speaker 1: c m E Group US stock index futures are a

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Speaker 1: little change after the SNP five hundreds, the longest streak

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Speaker 1: of weekly decline since January. Well, a spate of deal

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Speaker 1: activity boosted some shares. We checked the markets every fifteen

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Speaker 1: minutes throughout the trading day on Bloomberg SNP EMNI futures

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Speaker 1: up less than a point, Dow EMNI futures down four

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Speaker 1: NASDAC Emuni futures up five ten. Your treasury down seven

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Speaker 1: thirty seconds. The yield one point seven two percent yield

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Speaker 1: on the two year point seven seven percent. No max screwed.

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Speaker 1: Oil up two points seven percent of a dollar twenty

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Speaker 1: five to forty seven forty six of barrel comex gold

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Speaker 1: want at a quarter percent or fifteen dollars ninety cents

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Speaker 1: sixty announced, the euro A dollar thirteen thirty two, the

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Speaker 1: N one o eight point seven seven and it's a

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Speaker 1: Blueberg business flash. Tom and Mike Karena, Thanks so much.

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Speaker 1: This is a great way to start your Monday. Michael McKee,

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Speaker 1: there has been an intelligent debate about whither Europe. Part

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Speaker 1: of it is will the periphery leave the core of

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Speaker 1: the continent, And another way to look at it, which

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Speaker 1: has been touched upon by yacolm Fells in essays is

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Speaker 1: Time with Morgan Stanley, is will the core leave the periphery,

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Speaker 1: which is a whole different, twisted view, which Michael's exactly

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Speaker 1: what you'd expect from yacolm Fells. Well, obviously we've been

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Speaker 1: watching the old pigs Portugal, Ireland, Italy, Spain, Greece, uh

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Speaker 1: and now you gotta watch Great Britain, and there's been

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Speaker 1: a lot of talk about it. If they're gonna fix

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Speaker 1: the EU, Germany has gotta go. Lacolm Fells is now

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Speaker 1: the chief Global economic Advisor to Pacific Investment Management Company.

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Speaker 1: He's trained in the Gloom of England and Germany, in

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Speaker 1: terms of weather for the sunshine of California. Um, but

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Speaker 1: that hasn't changed his his outlook. Welcome, uh, welcome. Where

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Speaker 1: do you see the EU going from here? Well, I think, Michael,

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Speaker 1: we've learned something and policy makers have learned something during

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Speaker 1: the euro crisis. Um. I think what they've learned is

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Speaker 1: that yes, there are tensions, there are imbalances within the

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Speaker 1: Euro Area, but disentangling this entity is extremely difficult. So

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Speaker 1: I think there is a willingness to keep the Euro together. Um.

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Speaker 1: It's a bit like you know, saying you can turn

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Speaker 1: three or four eggs into an omelet, and we did

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Speaker 1: that with the Euro, but you can't turn the omelet

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Speaker 1: back into the eggs. So disentangling the Euro would be

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Speaker 1: extremely costly, and I think there is still the political

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Speaker 1: will to hold it together. The bigger question at the

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Speaker 1: moment is, of course, what happens to the European Union

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Speaker 1: and what happens to the UK in the EU. And

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Speaker 1: I think, well, that's I think something that has been

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Speaker 1: weighing down on markets and will continue to weigh down

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Speaker 1: on markets as we head into the referendum on June

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Speaker 1: twenty three. Well, we have talked a lot about What

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Speaker 1: would happen to the British economy if they were to

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Speaker 1: leave the European Union? What happens to the European Union

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Speaker 1: economy without Britain. Well, it's obviously bad news. I think

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Speaker 1: the UK. From a political perspective, the UK was always

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Speaker 1: a good counterbalance two forces that were going for more

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Speaker 1: regulation within the European Union. So I think it would

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Speaker 1: be sad to see Britain go. I think it would

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Speaker 1: be bad news for Europe also from an economic perspective,

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Speaker 1: because the UK is an important trading partner um. But

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Speaker 1: more importantly, I think the vote in the UK to

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Speaker 1: exit it would give support to anti European and anti

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Speaker 1: euro forces in other member states. So I think this

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Speaker 1: would lead to more political uncertainty in other European countries.

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Speaker 1: It could weigh down on the Euro. It might force

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Speaker 1: the e c B to do even more easing um,

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Speaker 1: and then I think this could turn into a global

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Speaker 1: risk off event um if the dollar strengthens a lot

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Speaker 1: on the back of this, the dollar as a safe

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Speaker 1: haven currency, because that might then bring the Chinese back

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Speaker 1: into play. And China, as we've learned back in August

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Speaker 1: of last year and early this year, China does not

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Speaker 1: want to see the dollar appreciating because they are linked

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Speaker 1: to the dollar. So this is how Brexit could turn

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Speaker 1: into a major event, not only for Britain and for Europe,

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Speaker 1: but also for the global economy. Well, how likely is

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Speaker 1: it that we get a knock on effect in other

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Speaker 1: European countries one way or the other. A lot of

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Speaker 1: people that have focused on the fact that three days

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Speaker 1: after the Brits vote, the Spanish vote again. Yes, Spain,

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Speaker 1: Spain will vote again. Um and the situation, the political

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Speaker 1: situation is quite messy in that country. But in many

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Speaker 1: other countries you have had support to anti European and

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Speaker 1: anti immigrant parties. Look at the core countries. Look at

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Speaker 1: Germany where the a f D which started out as

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Speaker 1: an anti euro party and is now riding on the

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Speaker 1: anti immigration ticket. How how that party has gained in strength.

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Speaker 1: Look at France where the Foreign Nacional and Maria penn

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Speaker 1: has a good chance to win at least the first

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Speaker 1: round of the presidential election. So I think this is

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Speaker 1: a European white phenomenon. And again, if the British people

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Speaker 1: vote to exit, I think this would give give support

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Speaker 1: to these other forces elsewhere within the Balance in Ambras.

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Speaker 1: Evans pretty sure, I thought had a most interesting tinged

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Speaker 1: pro Brexit column in the Telegraph talking about the pushback

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Speaker 1: from none other than Olivier Blanchard, who's now over without

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Speaker 1: imposing it the Peterson Institute where he talks about will

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Speaker 1: will financing be more difficult after Brexit? Will investor see

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Speaker 1: the British government is more risky? And the professor says,

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Speaker 1: I don't think so. There's some there's some discreet pushback

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Speaker 1: among the elites within the elite, isn't there. Yeah, I

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Speaker 1: think that's true. By the way, we'll have Olivia blanche

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Speaker 1: here in Newport Beach tomorrow speaking at our Secular Forum, um,

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Speaker 1: and we've certainly discussed that with him as well. I

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Speaker 1: think the break wait wait, wait, the price of a

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Speaker 1: shameless plug like that is we need to get Yakum

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Speaker 1: Fell's and Olivier Blanchard on with us tomorrow. Michael, don't

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Speaker 1: you think so? I mean that is the price of

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Speaker 1: that blatant shameless plug. Good dr Pells. We can just

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Speaker 1: broadcast the Secular Forum live. That would go over big, nice,

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Speaker 1: try nice, try so so So about to come back

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Speaker 1: to your question, tom Um, I don't think the credit

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Speaker 1: of the UK government is at risk if Britain goes

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Speaker 1: for Brexit, but I think the UK would become a

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Speaker 1: less attractive destination for foreign direct investment multinational companies from Asia,

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Speaker 1: from the States who use the UK as an entry

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Speaker 1: point into this big European market, both in the financial

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Speaker 1: sector and in the In the Rita car Let's come back,

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Speaker 1: yacolm Fells with us with PIMCO. A very important discussion here,

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Speaker 1: of course, much more to talk about besides the EU

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Speaker 1: Love It Michael McKee, Tom Keane and Yakum Fells. Bloomberg

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Speaker 1: Surveillance counting down at the opening bell, brought you by

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Speaker 1: the Deep Grand Cherokee, the most awarded SUV ever. The

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Speaker 1: legendary four by four capability. Drive one at your local

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Speaker 1: JEP dealer today broadcasting live to New York, Bloomberg eleventh

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Speaker 1: to Washington, d C, Bloomberg one to Boston, Bloomberg twelve

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Speaker 1: line to San Francisco, Bloomberg NIZE sixty to the country

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Speaker 1: Suities X and General one nineteen and around the globe.

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Speaker 1: The Bloomberg Radio plus appen Bloomberg dot com. This is

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Speaker 1: bloomberk Surveillance and good morning. I'm Karen Moscow along with

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Speaker 1: Tom keenan Michael McKee, and the opening deal is brought

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Speaker 1: to you by se I Imagine assets servicing unconstrained by infrastructure,

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Speaker 1: our investment operations or investment operations that predictively responded change.

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Speaker 1: Se I is creating the future state. Go to se

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Speaker 1: i c dot com. Slash Imagine stocks are a little

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Speaker 1: changed at the open. The sm P five hundred is

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Speaker 1: up a point at seven down. Jones Industrial averages at

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Speaker 1: seventeen thousand, five hundred thirty five. The nastact higher up

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Speaker 1: to tenths per center nine points to forty seven twenty

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Speaker 1: six ten. Your treasury down ten thirty seconds. The yield

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Speaker 1: one points seven three percent, the yelled one a two

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Speaker 1: year point seven seven percent, non ex screwed oil up

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Speaker 1: three percent of a dollar forty forty seven sixty one

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Speaker 1: barrel comex gold up one or fifteen dollars ninety cents

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Speaker 1: at two, the Euro at dollar thirteen thirty four. The

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Speaker 1: end one oh eight point eight two. Tom and Mike,

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Speaker 1: thank you very much, Karen Moscow. We're talking with Wakin Fells.

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Speaker 1: He's a global Chief Economic Advisor to the folks at

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Speaker 1: Pacific Income Management PIMCO out in Newport Beach, California, where

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Speaker 1: they're holding their annual Structural UH conference chart tomorrow they

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Speaker 1: figure out where the world is going? UM, going into

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Speaker 1: it when you have to make a presentation, UH walking,

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Speaker 1: what do you we? We talked earlier about the fact

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Speaker 1: that uncertainty is the name of the game and just

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Speaker 1: about every corner of the world. So what's your presentation

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Speaker 1: UH for this year's conference going to tell people about

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Speaker 1: where the global economy is going? Well, I'm in the

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Speaker 1: fortunate edition to not present at the Secular Forum because

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Speaker 1: what we do at the Secular Forum is we invite

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Speaker 1: external speakers to speak to us, and then we have

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Speaker 1: a lot of debates with those speakers and also internally.

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Speaker 1: But as we look at the secular outlook, as we

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Speaker 1: call it, the next three to five years, I think

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Speaker 1: the biggest question is around low growth, low productivity growth,

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Speaker 1: low inflation, and above all, low equilibrium interest rates. I think,

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Speaker 1: as you know, this has been a PIMCO theme for

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Speaker 1: quite a while, that the mutual rate of interest, the

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Speaker 1: equilibrium rate of interest is much much lower than in

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Speaker 1: previous cycles. UM. I think markets have come round to

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Speaker 1: this view. I think it is now widely accepted that

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Speaker 1: we have a global savings glut that is depressing the

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Speaker 1: equilibrium interest rate. And the big question is what are

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Speaker 1: the conditions that could change this over our secular the

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Speaker 1: next three to five year time horizon. And I must say,

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Speaker 1: going into it, I have an open mind, but I

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Speaker 1: find it difficult to see the real equilibrium interest rate

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Speaker 1: rising significantly over that time period. I think the forces

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Speaker 1: of the global savings glut are here to stay. There's

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Speaker 1: an excessive desired saving over desired investment in the world UM.

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Speaker 1: And one thing that we will focus on in particular

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Speaker 1: is how effective is monetary policy still to fight those headwinds.

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Speaker 1: I think this is where we have the biggest question. Marks.

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Speaker 1: That's a real question because the inability to get up

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Speaker 1: the neutral rate anywhere in the world is a nail,

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Speaker 1: and central banks have hammers. So does that make in

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Speaker 1: helicopter money the end game for most of these central

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Speaker 1: banks around the world. I think that may well happen.

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Speaker 1: Helicopter money is not as absurd an idea as as

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Speaker 1: many people think. UM. In a way this is about

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Speaker 1: fiscal policy, right, I mean, helicopter money is money financed

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Speaker 1: fiscal policy. I think most experts would agree that the

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Speaker 1: world needs more expansionary fiscal policy, particularly focused on infrastructure investment,

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Speaker 1: but also on tax reform. And it would be easier

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Speaker 1: for governments to do this, um if they could be

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Speaker 1: financed in doing that by central banks directly. Within your

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Speaker 1: work of many years and with the thematic way that

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Speaker 1: you're right, the arch question is do we drive towards

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Speaker 1: stability in global equilibrium or do we just understood understand

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Speaker 1: disequilibrium which may be sooner deeper recessions. I mean, anybody

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Speaker 1: can pick their gloom weapon, but do you see an

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Speaker 1: equilibrium forward or a dis equilibrium forward? I think there

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Speaker 1: is no such thing as an equilibrium in the real world.

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Speaker 1: I think it's a nice concept, um, you know, to

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Speaker 1: to do models of the economy, but I think what

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Speaker 1: we're what we're actually doing in this world is we're

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Speaker 1: moving from one dis equilibrium to the next. There are

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Speaker 1: plenty of dis equilibria within economies, within financial markets, and

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Speaker 1: also across the world, and the only question is, you know,

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Speaker 1: can will central banks and governments be able to move

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Speaker 1: us or to avoid the really bad dis equilibria, and

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Speaker 1: will we be able to keep dampening volatility as central

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Speaker 1: banks have done so successfully over the past seven eight years.

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Speaker 1: I think the task will become ever more difficult as

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Speaker 1: we move forward. What then, is um it is a

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Speaker 1: investors supposed to do at this point? Do you do

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Speaker 1: you sit and wait things out? Do you put money

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Speaker 1: under the mattress? Uh? It seems like there's no good

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Speaker 1: answer right now. Well, I think there are a few

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Speaker 1: things that you can do in this environment. I mean,

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Speaker 1: if if you believe that the forces of the savings

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Speaker 1: glut are here to stay UM and that central banks

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Speaker 1: will stay supportive, well, that means interest rates will stay low.

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Speaker 1: But it also means that this expansion, this economic expansion,

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Speaker 1: which is a very weak one I've called it a

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Speaker 1: triple B expansion with gowfer is bumpy below parent brittle,

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Speaker 1: this is likely to continue UM, and that means that

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Speaker 1: relatively safe credit assets, corporate bonds, highly rated corporate bonds

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Speaker 1: should continue to do well. UM. We have been using

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Speaker 1: the rally that we've seen since the loads of February

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Speaker 1: to lighten up on some of the more risky investments.

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Speaker 1: So we've been going up in quality UM, but it all,

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Speaker 1: you know, depends on the question whether you believe that

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Speaker 1: this expansion can continue. If you do, UM, it does

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Speaker 1: make sense to be in credit. I also think central banks,

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Speaker 1: including Janet Yellen's FED, want to run the economy a

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Speaker 1: little bit hot, and that means tips inflation linked bonds

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Speaker 1: UM offer some attractive opportunities UM and then well more broadly,

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Speaker 1: I think this is a world where you want to

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Speaker 1: have some liquidity available to exploit the bouts and the

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Speaker 1: potholes similar to the ones that we've seen in January

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Speaker 1: and in August of last year very quickly? Can Mario

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Speaker 1: Draggy run the European economy quote a little bit hot?

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Speaker 1: It's tougher in Europe because there's still a lot more

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Speaker 1: spare capacity in the labor market and and in the economy.

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Speaker 1: But I think he has at least managed to stabilize

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Speaker 1: core inflation, and I think he's willing to do more.

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Speaker 1: So I can see another round of quee coming maybe

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Speaker 1: later this year. I wouldn't even exclude that he ventures

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Speaker 1: into new asset classes. He's now buying corporate bonds. I

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Speaker 1: think the next step could be a move into buying equities.

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Speaker 1: Oh your kid. When they do that, we have to

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Speaker 1: have you back on you and Scott Mather can come

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Speaker 1: out and explain that to me, like the European Central Bank,

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Speaker 1: Mike with a significant position and Siemens. I just can't

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Speaker 1: get there. Yacolm Fells, thank you so much. Would love

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Speaker 1: to be a fly in the wall to martch your conference.

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Speaker 1: I'm sure it'll be most uh informative. He is with PIMCA,

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Speaker 1: always interesting. Olivia Blanchard will be out there, trull Mike.

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Speaker 1: I just I'm sorry. I can't get my hands around

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Speaker 1: equity ownership by a central bank. Am I wrong? No,

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Speaker 1: it's it's against sort of the book. Uh, you know,

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Speaker 1: as as you would write it, that there would be

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Speaker 1: some sort of influence on sectors of the economy by

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Speaker 1: the central bank. Now Japanese you know use ETFs to

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Speaker 1: try and buy uh you know, broad sector. So in

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Speaker 1: theory they're not doing that, but it is an issue there.

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Speaker 1: It is open to debate. To say the least green

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Speaker 1: on the screen up forty four points of vix fifteen

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Speaker 1: point four eight up point four four points. This hour

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Speaker 1: of surveillance is brought to you by Volvo Cars, White Planes.

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Speaker 1: Visit Volvo Cars White Planes dot Com. Here's Michael Barr

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Speaker 1: with the latest news headline, Mike Tom, thank you very much.

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Speaker 1: Donald Trump says it doesn't look like he's going to

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Speaker 1: have a very good relationship with the British prim Minister

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Speaker 1: David Cameron. Trump's comments, broadcast today on i t v

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Speaker 1: s Good Morning Britain are certain to cause on ease

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Speaker 1: in Britain, where America is seen as the country's closest Allian.

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Speaker 1: Trump is still unhappy with Cameron's criticism of him after

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Speaker 1: Trump called for all Muslims to be temporarily banned from

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Speaker 1: entering the US. Trump also called London's new mayor City

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Speaker 1: Cohn rude Con called Trump's comments about Islam ignorant. Turkish

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Speaker 1: shelling and air strikes by the US led military coalition

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Speaker 1: reportedly have killed twenty seven Islamic State militants in Syria.

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Speaker 1: The Islamic State is losing ground in the Middle East,

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Speaker 1: as according to the U s Special Envoy to the

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Speaker 1: Anti Islamic State Coalition, Brent McGurk says the extremist group

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Speaker 1: is losing the battle to maintain control in places like

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Speaker 1: the Syrian city of Rocca, where Jihani John was killed

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Speaker 1: by a drone. We found him, we tracked him, and

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Speaker 1: we targeted him with such precision on the streets of

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Speaker 1: Rocca that nobody else was harmed. Meanwhile, Islamic State attacks

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Speaker 1: across Iraq have left at least twenty nine people dead.

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Speaker 1: One attack yesterday took place at a natural gas plant

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Speaker 1: north of Baghdad. Global News twenty four hours a day,

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Speaker 1: powered by our journalists more than nine fifty news bureaus

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Speaker 1: around the world. On Mike Labar, Mike Tom coming up.

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Speaker 1: If you have even an passing interest in this wonderful

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