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Speaker 1: This is Bloomberg Surveillance stats. Where the focus ought to

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Speaker 1: be on fiscal policy going forward is how do we

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Speaker 1: generate a better environment to create business, investment, create capital.

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Speaker 1: We have these ups and downs and chop growth. This

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Speaker 1: is one of those down periods, but I'm quite confident

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Speaker 1: that in the third quarter things will pick back up

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Speaker 1: the gap. I'm long of crude oil because it is

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Speaker 1: moving from the lower left of the upper right. Do

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Speaker 1: I embrace it enthusiastically? No? Do I have stops underneath it? Absolutely?

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Speaker 1: Bloomberg Surveillance your link to the world of economics, finance

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Speaker 1: and investment on Bloomberg Radio. Good morning everybody. It is

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Speaker 1: seven am on Wall Street, eleven pm in Auckland, where

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Speaker 1: the Kiwi is soaring this morning at one point four percent.

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Speaker 1: The Reserve Bank of New Zealand did nothing. Kept great

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Speaker 1: steady interest rate differential story. It is a central bank

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Speaker 1: world around the world today, yields plunging everywhere. German bunzet

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Speaker 1: record lows, UK tenure guilt at a record load today.

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Speaker 1: In the US, yields continue to fall. The two year

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Speaker 1: now down to seventy seven basis points, the five year

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Speaker 1: at one point to one percent ten year one point

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Speaker 1: six eight percent. The dollar is rising. You might imagine

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Speaker 1: forty seven for the d X, y one oh six,

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Speaker 1: forty seven for the end dollar up half a percent

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Speaker 1: against the Japanese currency. The year A one thirteen forty

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Speaker 1: four down four tenths, getting near some UH crucial technical levels,

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Speaker 1: they tell us, and looking at equities, you would probably

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Speaker 1: be correct in believing that they are not happy with

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Speaker 1: all of this movement. The stock six D three points

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Speaker 1: lower on the day, eight tenths of eight percent, the

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Speaker 1: tax is off a hundred and nineteen one point two percent.

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Speaker 1: Footsie is trading down by forty nine eight tenths. Don't

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Speaker 1: know whether that's part of the global sell off, imagine

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Speaker 1: a lot of it is. But there's also the Brexit risk.

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Speaker 1: Still they're overhanging that market. SMP features in the US

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Speaker 1: seven points or three tents down, futures off thirty eight

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Speaker 1: two tents, and nazdaki mean he's a thirteen points lower

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Speaker 1: two tenths of eight percent. By the way, oil UH

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Speaker 1: still comfortably fifty dollars West Texas fifty one this morning,

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Speaker 1: even though it's down eight tents. Brent crude down by

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Speaker 1: a percentage point, But that leaves it at fifty two

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Speaker 1: oh one. What is going on in the world? Why

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Speaker 1: is all this money pouring into fixed income? Nothing's going

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Speaker 1: in Tom, Tom. Tom is just waking up here as

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Speaker 1: alarm went off late. Rick Everrol's club head of fixed

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Speaker 1: income research at Credit sueees. He's been up for hours

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Speaker 1: checking the markets because he comes from down Under and um,

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Speaker 1: you know when the New Zealanders do something the ads,

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Speaker 1: he's got to pay attention. But what is going why

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Speaker 1: everybody all of a sudden, I mean, ever since the

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Speaker 1: FED took itself out of the markets. Is it really

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Speaker 1: free money that's driving everything here or is this some

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Speaker 1: sort of additional concern that is pushing people to events? Um?

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Speaker 1: I mean I think, as always, there's lots of things

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Speaker 1: going on. I mean, I think the first thing is

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Speaker 1: clearly central banks. I mean, I think the fact that

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Speaker 1: we've got negative rates in a bunch of countries is

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Speaker 1: keeping the short end of the curve very very anchored.

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Speaker 1: And then of course people are getting more nervous about

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Speaker 1: global growth. Again. I think payrolls last week was were

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Speaker 1: important in terms of the feed had been out telling

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Speaker 1: people that they were going to hike in the summer

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Speaker 1: now people are beginning to question that UM. And then

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Speaker 1: of course you've got Briggs at Sitting a couple of

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Speaker 1: weeks out now, and people very worried that something could

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Speaker 1: happen there which would at least drive a volatility event.

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Speaker 1: And what that means is people going by a fixed

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Speaker 1: income UM. And then if you think about where you

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Speaker 1: can get some coupon, where you can get some yelled

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Speaker 1: at the moment, you have to go a long way

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Speaker 1: out the curve. You gotta go a LifeWay from that's right.

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Speaker 1: And I mean even even in Australia. I mean you

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Speaker 1: have a ten year year in Australia pushing down towards

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Speaker 1: two percent. I mean that's just extraordinary. I mean, this

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Speaker 1: is an economy that's going at three in the last year.

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Speaker 1: Unemployment looks like it's stable. Um, you know it's it's

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Speaker 1: a weird and wacky world out there. Well it is,

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Speaker 1: and you wonder how much of it is just the

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Speaker 1: momentum treating and that all of a sudden something will

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Speaker 1: come out, some data point or something is going to

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Speaker 1: come out and and just whack traders upside the head. Yeah,

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Speaker 1: look again, I think that's something we need to watch

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Speaker 1: really closely because if you if you think about the

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Speaker 1: structural things that are going on, there's no doubt that

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Speaker 1: you olds are going to stay low for a long

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Speaker 1: time because the short end is anchored so tightly. And

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Speaker 1: we still think that the next thing that happens, if

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Speaker 1: anything happens with central banks outside of the US, is

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Speaker 1: they ease more so with the Bank of Japan if

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Speaker 1: they do anything else this year, it's going to be

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Speaker 1: easing some other way, and likewise with Europe. So the

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Speaker 1: short end is going to stay low, but the long

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Speaker 1: end does feel very dangerous. And remember that I think

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Speaker 1: it was April last year, UM ten year born yields

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Speaker 1: got down to I think they've got down about five

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Speaker 1: basis points, and then of course we had a big

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Speaker 1: correction market sentiment change, and then three weeks later they'll

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Speaker 1: seventy five basis points. So it feels to me that

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Speaker 1: the risk if you have the vote in a couple

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Speaker 1: of weeks in the UK and they decided to stay in,

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Speaker 1: the risk is that you get a big unwinding at

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Speaker 1: this very quickly. That's the short term story, and that's

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Speaker 1: a short term tactical trading story. UM. But I do

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Speaker 1: think that inexorably at the moment. Unless you get some

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Speaker 1: better global growth somewhere, these yields are going to keep

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Speaker 1: grinding down or at least stay very flat. And the

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Speaker 1: thing that worries me there is that, um, if you

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Speaker 1: think about the past six months or twelve months episodically,

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Speaker 1: there have been things that have kind of driven volatility

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Speaker 1: and shocks in the global economy. At the beginning of

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Speaker 1: this year, it was China. At the moment, people a

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Speaker 1: reasonably sang went on China, whereas I think that they

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Speaker 1: put the last sugar fixed through the system. You've had

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Speaker 1: to keep particularly in infrastructure spending and housing. Housing has

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Speaker 1: probably done too much already and it looks like it's

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Speaker 1: starting to roll over. So the most likely thing is that,

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Speaker 1: rather than at a global level the economy looking much better,

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Speaker 1: in six months time, we have another shock and that

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Speaker 1: gets people worried again. So I don't think it's systematic.

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Speaker 1: I don't think it blows everything up, but the probability

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Speaker 1: of getting strong growth or above average growth in the

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Speaker 1: next six months is pretty small. I think very excited

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Speaker 1: about the penguins tonight, but are you worried about the blow?

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Speaker 1: I'm taking in an eight hour naptis afternoon so I

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Speaker 1: can stay up to For those of you globally, there's

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Speaker 1: a small hockey game tonight in Pittsburgh that has my attention.

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Speaker 1: What has my attention is Bloomberg Surveillance with a lot

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Speaker 1: of extra data checks. Bloomberg Surveillance this morning brought you

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

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Speaker 1: invest Goo. The right approach means investing with high conviction.

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Speaker 1: Find out more and investco dot com slash high conviction,

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Speaker 1: Rick Devereaux, where there's credits we Rick, I got two

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Speaker 1: core questions, but very different questions. Let me start with

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Speaker 1: a gloom and doom question. I got challenges in FX,

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Speaker 1: I got challenges in bonds. Equities keep going up? When

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Speaker 1: to equities give up the ghost because of your world

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Speaker 1: um and again a very different, very difficult question. I mean,

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Speaker 1: you can think about equities in a couple of ways.

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Speaker 1: At the moment um. You can look at absolute metrics

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Speaker 1: of value Asian and frankly they look pretty rich um.

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Speaker 1: And you can look at earnings and you can say

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Speaker 1: that I think in a general macro sense, the wage

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Speaker 1: share of GDP has probably bottomed out, so the corporate

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Speaker 1: shares picked, so you're not going to get any strength there.

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Speaker 1: The flip side of that is that everything else is

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Speaker 1: expensive at the moment, so maybe just being a bit

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Speaker 1: of expensive for equities is not too bad. And normally

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Speaker 1: equity markets peek at a higher level than this. Um

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Speaker 1: So my my gut feeling is that the very near

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Speaker 1: term for equities that you actually have a melt up

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Speaker 1: rather than a melt down, because everyone's looking okay, I

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Speaker 1: like that, we like to work melt up here. That

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Speaker 1: does well with rays. But then the other question is

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Speaker 1: to what you and Mike we're talking about. I need

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Speaker 1: you to explain how adults who have an eight, nine,

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Speaker 1: twelve year duration, how they go to work in the

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Speaker 1: morning in this world? What do pension funds do? What

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Speaker 1: a insurance companies do? What are our individual for a

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Speaker 1: one case do given the macro oddity that we're in

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Speaker 1: right now. And I think it's very difficult. And I

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Speaker 1: think again, what if you step the first principles what

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Speaker 1: central banks are doing here? Is there the reason you

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Speaker 1: have such extraordinary low policy infustrates or negative in some

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Speaker 1: areas is what you're really doing is you're trying to

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Speaker 1: force people to take to move into risk your assets,

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Speaker 1: so you're forcing them out of fixed income, You're trying

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Speaker 1: to get them to buy the equity market. But ultimately

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Speaker 1: it's become chronic a Newtonian basis. We've got a forwardablementum

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Speaker 1: that's ugly, it's a bill gross like ten years repression.

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Speaker 1: How do those institutional managers survive and the day when

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Speaker 1: we get a release? And I think it's going to

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Speaker 1: be a problem, I really do. I think that the

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Speaker 1: CONNECTI in the coal mine, as you talked about earlier,

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Speaker 1: is that you have these very big segments of the

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Speaker 1: economy that you know you cannot live on this kind

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Speaker 1: of keep on. And I think that's going to be

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Speaker 1: a problem that's going to accumulate them. And part of

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Speaker 1: what we're seeing at the long end of the yield

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Speaker 1: curves is that these guys are being forced further along.

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Speaker 1: So I saw a statistic earlier this week that the

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Speaker 1: average yield in Germany is now negative. So if you

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Speaker 1: look at the whole stock of bonds on issue, the

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Speaker 1: average yield as negative. We've had companies in Switzerland corporates

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Speaker 1: issue at negative interest rates, and we had a Japanese

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Speaker 1: company earlier this week issue at point o one. So

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Speaker 1: you know there is no yield in the system for

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Speaker 1: those who rely on coupon who those rely on fixed

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Speaker 1: income to generate returns. This is going to be very problematic.

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Speaker 1: Um And I think that the longer this goes on,

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Speaker 1: the bigger the risk that there are some big structural

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Speaker 1: problems in some of those sectors. I agree with you completely.

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Speaker 1: I just don't know how you get out of it

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Speaker 1: because the counter factual, um So, a lot of people

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Speaker 1: will say, well, central banks have made a big mistake here.

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Speaker 1: You should have higher interest rates. But if those higher

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Speaker 1: interest rates actually lead to weaker economic growth, still, um,

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Speaker 1: you know, it's debatable, that would be bigger problems. So

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Speaker 1: you know this is there are no easy solutions here

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Speaker 1: other than the fiscal authorities stepping in. But again, the

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Speaker 1: politics is such that that looks very improbably in most places,

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Speaker 1: certainly here we'll continue with Rick Darrow from Credit Swiss

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Speaker 1: as we track the decline of the bond market. Tommy

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Speaker 1: German two year negative fifty four basis points right now

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Speaker 1: not what you want to see. If you're investing in

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Speaker 1: short term paper there you should probably tenure one point

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Speaker 1: six eight percent. Good morning, Steve Major. I was gonna

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Speaker 1: say God on the curb in Germany you can get

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Speaker 1: five basis points this morning we saw swis this was

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Speaker 1: twenty year go to negative rate a few days ago.

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Speaker 1: Kit Jukes, thank you so much at stuck Jen for

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Speaker 1: that idea of the ten year tips. How about ready

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Speaker 1: to break down zero percent as well. We've got lots

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Speaker 1: to continue with here this morning, and yes we'll do

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Speaker 1: extra data checks. Futures negative seven down, futures negative thirty

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Speaker 1: at the end one oh six point five three. This

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Speaker 1: hour of surveillance is brought to you by Babbo Cars,

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Speaker 1: White Planes, Visit Cars, White Planes dot Com. Here's John

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Speaker 1: Tucker with news headlines and Michael and Tom. Bernie Sanders

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Speaker 1: has to Lighthouse this morning for a chat with President Obama.

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Speaker 1: The session aimed at unifying the Democratic Party for a

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Speaker 1: general election brawl with Donald Trump. Although Hillary Clinton has

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Speaker 1: become the presumptive nominee, Sanders has refused to exit the race,

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Speaker 1: at least so far. To suicide attacks in and outside

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Speaker 1: the Iraqi capital today killed at least twenty seven people,

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Speaker 1: had wounded more than sixty, and House leaders and President

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Speaker 1: Obama pressuring lawmakers and both parties to support legislation to

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Speaker 1: help ease Puerto Rico's financial crisis. The House schedule to

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Speaker 1: begin debate today and to build that we create a

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Speaker 1: financial control board and restructure some of the U S territories.

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Speaker 1: Seventy billion dollar dead Global News twenty four hours a day,

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Speaker 1: John Tucker, Michael and Tomas. John Tucker thinks so much

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Speaker 1: I'm buried in Like. Where did the phrase Canarian and

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Speaker 1: coal mine come from? I'm looking for if you know

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Speaker 1: where the derivation is from of Canarian a coal mine

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Speaker 1: sent it out to meet and Michael McKee. Bloomberg Surveillance.

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Speaker 1: Bloomberg Surveillance brought to you by Elbow Beach, Bermuda and

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Speaker 1: on your radio. This is a Bloomberg business flash and

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Speaker 1: I'm Karen Moscow. This updates brought to you by Bentley University.

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Speaker 1: What do you Rebooting America's oldest ski shop and crunching

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Speaker 1: numbers at Vista Frint have in common? An NBA from

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Speaker 1: Bentley University that prepares graduates to innovate and lead. Because

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Speaker 1: business is everywhere, prepare here and we quit. Long rallies

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Speaker 1: for global stocks and commodities coming to an end as

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Speaker 1: the outlook for economic growth rekindled investor caution. We checked

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Speaker 1: the markets every fifteen minutes throughout the trading day on

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Speaker 1: Bloomberg US so Authendex futures are lower SNP E many

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Speaker 1: futures down seven points down eveny futures down forty three

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Speaker 1: NASAC give me any futures down twelve The acts in

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Speaker 1: Germany's down one point one percent ten year treasury of

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Speaker 1: seven thirty seconds, the one point six seven percent yield

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Speaker 1: on the two year point seven six percent. No, I'm

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Speaker 1: ex screwed. Oil down eight ten percent, or forty two

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Speaker 1: cents to fifty eighty one cents of arrel Co mex

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Speaker 1: school Little changed up twenty cents to twelve sixty two

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Speaker 1: forty an ounce the euro and other thirteen thirty six

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Speaker 1: again one oh six point four eight And that's a

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Speaker 1: Bloomberg business flash. Tom and Mike Karen, thanks so much.

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Speaker 1: I want to do a dated check, folks. Has actually

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Speaker 1: been stasis here for three hours. You're just joining us

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Speaker 1: to see the US tenure in from a one seventy

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Speaker 1: one to one point six seven eight one with curve flattening.

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Speaker 1: The two tents spread ninety one basis points in a

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Speaker 1: solid two basis points this morning. Get your attention. We

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Speaker 1: are adjusting and reac oberating with Rick. Deborah had a

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Speaker 1: fixed income research or credit suit. What are you working on?

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Speaker 1: And I don't. I don't usually like to do open questions,

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Speaker 1: but I think it works here. You're gonna go back

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Speaker 1: to the fortress at the bottom of Madison Avenue and

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Speaker 1: you and your team are gonna go we gotta write

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Speaker 1: about something smart. What is it? Um? I mean the

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Speaker 1: way I like to approach research, and particularly at the moment,

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Speaker 1: is to be open ended in terms of, you know,

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Speaker 1: I like to encourage my team to think about fundamentally, well,

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Speaker 1: so what is it? What are they thinking about? Within

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Speaker 1: this blur of negative rates, Brexit convexity duration and the

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Speaker 1: rest of it. What's the concept it seems to come up.

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Speaker 1: So again I think you've got to think about a

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Speaker 1: framework in terms of how you absorb all of the information.

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Speaker 1: And to me, the two key things at the moment

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Speaker 1: are there are these big structural things going on and

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Speaker 1: where are they going to impact and where are you

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Speaker 1: going to have the next source of volatility um But

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Speaker 1: in the very near term we've got some big shocks

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Speaker 1: coming up. So I mean, we're spending most of the

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Speaker 1: morning talking about the bond markets and that surely has

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Speaker 1: to do with the fact that we've got this big

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Speaker 1: Brexit referendum coming up. So you need to kind of

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Speaker 1: separate when you're thinking about trading and when you're thinking

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Speaker 1: about what's going to happen with markets. You need to

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Speaker 1: think about the short term and you know, there's a

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Speaker 1: bunch of things that you're going to drive things in

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Speaker 1: the next couple of weeks, and then you think about

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Speaker 1: what happens after that, and then it's it's bifurcated depending

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Speaker 1: on the outcome you get from that referendum as you

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Speaker 1: move into the second half of the year. Again, fundamentally,

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Speaker 1: to me, it's about growth, and the problem I have,

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Speaker 1: as I've as I've said before, is that growth is okay,

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Speaker 1: but it's below trend. I can't see your world where

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Speaker 1: on the second half of the year it goes back

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Speaker 1: above trend. If anything. Um I think the US accelerates

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Speaker 1: a little bit from here, So I worry less about

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Speaker 1: the US. I think payrolls was a bit of a

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Speaker 1: head fake, but I do worry that China will slow

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Speaker 1: down again. I also worry that with the yen having

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Speaker 1: moved as much as it has, that corporate profits in

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Speaker 1: in Japan will come under pressure and the Japan mayselfen again.

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Speaker 1: So it's a good thing that they've delayed the tax cut,

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Speaker 1: but in the near term, it's hard to see the

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Speaker 1: thing that ignites stronger glow growth. So that means that

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Speaker 1: every time you get another shock, every time you get

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Speaker 1: another thing for people to worry about, there'll be more

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Speaker 1: money moving the fixed income and you would keep under pressure.

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Speaker 1: So it's very difficult to see a world where yields

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Speaker 1: move materially higher. Now, if you were the man from

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Speaker 1: Mars and you came down and you just looked at

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Speaker 1: the United States, I think the U s should have

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Speaker 1: higher yields probably across the curve. But given that, particularly

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Speaker 1: the long end of the curve is very much a

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Speaker 1: global market, and given that, as I say, if anything,

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Speaker 1: the next policy innovation in Japan and Europe will be

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Speaker 1: further easing um. And given the aggressive search for yield

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Speaker 1: across the whole system and the fact that there are

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Speaker 1: risks out there, it's very hard to see even US

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Speaker 1: long term yields move higher because as soon as they do,

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Speaker 1: there will be a flood of money come across from

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Speaker 1: other places and push it back down again. So I

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Speaker 1: think we're just stuck in this equilibrium at the moment,

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Speaker 1: and until you can get some reasonable growth, which is

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Speaker 1: probably at the earliest to seventeen story, it's hard to

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Speaker 1: see that getting dislodged. Redbud Michael red button. Does it

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Speaker 1: change even in two thousands seventeen with job growth, or

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Speaker 1: has there been a secular change in the way you trade.

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Speaker 1: This is obviously not what you grew up. And that's

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Speaker 1: a good point because you know, economists come on shows

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Speaker 1: like this and they say with certainty that this is

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Speaker 1: going to happen or that's going to happen. But as

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Speaker 1: as a profession we need to be very humble. Um,

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Speaker 1: you know, we're not very good at understanding this stuff.

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Speaker 1: We've never seen this before, so you know there are

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Speaker 1: there are lots of things that could happen. Our central view,

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Speaker 1: and James Sweeney's central view, is that a lot of

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Speaker 1: what we're seeing now is a transitory event related to

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Speaker 1: the downturn in investment in China and then the commodity

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Speaker 1: impact from that. So you're actually seeing a lot of

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Speaker 1: the disinflection you've seen around the world. Um, and particularly

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Speaker 1: the really big hit that you've seen to business investment

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Speaker 1: in a lot of places is a function of those

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Speaker 1: two things. So it's Chinese investment coming down and then

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Speaker 1: the commodity investment falling off in a lot of places.

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Speaker 1: Now that the peak of that downturn has probably past us,

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Speaker 1: so you can tell the story that things start to

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Speaker 1: normalize next year as long as China doesn't have another

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Speaker 1: big downward leak. So if China stays controlled next year,

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Speaker 1: you can tell a story where business investment starts picking

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Speaker 1: up in a bunch of other places and you start

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Speaker 1: getting more reasonable growth. So I I do think at

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Speaker 1: the moment everyone talks about this is being a secular

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Speaker 1: thing that's gonna last forever. Things like this never last forever,

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Speaker 1: and the most likely thing is that it normalizes. But

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Speaker 1: I just think it's going to take some time. Look

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Speaker 1: at this way, the panic over China was misplaced, didn't happen,

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Speaker 1: didn't crash. I'm just wondering if if people, if especially

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Speaker 1: fixed income trators, have become Woody Allen reincarnated where he said, uh,

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Speaker 1: you know, the two categories of life are horrible and miserable,

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Speaker 1: and you've gotta be one or the other, because if

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Speaker 1: it's not China, it's gonna be something else. In other words,

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Speaker 1: the trade is always based on the idea that central

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Speaker 1: banks are going to keep pumping in money because there's

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Speaker 1: some crisis. And that's where it's going to get really interesting,

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Speaker 1: because I think I think that's exactly right, and I

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Speaker 1: think that means that it's going to be hard for

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Speaker 1: the FED to move very much in the next year.

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Speaker 1: I think they'll get one or two or three or

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Speaker 1: four in UM. But the problem is that every time

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Speaker 1: they get moving, something else is going to happen somewhere else,

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Speaker 1: and that will slow them down. Because they are risk averse,

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Speaker 1: they're very worried about the fragility of the global system.

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Speaker 1: But we're getting to an interesting structural point in that

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Speaker 1: unemployment in the US is four point seven. And you

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Speaker 1: can mount an argument that that unemployment number was more

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Speaker 1: important than the payroll's number last week because people had

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Speaker 1: begun to think that labor fourth participation was picking up again,

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Speaker 1: and it looks like all of that unwound. Now, my

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Speaker 1: view is that mainly the slowdown or the weakness in

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Speaker 1: participation is structural. A lot of it's demographic. There's a

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Speaker 1: whole bunch of things going on. But now you've got

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Speaker 1: four point seven unemployment. Let's let's paint a picture if

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Speaker 1: we have another year where unemployment goes down by well,

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Speaker 1: Dan Mcki is there with point seven two act sparklers. Yeah,

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Speaker 1: he goes down to the three handle. Yes, so you

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Speaker 1: get to a three handle and oils picked up. Remember,

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Speaker 1: we gotta leave it there. Rick Debro, thank you so much.

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Speaker 1: Please come back with credit Swiss as well. We will

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Speaker 1: continue futures a negative oven Bloomberg surveillance. Well, what about

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Speaker 1: that China story. Coming up, we'll talk with Frederick Newman,

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Speaker 1: HSBC's cohead of Asian Economic Research. Is the outlook actually

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Speaker 1: improving in China. This is Bloomberg surveillance