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Speaker 1: This is Bloomberg surveillance. The markets have been impervious really

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Speaker 1: to date during this unconventional election cycle. Look at what's

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Speaker 1: happened to P and S, some amazing firms and luxury

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Speaker 1: brands of China. China's gone from being a dream for

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Speaker 1: a lot of consumer companies to a real problem. Also,

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Speaker 1: it's amazing to me that one Janet yell And goes

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Speaker 1: out and speaks, she still gets questions about what would

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Speaker 1: the fete do if we went into a recession. Bloomberg

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

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Speaker 1: investment on Bloomberg Rading. Good morning everyone, Michael McKee and

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Speaker 1: Tom Keen. Good morning to all the United Kingdom. Good

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Speaker 1: morning as you celebrate the Queen's birthday. Bloomberg Surveillance This

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Speaker 1: morning brought you by Cone Residuc Accounting, Jack's advisory. Cone

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Speaker 1: insight find out how a Cone residuc dot com. Michael,

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Speaker 1: We've got to it right to thirty minutes to drag

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Speaker 1: the interview of the day on the bet on Europe

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Speaker 1: Deutsche Bank just flat out says no, the consensus might

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Speaker 1: help me here. He's shifted to neutrality, stability or even

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Speaker 1: a strong euro, and Deutsche Bank just is no, we

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Speaker 1: stay with a weaker euro. Call that is a call

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Speaker 1: out this morning from George sarre Ellis. He is with

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Speaker 1: us now from Deutsche Bank. He's the co head of

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Speaker 1: forex research. That you put out a note just this

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Speaker 1: morning George saying that you remain a stubborn bear on

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Speaker 1: the Euro. Indeed, good morning. So the main thing we

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Speaker 1: looked at is basically where relative expectations lie between the

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Speaker 1: Fed and the ECB. And if you look at at

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Speaker 1: the Fed, you've had a very largely pricing in terms

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Speaker 1: of expectations. So at the start of the year the

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Speaker 1: market was looking for between two to three hypes and

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Speaker 1: now we're only pricing one rate hike every twelve months.

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Speaker 1: And we simply just don't believe that. We think the

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Speaker 1: Fed will go at least once, possibly twice UH this year,

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Speaker 1: and as a result, we think dollar strengths is going

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Speaker 1: to come back how quickly? I it's a very valid

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Speaker 1: question in terms of the timing. I think the earliest

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Speaker 1: is June. So the Fed meets net next week. I

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Speaker 1: think it's far too early, so we have pushed back

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Speaker 1: our expectations in terms of how quickly we expect the

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Speaker 1: Euro to weaken. But from our perspective, you need to

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Speaker 1: assume that the US is falling into a recession, that

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Speaker 1: the Fed hiking path stops to to change the broad

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Speaker 1: view on the dollar. So we had a setback, but

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Speaker 1: we're not giving up on the On the positive US,

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Speaker 1: you if you run the partial differential of the dynamics

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Speaker 1: of any currency pair, there's always one weighted more. Is

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Speaker 1: this about week euro or is it about strong dollar?

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Speaker 1: It's a it's a great question. I think it is

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Speaker 1: more about a strong dollar at this stage because the

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Speaker 1: ECB will probably be on hold for a long time.

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Speaker 1: Um that being said, it's interesting because Japan, obviously the

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Speaker 1: market has been repricing the extent of easing, and yet

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Speaker 1: the the again has been strengthening a lot more. And

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Speaker 1: I think the key difference is the flow side. In Europe,

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Speaker 1: you're still seeing very very large outflows in Japan, those

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Speaker 1: are slowing down, So the FED and the dollar are

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Speaker 1: a big part, but the flow picture is still very

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Speaker 1: weak in Europe. And if you compare the Euro to

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Speaker 1: other currencies, it's actually under performing quite substantially this year.

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Speaker 1: It's one of the worst performers together with the dollar.

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Speaker 1: Of course, there is a suggestion though that we're starting

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Speaker 1: to see some improved economic performance in Europe that could

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Speaker 1: hold back weakening. So from our perspective, better growth could

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Speaker 1: counterintuitively be a negative for the Euro. The reason is

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Speaker 1: if you look at portfolio flows, the more growth improved,

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Speaker 1: so does risk appetite. And you get more outflows, you

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Speaker 1: get Europeans become more risk positive. So in that way

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Speaker 1: it behames similar to Japan. So remember when we had

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Speaker 1: urbonomic growth picked up, the yen started weakening a lot

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Speaker 1: because the Japanese started buying more off your efforts. So,

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Speaker 1: so long as the ECB doesn't change in terms of easing,

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Speaker 1: to me, positive growth is not a positive thing for

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Speaker 1: the Euro. What will you listen for from Mr Draggy

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Speaker 1: this morning? He's going to come out with the usual

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Speaker 1: statements and so maybe they give us color and corporate

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Speaker 1: but I'm purchase fine. What will you listen for? It

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Speaker 1: dout your bank. So three things. The first one is

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Speaker 1: commentary around negative rates, so the market is pricing another

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Speaker 1: ten basis point cuts over the next twelve months. Does

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Speaker 1: he push back on that? Does he say it's reasonable?

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Speaker 1: Does they say they could do more? The second thing

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Speaker 1: is how comfortable does he feel with the euro up here?

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Speaker 1: Does he try to talk it down a bit? Does

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Speaker 1: he say it irrelevant? Um? And then the third thing,

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Speaker 1: which is my favorite topic, is a helicopter mind. We

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Speaker 1: publish a very large report on this last week. So

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Speaker 1: does they call it a Ponty scheme like Mark Krani did,

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Speaker 1: or does he look on it more favorably? Does he

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Speaker 1: need it? In other words, would he bring it up?

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Speaker 1: Would he want to wade into that swamp? Yet? I

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Speaker 1: think he won't bring it up if if he had

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Speaker 1: the choice, But in the questions, I suspect it will

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Speaker 1: be one of the most popular topics, and it's a

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Speaker 1: response that would be interesting within your wonderful primier helicopters

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Speaker 1: one oh one to find the jargon here. What is

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Speaker 1: helicopter money? Again, that's a great question because so many

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Speaker 1: people have different interpretations, and what we try to do

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Speaker 1: is really trying to separate the different options. So at

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Speaker 1: one end, we we call quee a form of helicopter money.

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Speaker 1: If it's coordinated with fiscals. So if the central bank

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Speaker 1: goes out and buys bonds but the government is issuing

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Speaker 1: more to pay for fiscal expansion, you could call that

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Speaker 1: an indirect form of Montreal financing. That's one of the

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Speaker 1: most conservative side. The least conservative, the most aggressive side

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Speaker 1: is if the central bank directly credits bank accounts with

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Speaker 1: free money to people, and I'd call that the most

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Speaker 1: original form of helicopter Are you saying right out checks

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Speaker 1: two citizens exactly? Basically credit just give people money for free. Well,

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Speaker 1: it has to be under the definition, it has to

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Speaker 1: be coordinated. The the European Central Bank is doing um

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Speaker 1: qui right now? Is are they doing a form of

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Speaker 1: helicopter money? Uh? Indirectly, I would say they are. And

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Speaker 1: the key conclusion from the paper is that if you

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Speaker 1: assume things movingcrementally and depending on the shocks, if you

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Speaker 1: look at Europe, it's been moving incrementally throughout this crisis.

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Speaker 1: So remember we started from the l t R O

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Speaker 1: s move to negative rates, then of course qui. So

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Speaker 1: the argument is that if you do get another big

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Speaker 1: shock potentially recession, it doesn't take that much of a

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Speaker 1: leap of faith. Have moved to the more aggressive forms

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Speaker 1: where potentially the ECB is credit in cash two people's

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Speaker 1: bank accounts. Now, when you talk about crediting cash to people,

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Speaker 1: we have in the United States, um within the last

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Speaker 1: decade a couple of times sent people checks and they

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Speaker 1: put the money in the bank as opposed to spending it.

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Speaker 1: So why would helicopter money, if it's a sort of

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Speaker 1: one time giveaway from the central bank or from the

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Speaker 1: legislature on the fiscal side, be any better than any

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Speaker 1: other form of stimulus. So I think this is the

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Speaker 1: key distinction, which is does the central bank to it

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Speaker 1: or does the government to it? Because if the government

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Speaker 1: is doing it and people perceive it as a temporary event,

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Speaker 1: whereby debt to GDP rises, eventually tax will rise in

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Speaker 1: the future, people will save that because they expect for

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Speaker 1: it to be taken back. But if it's done by

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Speaker 1: a central bank, it's perceived as a permanent increase in

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Speaker 1: the monterrey supply, which doesn't impact the overall level of

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Speaker 1: debt in the economy, then you would expect to hire

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Speaker 1: propensity to spend. Now that that's a key distinction, I

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Speaker 1: think Tom this has got to be seen as an

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Speaker 1: not not just cash in people's pockets, but an increase

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Speaker 1: in the money supply, right exactly. I mean, George, this

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Speaker 1: is unconventional policy. What is the likelihood of any flavor

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Speaker 1: of the helicopter money or is it just a rhetorical

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Speaker 1: stick in the media. I would say at this stage,

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Speaker 1: in terms of the next few months, it's very unlikely,

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Speaker 1: because obviously they've just announced this big program in Europe

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Speaker 1: and growth is doing reasonably well. But if we try

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Speaker 1: and look forward to the next two to three years,

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Speaker 1: if we get a potential negative, big negative shop to

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Speaker 1: the global economy and we're not talking about slowdown in

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Speaker 1: growth but an actual and outright recession, I think we'll

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Speaker 1: be talking about this concept much much quicker than people expect.

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Speaker 1: George gonna come back. George Tavellis with us H with

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Speaker 1: Deutsche Bank this morning several of usm I get Stravitas,

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Speaker 1: Who does this? Why you help me here? We book

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Speaker 1: Stravitas and Saravellos together, and you expect me, you do

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Speaker 1: this just to ruin my act. I mean, Mike, it's

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Speaker 1: a it's just not unfair. Anyways, We'll come back with

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Speaker 1: Georgie of Deutsche Bank, UH and and talk here further

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Speaker 1: to prepare you for that important press conference. Mike, what

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Speaker 1: are we doing? Are we taking all of the press conference?

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Speaker 1: Are we going to do our headlines that? Do we

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Speaker 1: have a plan. We're going to listen. Yeah, We're gonna

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Speaker 1: listen in and see if he takes us in a

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Speaker 1: direction that needs um. Yeah. I I, folks, I really

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Speaker 1: agree with what we're doing here because McKee will give

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Speaker 1: you better interpretation than anything you see Top Live. For

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Speaker 1: those of you with the Bloomberg Terminal, can't say enough

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Speaker 1: about top Live l I V. It is absolutely outstanding.

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Speaker 1: Our full European government and economic team will be on

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Speaker 1: board to give you deep insight on the nuances of

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Speaker 1: Mr Droggs press conference. Look for that as well. That's

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Speaker 1: specifically to the Bloomberg terminal. Future churn up one right

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Speaker 1: red on the screen for the tal but really floating

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Speaker 1: around zero risk on a two year yield, forget about

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Speaker 1: a point seven seven point eight zero on the two

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Speaker 1: year the ten ure yield one point eight nine percent.

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Speaker 1: Oil surging over the last three days forty four seven

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Speaker 1: on West Texas Intermediate Brent crew, the European Oil or

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Speaker 1: real lift there uh Anastasia muroso JP Morgan talking up

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Speaker 1: the path to fifty dollars a barrel some side sort

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Speaker 1: of normality after eighteen months that we have seen. This

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Speaker 1: news update brought to you by the Ethics Institute, a

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Speaker 1: Kent play school in Summit, New Jersey, a center for research,

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Speaker 1: resources and practice for students and parents. Three ethical leadership

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Speaker 1: holding events of this spring. More at kent Place dot org.

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Speaker 1: Here's Michael Barr with news headlines. Mike time, Thank you

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Speaker 1: very much. President Obama's scheduled to make a statement in

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Speaker 1: a few minutes on his summit in Saudi Arabia with

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Speaker 1: Arab leaders. It's believed fighting terrorism, fostering regional stability, and

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Speaker 1: dealing with Iran. We're topics that were discussed at the

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Speaker 1: Riots summit. Brazil's president will leave the country in the

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Speaker 1: hands of the vice president, who she accused of leading

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Speaker 1: a coup against her. President dil Maroussof travels to New

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Speaker 1: York today for United Nations climate event. Russef's trip comes

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Speaker 1: after the Lower House voted in favor of her impeachment.

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Speaker 1: The flame for South America's first Olympic Games was ignited

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Speaker 1: today in the place where it all began. Ancient Olympia

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Speaker 1: in Greece. The flame lighting ceremony kicks off a fifteen

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Speaker 1: week journey that will end with the August five opening

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Speaker 1: ceremony in Rio de Janeiro. Global News twenty four hours

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Speaker 1: a day. Now Michael Barr, Tom, Michael Bar, thank you

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Speaker 1: so much. Sterling twenty nights, Sterling pound, Sterling stronger this morning.

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Speaker 1: Clearly the markets manipulated by the Queen vigilantes. Bloomberg surveillance

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Speaker 1: coming up at about eight thirty Wall Street time. Mario

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Speaker 1: Jogny explains the ECB decision to stand pat Will he

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Speaker 1: give us hints about the future. You'll hear it here.

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Speaker 1: Blobal Business News twenty four hours a day, if Bloomberg

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Speaker 1: dot Com the radio plus Mobile act and on your radio.

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Speaker 1: This is a Bloomberg business flash And I'm Karen Moscow.

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Speaker 1: U S stock index futures higher on this busy day

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Speaker 1: for earnings. Let's go to the first Word breaking news

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Speaker 1: desk for today's morning call, and here's Bill Maloney. Good morning, Bill,

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Speaker 1: Good morning Karen. US futures remained quiet as companies continue

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Speaker 1: to report to futures currently hired by nine points, Sesames

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Speaker 1: Game two and a half and NASA futures rise by

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Speaker 1: four US ten UL at one point eight seven per

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Speaker 1: cent on the US Economic Fronday eight thirty, Chicago FETE

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Speaker 1: initial jobs, claims and Failly fed at nine o'clock, House

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Speaker 1: Price Index at ten o'clock Leading Index, and at ten

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Speaker 1: thirty natural gas storage change. Regarding those earnings after the

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Speaker 1: bells nine, American Express beat, Las Vegas, Sands missed, Qualcom,

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Speaker 1: CEO Signal potential, iPhone share loss, and United contento Q

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Speaker 1: and EPs beat. Some of the earnings highlights today, Stanley

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Speaker 1: Blackendecker boosted year forecast, Southwest Airlines, DSD Systems, GM under

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Speaker 1: arm and Pulty Group beat. Verizon said there'll be pressure

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Speaker 1: on Q two earnings, Travelers missed, and Boogen and Union

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Speaker 1: Pacific earnings were mixed. Finally, some of your Wallstreet upgrades

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Speaker 1: and downgrades. Ce A raised neutral at cris sweez Co

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Speaker 1: America raised the neutral at Bank of America, Conico, Phillips

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Speaker 1: cut to underperform at Jeffreys, Las Vegas Sands cut to

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Speaker 1: neutral at JP. Morgan and A. Flack cut to market

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Speaker 1: perform over at Raymond James Live from the First Breaking

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Speaker 1: News Desk, go Boll Maloney, Karen thanks failed to hear

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Speaker 1: live breaking news over your Bloomberg type squawk go and

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Speaker 1: your terminal. Let's ask you you a w k go.

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Speaker 1: That's a Bloomberg business flash, Tommy N. Karena, Thanks so

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Speaker 1: much Bloomberg surveillance. This morning batch by Investco. Investing isn't

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Speaker 1: about meeting benchmarks, It's about achieving goals. Find out how

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Speaker 1: Investco's high conviction approach can help. Visit investco dot com

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Speaker 1: slash high conviction. Before we get back to George of

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Speaker 1: several us of Deutsche John Tucker, help us out here,

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Speaker 1: Help me with my map. John Carney always interesting out

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Speaker 1: with incredibly important voting analysis hours days. I say, after

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Speaker 1: the Republican primary park Slope, Gwanas Brooklyn A D fifty

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Speaker 1: two and E D seventy seven, here are the votes.

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Speaker 1: Donald Trump one, Jack Cruce zero, John Kasi zero. There

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Speaker 1: was one Republican vote. Would you please tell our global

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Speaker 1: audience about park Slope Gwanas Park Slope is not known

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Speaker 1: for its a Republican stronghold, nor is this is this

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Speaker 1: is across? I think that's kind of obvious. You probably

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Speaker 1: won't see a lot of campaigning there. Okay, well, there

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Speaker 1: we go with your politicop think Michael McKie, why don't

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Speaker 1: you bring back George with really an important call on

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Speaker 1: strong dollar week euro as we go to Mario dragging

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Speaker 1: in ten minutes and he's very interested in what Mario

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Speaker 1: dog might have to say about helicopter money. The bank

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Speaker 1: is already doing negative interest rates. Helicopter money would be

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Speaker 1: perhaps the next step. I'm wondering what you think of

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Speaker 1: negative interest rates and in comparison George to helicopter money.

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Speaker 1: A lot of people criticizing negative rates now sure, so

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Speaker 1: I think helicopter money would be much more powerful. One

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Speaker 1: of the main criticisms of negative rates has been the

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Speaker 1: impact on bank profitability because banks can't cut deposit rates

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Speaker 1: um and that such of their profit margins get hit.

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Speaker 1: But the beauty of helicopter money is all you do

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Speaker 1: is you literally print money and give it to people

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Speaker 1: and that that should just ray spending. So in an

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Speaker 1: environment where rates to zero h it's it's the natural

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Speaker 1: next step to do, and it's it's unlimited. Because central

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Speaker 1: banks have an infant boanergy. You Deutsche Bank have such

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Speaker 1: a research capability and heritage with with not only Peter Hooper,

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Speaker 1: but Peter Garber and others over the years. Michael Dooley,

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Speaker 1: what happens with more negative rates? The word I use

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Speaker 1: is as quadratic, It's a squared function. More things happened,

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Speaker 1: deeper things happen. Do you agree with that that the

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Speaker 1: more negative rates we experiment with, the more interesting outcomes happen.

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Speaker 1: I completely agree, And that's exactly what we saw in

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Speaker 1: Japan earlier, earlier this year, where we obviously got the

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Speaker 1: exact opposite effect with with what we expected. And I

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Speaker 1: think it mostly the issue goes back to the impact

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Speaker 1: on the banking sector and possibility because if the banks

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Speaker 1: become is coverse, if they become scared of negative rates,

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Speaker 1: then you could actually end up with lending contracting rather

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Speaker 1: than increasing. And I think it's it's really the bank side,

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Speaker 1: the bank channel that's the most important, which drug get

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Speaker 1: paid attention to. In the last press conference, he cited

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Speaker 1: concerns around bank profitability. Would you keep negative rates in

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Speaker 1: place and do helicopter money or replace one with the

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Speaker 1: other In an ideal world, I'd i'd replace one with another.

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Speaker 1: I don't think we'd need negative rates if we have

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Speaker 1: the options. Central banks have the option of crediting money

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Speaker 1: to people at the end of the day, you can

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Speaker 1: see as a form of interest, but rather than rewarding

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Speaker 1: holding holding people the holdings of cash you it's a

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Speaker 1: more extable form of interest. You pay people for every

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Speaker 1: unit of themselves. George, I'm going to be very delicate here,

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Speaker 1: with great respects for your compliance issues. There's a lot

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Speaker 1: written out about Deutsche Bank or Commerce Bank, but the

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Speaker 1: medium and the smaller German banks as well. If you

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Speaker 1: stay to us that more negative rates or existing negative

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Speaker 1: rates or chronic negative rates have some form of banking

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Speaker 1: channel function. What are you observing in your Germany in

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Speaker 1: terms of what the banking channel does to the people,

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Speaker 1: the savers, the retirees of Germany. Is there a direct

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Speaker 1: follow on from banking channel two savers. The best thing

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Speaker 1: I can cite is the ECB bank lending survey that

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Speaker 1: was released and then they explicitly asked banks around the

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Speaker 1: question of how quee negative rates is impacting profitability, and interestingly,

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Speaker 1: for the first time banks highlighted it as as a

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Speaker 1: constraint to profitability. Obviously, if you're a saver, then uh,

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Speaker 1: negative rates hurt your returns as well. So I think

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Speaker 1: the evidence is certainly starting to show up. Are we

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Speaker 1: seeing any evidence that people are holding cash instead? We

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Speaker 1: aren't actually so, and not really seeing a big withdrawal

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Speaker 1: of of cash from the banking system, whether you look

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Speaker 1: at the banknotes that are being circulated in Europe or

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Speaker 1: even places like Switzerland. But I think that's part of

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Speaker 1: the issue why bank profitability is being hurt, precisely because

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Speaker 1: banks can't can't interest rate to negative pass them onto depositors.

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Speaker 1: Yet they're at its side, as in the bonds they

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Speaker 1: own yield drop. That's why the profitability is dropping. George,

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Speaker 1: thank you so much, greatly appreciated. George servillis with Deutsche

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Speaker 1: Bank with important research and really, Mike, I'm going to

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Speaker 1: suggest what has become an outlier call a strong dollar

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Speaker 1: week euro. I mean that was fascinating. Well, you're not

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Speaker 1: going in George's direction right now? Yeah, what preparation for

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Speaker 1: this press confers Mike? Why is this press conference different

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Speaker 1: than Janet Yellen's quickly, Well, he does one every meeting,

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Speaker 1: and also he talks much more about what they might

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Speaker 1: do in the field. Uses it more of a signaling event.

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Speaker 1: It's not nearly his measure, like we're sure Yellen will

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Speaker 1: go McKee. Why did Why did Michelle? Why did McKie

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Speaker 1: ask that question? This is Bloomberg's surveillance coming up. With

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