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Speaker 1: This is Bloomberg Surveillance. We still make much higher old

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Speaker 1: crisis for ship production in the US to stop declining

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Speaker 1: and begin to increase. I'm worried that there's a deceleration

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Speaker 1: going on in part because of business caution in the

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Speaker 1: face of uncertainty. We still have the FED continuing a

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Speaker 1: rate high cycle into two thousand seventeen because the nominal

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Speaker 1: numbers start looking so much better because translation and figures

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Speaker 1: are moving higher. Bloomberg Surveillance your link to the world

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Speaker 1: of economics, finance, and investment on Bloomberg Radio. Good morning everyone,

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Speaker 1: Bloomberg savannas who welcome all of you a FED day.

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Speaker 1: One PM this afternoon will dive into it with Allen Zentner,

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Speaker 1: Richard Clarida, Alan Blinder among others joining us with their

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Speaker 1: important perspective. I'm told it's a dead meeting. I'm kidding.

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Speaker 1: They all say it's who's ever said it's a dead meeting.

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Speaker 1: It's a live meeting, and I guess there's not going

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Speaker 1: to be any decision of the statement. Always will have

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Speaker 1: clues in the press for it's following. I'm sorry, I

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Speaker 1: expect not bomb shells, and maybe it won't be like droggy,

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Speaker 1: but I actually think it will be most interesting what

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Speaker 1: Cherry Yellin says to the UH, the gathered in Washington

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Speaker 1: or Eric Schatzker, among others, gathering with Cherry yelling um

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Speaker 1: this afternoon, So one pm will start that UH festivities

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Speaker 1: right now. Bloomberg Surveillance brought to you you by Cone Resideck Accounting,

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Speaker 1: Tax Advisory, look Ahead, Gain Insight, Imagine More of the

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Speaker 1: professionals at Cone Resnick can help your business breakthrough. Find

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Speaker 1: out more at Cone Resnick dot com. We are thrilled

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Speaker 1: to bring you Lynn Graham Taylor working with James Foley

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Speaker 1: over at Robbo Bank. Why is this Lynn Graham Taylor

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Speaker 1: other than everybody else blathering about negative rates, has actually

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Speaker 1: done hyper hyper hyper detailed research on the state of

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Speaker 1: EU banking. And so if somebody puts out a note

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Speaker 1: Deutsche Bank is gonna fall off a cliff, Our unit

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Speaker 1: credits gonna fall off a cliff. A rival bank, I'm kidding,

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Speaker 1: Lynn is gonna fall off a cliff. How about somebody

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Speaker 1: that's actually dug into the details. Lynn, Congratulations on your

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Speaker 1: work with Richard McGuire. I thought your research piece was

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Speaker 1: riveting about actually what's gonna happen here. These banks stock

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Speaker 1: actions aren't good. What is the stock price signal for

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Speaker 1: European banks? Yeah, I mean, obviously we're on the more

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Speaker 1: on the fixed income side. Obviously, obviously we've seen well,

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Speaker 1: you know, all of all of the At the moment,

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Speaker 1: it seems very much that we are in a situation

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Speaker 1: where there's been a bit of a flipping in between

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Speaker 1: the paradigms which the market is trading. So at the moment,

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Speaker 1: we very much see the start of a situation where

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Speaker 1: more monetary using is actually seen can be seen as

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Speaker 1: a negative, and that we're still stuck in this trap

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Speaker 1: of we've now been on significant monetary using since the

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Speaker 1: financial crisis, and it's still we're not really managing to

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Speaker 1: create get to escape velocity. So that's why now you're

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Speaker 1: seeing equities under performing when more easing is announced. Okay,

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Speaker 1: so there's the equity side. Let's bring it over to

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Speaker 1: your ord the hyper detailed world of short money in

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Speaker 1: the kind of bonds flowing within a system. What have

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Speaker 1: negative rates done the Lyndraham Taylor's world. Yeah, I mean, well,

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Speaker 1: obviously you've seen a significant flattening of the curve associated

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Speaker 1: with those negative rates because for a lot of investors,

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Speaker 1: negative rates are very unattractive. So you know, although even

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Speaker 1: so that's essentially why you've seen a big flattening of

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Speaker 1: the curve in Europe. It's just some investors who find

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Speaker 1: it very difficult to find negative rates palatable. Um, so yeah,

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Speaker 1: the big, the big one is this significant curve flattening.

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Speaker 1: Really look at the curves coming down in a negative

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Speaker 1: German yield and you wonder the persistency of this. How

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Speaker 1: long can we have the vector's negative yields get even

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Speaker 1: more negative? Is there a timeline you have to wear? Banks?

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Speaker 1: Central banks must act. I think it's difficult to put

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Speaker 1: you know, obviously from a girls think in the short

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Speaker 1: term banks can wear this from a profitability perspective, but

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Speaker 1: in the longer term, the compression, it's the compression of

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Speaker 1: the yield curve is obviously particularly bad for banks profitability

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Speaker 1: if they're sort of businesses maturity transformation. So the longer

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Speaker 1: term perspective, it's not a positive for bank profitsibility and

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Speaker 1: it's something that obviously central banks will have an eye on.

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Speaker 1: But they are trapped by their mandate in that they are, uh,

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Speaker 1: you know, they rely on a certain set of tools

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Speaker 1: in order to hit their inflation target, and at the

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Speaker 1: moment none of those tools are actually working, but they've

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Speaker 1: got to plow on regardless because they've got to try

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Speaker 1: and hit their inflation target. That's their soul mandates. So

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Speaker 1: whether they actually that you know that much, maybe well

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Speaker 1: we'd we'd go maybe a fiscal stimulus is the way

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Speaker 1: to go in the Eurozone with increase expending by those

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Speaker 1: governments in particular who have room DCB that's not actually

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Speaker 1: in their hands, and the structural reform of economies is

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Speaker 1: also not in their hands, so they've got to keep

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Speaker 1: playing on with the same tools, which at the moment

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Speaker 1: um we're seeing a sort of similar pattern to Japan,

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Speaker 1: where it's just as flattening, massive flattening of the Yelk

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Speaker 1: curve and a push into negative rates while creating no

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Speaker 1: real inflation. But there are so responsible for the banking system.

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Speaker 1: So if they started, what do they do? Well, I

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Speaker 1: guess So so far I've seen no, there's been no

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Speaker 1: massive evidence, so obviously a huge impact or at least

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Speaker 1: in their own research in the CBS research has not

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Speaker 1: been yet a big enough impact on bank profitability for

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Speaker 1: them to be too concerned. I guess they could do things,

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Speaker 1: some little things, like perhaps make the negative deposit rates

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Speaker 1: apply to lower amounts of the central bank reserves, because

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Speaker 1: obviously central banker reserves are increasing quite rapidly or roughly

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Speaker 1: eighty billion a month while they're doing que However, I mean,

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Speaker 1: big picture, even if he did something like that, these

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Speaker 1: aren't huge sums of money in banking, like I think,

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Speaker 1: you know, might save a billion here, a billion there,

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Speaker 1: but that's as a system which isn't huge amounts of money.

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Speaker 1: So I guess they, you know, to be honest, the

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Speaker 1: ECB are probably in a trying to sit it out

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Speaker 1: in hope mode, rather than yet getting too worried about

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Speaker 1: the bigger picture for the banks banking system. I guess

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Speaker 1: they're thinking, well, this won't according to our inflation forecast,

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Speaker 1: it won't go on forever, and we've got to hope

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Speaker 1: it doesn't. It's the old Stones line, you know, that

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Speaker 1: which can't continue will start um. But as you say that,

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Speaker 1: the easy to be really can't stop unless they can

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Speaker 1: come to the conclusion that they're not getting anywhere right. Yeah,

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Speaker 1: I mean you can already see. It's quite interesting in

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Speaker 1: the exact you're exactly right. They've got to keep doing something,

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Speaker 1: and you can speak and see in their minutes it's

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Speaker 1: quite interesting and that they're already when they're trying to

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Speaker 1: Obviously QUI has not been accessful in terms of getting

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Speaker 1: the inflation back to target, but where they obviously try

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Speaker 1: and see some success in it because versus the counter factual,

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Speaker 1: So you know what would have happened if we hadn't

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Speaker 1: done anything. So the fact that they're hanging their hat

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Speaker 1: on theoretical modeling of the success already shows you that

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Speaker 1: you know it's not it's not creating the inflation. They

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Speaker 1: wanted to say, let's get out ahead of our one

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Speaker 1: PM coverage and give people, namely Michael McKee. One of

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Speaker 1: these folks you need to understand is Michael McKee and I,

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Speaker 1: as a rule cardinal rule, never share our charts because

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Speaker 1: I don't want to tell Michael what to do and

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Speaker 1: Mike doesn't want to tell me what to do. Sometimes

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Speaker 1: it's comic, you know, we have the same chart and

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Speaker 1: it's a waste of time. But I don't know what

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Speaker 1: Mike's going to show and the FED show to day,

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Speaker 1: and you know what we'll talk about on radio. So

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Speaker 1: Lynn my question to you is, I have Janet Yell

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Speaker 1: in June six saying a mild undershooting of the unemployment

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Speaker 1: rate considered to be normal could help move inflation back

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Speaker 1: up to two percent more quickly. Do you have a

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Speaker 1: confidence that central bankers can quote unquote move inflation? I

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Speaker 1: guess traditionally, you know, a lower, lower unemployer sort of

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Speaker 1: running a hot employment sector would have created wage inflation.

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Speaker 1: But if you think there's been a structural change to

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Speaker 1: the industry where a lack of investment, uh, and it

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Speaker 1: basically means that well, and the lack of productivity means

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Speaker 1: that work of bargaining power has been significantly reduced, which

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Speaker 1: it kind of looks like because there's been wage growth

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Speaker 1: is running way well, being quite static and running way

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Speaker 1: behind where it did pre crisis. You gotta think that

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Speaker 1: even with unemployment right eventually running while they're aiming to

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Speaker 1: run it a bit hot, that it's not doesn't look

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Speaker 1: yet to help helping them reach their mandate on the

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Speaker 1: inflation side. How different is the FED and the ECB,

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Speaker 1: and looking at how how determined they have to be

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Speaker 1: to reach these mandates, neither one seems to be succeeding.

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Speaker 1: I think the the effeter obviously in a slightly more

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Speaker 1: comfortable position, purely because inflation is a bit is a

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Speaker 1: bit higher, and they're obviously, I guess what they're hoping

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Speaker 1: is that ultimately the very low levels of an employment

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Speaker 1: they're closer to those being low enough to feed her

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Speaker 1: into a wage pressures. And you know, they'll point to

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Speaker 1: some evidence in the base book and other sort of

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Speaker 1: sort of more idiosyncratic indicators, but certainly, but the the

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Speaker 1: cp I guess are in more of a desperation stage

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Speaker 1: and that they've come to the party later, and you know,

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Speaker 1: they've got sort of probably bigger structural issues than the

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Speaker 1: very quickly you're lynn and we'll have you back. Is

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Speaker 1: curve flattening signal? The factor is race one up yesterday,

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Speaker 1: but we actually got curve flattening. In the United States,

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Speaker 1: there is a signal slow economic slowdown or is it

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Speaker 1: so noisy now that's got nothing to do with it?

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Speaker 1: I think it certainly does signal that people think that

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Speaker 1: we're now in more of a new paradigm when it

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Speaker 1: comes to what how quickly the U S economy you

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Speaker 1: can actually grow going forward? What you know, what you

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Speaker 1: nary now? And I think you know, you're probably might

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Speaker 1: well see it revised. The offense expectations revised down in

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Speaker 1: the top plot this afternoon. I think it does reflect

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Speaker 1: this sort of we're in a structural face now, whether

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Speaker 1: it's because of aging populations or you know, many other

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Speaker 1: factors that played that we are just in the future.

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Speaker 1: Let's come back. Lind Graham Taylor with us with Rabble

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Speaker 1: Banks this morning and now to check in with Liker

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Speaker 1: get the latest world of national headlines my town. Thank

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Speaker 1: you very much. French police, along with anti Chrism investigators,

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Speaker 1: have been alerted to the possibility that small groups of

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Speaker 1: extremists have left Syria set the planet attacks in France

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Speaker 1: and in Belgium. French security officials has Belgian intelligence services

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Speaker 1: sent a note to French counterparts about the possible groups.

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Speaker 1: Defense Secretary Ash Carter has issued a statement about the U. S.

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Speaker 1: Army Reserve soldier who died in the massacre at a

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Speaker 1: gay Florida nightclub. Carters says Captain Antonio Brown served for

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Speaker 1: about a decade to protect others, the noblest thing a

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Speaker 1: young person can do. The statement goes on to say

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Speaker 1: officials support the people over Orlando and the LGBT community.

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Speaker 1: Britain's Princip William has appeared on the cover of the

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Speaker 1: UK gay magazine Attitude to speak out against bullying people

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Speaker 1: because of their sexuality. Global News twenty four hours a day,

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Speaker 1: Michael Barr, Mike, Tom, Michael, thanks so much. Appreciate this

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Speaker 1: fish is U Five del fishes of this afternoon are

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Speaker 1: fed coverage beginning at one pm with Ellen Zetner of

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Speaker 1: Morgan Stanley. This is Bloomberg's Surveillance. The news update brought

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Speaker 1: to you by your Mercedes Ben's Tri State dealer. The

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Speaker 1: star you've been wishing for is waiting at the Mercedes

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Speaker 1: ben Summer event. Head to your Mercedes Benz Tri State

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Speaker 1: dealer for more details. Hurry before this star flies by

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Speaker 1: Global Business News twenty four hours a day at Bloomberg

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Speaker 1: dot Com, the Radio plus Mobil and on your radio.

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Speaker 1: This is a Bloomberg Business Flash Eric. Good morning. I'm

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Speaker 1: John Tucker. Let's say head over to the first word

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Speaker 1: breaking news test today for today's morning call. And here's

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Speaker 1: Bill Maloney. Good morning, John us. You just are rising

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Speaker 1: today without you just currently hire by forty six points.

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Speaker 1: SPS gained four and a half end NASAC futures rise

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Speaker 1: by eleven. The sp five cash is likely to open

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Speaker 1: back above it's fifty day moving average, and the US

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Speaker 1: ten yield hits one point six three percent. Shanghai outperformed

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Speaker 1: gained point six percent overnight, while Europe is also trading higher.

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Speaker 1: Spain rises one point nine percent. The British pound rebounds

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Speaker 1: from a two month low on the US Economic Frinday

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Speaker 1: thirty pp I final demand at ten thirty energy invatory

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Speaker 1: numbers and at two pm the f o M c

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Speaker 1: rate decision. Another news, Celgon is buying back and added

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Speaker 1: three billion in stock and and deal news. Ebex offers

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Speaker 1: to buy Patriot National for nine share, also postpones its

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Speaker 1: plans for a three for one. Finally, some of Your

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Speaker 1: wallsheet upgrades and downgrades. US still raised to neutral versus

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Speaker 1: under perform at Bank of America, Best buy into Sorrow,

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Speaker 1: cut to neutral over at Create, Swiss, Abercrombie race to

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Speaker 1: hold at Deutsche Bank, Cisco cut to neutral versus buy

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Speaker 1: over at Goldman Sachs, and Westley Chemical upgraded to buy

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Speaker 1: at sun Trust. Live from the First Baking News Desk

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Speaker 1: on Bill Maloney, John, all right, thanks Bill, and to

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Speaker 1: hear live breaking news over your Bloomberg. Just type squawk

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Speaker 1: go and your terminals and that thing is a Bloomberg

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Speaker 1: business flash, Tom and Mike. It's thanks so much. Sometimes

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Speaker 1: we do a lot of equity coverage. Here you look

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Speaker 1: at a bond in this case, it's Semens of Germany

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Speaker 1: of financial peace, trading in a massive premium with a

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Speaker 1: humongous coupon. You make sixe it's out ten years. That's

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Speaker 1: a huge coupon. Trading from one up to one thirty

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Speaker 1: one ninety basis points night, not a percentage point above

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Speaker 1: treasuries U S treasuries. That's remarkable with us in the

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Speaker 1: real world of fixed income. Lynn Graham Taylor as well.

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Speaker 1: First of all, folks, Bloomberg surveillance this morning brought you

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Speaker 1: by Investco. Don't settle for averaging your portfolio to Investco.

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Speaker 1: The right approach means investing with high conviction. Find out

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Speaker 1: more it investco dot com slash high Conviction. Lynn Graham

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Speaker 1: Taylor with us with Robot Bank. Lynn, I get that

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Speaker 1: the banks are buying corporate paper, that the e c

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Speaker 1: B is buying Semen and other papers. What happens when

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Speaker 1: they decide sell it? Well, I mean I think at

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Speaker 1: the moment, there's a commitment by the ECB on all

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Speaker 1: of its bond purchases. I think I'm right on the

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Speaker 1: couple prints as well too, reinvest the maturing debts and

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Speaker 1: coupon and until the foreseeable future. Um, so we're that's

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Speaker 1: a long way down the line in terms of when

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Speaker 1: they do think about selling it. And I guess the

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Speaker 1: hope is a bit like with the US with their

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Speaker 1: own decision to currently carry on reinvesting maturing and coupons,

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Speaker 1: is that you know, they're hoping that gragedy they'll be

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Speaker 1: able to run this down at some point in the

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Speaker 1: future when they're when they're growth an inflation mandate of

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Speaker 1: what inflation mandate is much closer to target. Make the

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Speaker 1: foreseeable future is when I take a vacation. That's never

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Speaker 1: going to have a fature, never going to happen. But

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Speaker 1: don't don't Europeans have the same problem as the fair

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Speaker 1: that going forward to that with liquidity coverage ratio as

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Speaker 1: being imposed and banks needing to have more reserves on hand,

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Speaker 1: there's no reason and maybe it would be extremely difficult

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Speaker 1: for the banks to bring down their balance sheets. Yeah,

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Speaker 1: I mean, I think, um, I think on the liquidity

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Speaker 1: coverage ratio front, yeah, I mean, broadly speaking, everyone's in compliance.

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Speaker 1: There's certainly no reason that people want to buy anymore

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Speaker 1: um h l A assets. UM. So you know there

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Speaker 1: is this there is probably going to be an ongoing

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Speaker 1: but steady demand from banks who are going to but

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Speaker 1: I guess, to sell them to to hold onto these assets.

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Speaker 1: But the flip side is that when in selling to

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Speaker 1: the CB, they get central bank reserves, and central bank

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Speaker 1: reserves in excess of your reserve requirement are h l

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Speaker 1: A level one. So you know, well and inside a

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Speaker 1: lot of cases, the yield that you get on those assets,

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Speaker 1: which is i yeald in those cash reserves is minus

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Speaker 1: forty is actually higher than the yield in Arsenal piece

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Speaker 1: of work we did. In most of the core and

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Speaker 1: semi core of the Eurozone, one to five year debt

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Speaker 1: has a lower yield the minus minus fourty. Anyway, so

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Speaker 1: you're into your in theory, you're really quite ambivalent behind

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Speaker 1: between having cast reserves at the ECB or owning or

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Speaker 1: owning a government bond when it comes to meeting your

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Speaker 1: lcr A SI. The other question for the European Central

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Speaker 1: Bank is what are they going to be able to

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Speaker 1: buy in this negative interest rate world. You know, especially

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Speaker 1: if the German tenure continues to trade negative and goes

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Speaker 1: more than forty basis points negative, that takes a huge

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Speaker 1: chunk off. I mean, that's a really interesting question because,

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Speaker 1: I mean, we just did a back of the envelope

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Speaker 1: calculations and you know, we think that if Field were

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Speaker 1: to stay where they were, where they are currently, you know,

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Speaker 1: they're going to be approaching the running out stage in

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Speaker 1: terms of owning thirty three percent of everything that's eligible

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Speaker 1: in the sort of maybe turning during the summer, so

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Speaker 1: maybe July or August. Obviously yields can change in the

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Speaker 1: devening period, but at some point they're going to have

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Speaker 1: a thairty major decision as to whether potentially abandoning the

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Speaker 1: capital key will be difficult. In the last minute, we've

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Speaker 1: got to start the show and catch up on this again.

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Speaker 1: You just said, with the way cash flows are now,

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Speaker 1: they will own a third of the debt by when

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Speaker 1: of eligible debt by the end of the summer. So

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Speaker 1: maybe July August Mica did not know that that it was.

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Speaker 1: It was years they had now yielding below the deposit

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Speaker 1: rate basically on the Germans front. Yeah, it's it's an

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Speaker 1: enormous amount, and they have this thirty three ceiling so

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Speaker 1: that they did not know that they are they're running

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Speaker 1: into trouble. So how did they conduct terry palsy? They

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Speaker 1: basically have to give up one of the tenants, as

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Speaker 1: you mentioned, perhaps the capital key you've got, You've got

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Speaker 1: the options, you think the capital y is a huge

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Speaker 1: from a political hurdle perspective, is pretty massive. You've also

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Speaker 1: got the posentials to buy more than thirty three worry

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Speaker 1: less about they don't want to hold this sort of

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Speaker 1: blocking majority. But maybe they'll decide there's a way they

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Speaker 1: can get around that as well. But yeah, it look

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Speaker 1: you know, as things currently stand, it looks like they'll

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Speaker 1: have to make a fairly major decision towards the end

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Speaker 1: of the summer, and no doubt the market will push

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Speaker 1: them in, you know, kind of push them into that

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Speaker 1: as well. There's a few options, none of rich are

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Speaker 1: very palatable. This is not going to be a boring

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Speaker 1: summer time. You know, I said that, I haven't said

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Speaker 1: lin Lynn Graham Taylor, thank you so much. With robo

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Speaker 1: bank exceptionally valuable. I'm putting this out on Twitter right now.

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Speaker 1: Mike and I have a concert on Twitter. Tom keenan economy. Mike.

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Speaker 1: I usually panic about July June five, about there will

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Speaker 1: be no news flow this summer. You and I will

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Speaker 1: come in and have nothing to talk about. I can

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Speaker 1: assure you, Mike, I do not have that panic this year.

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Speaker 1: I just don't. Yeah. Next week, but FED meeting one

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Speaker 1: PMC afternoon next week. Francine Lacroix, John Ferrell, Michael McKee in,

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Speaker 1: Tom Keane in London. You will join us all next

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Speaker 1: week coming up there with all due respect. Highlight brought

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