Good morning.
I'm Richard Soloman and I'm Doug Krisner. Here are the stories we're following. Today. Looks like the beginning of a very volatile week after central bankers from both the US and Europe signal that interest rates will likely stay higher for longer. Speaking at the Jackson Hole Symposium, Chair J Powell said monetary policy will stay restrictive until inflation is moving more firmly toward the fed's two percent target.
Based on this assessment, we will proceed carefully as we decide whether to tighten further or instead to hold the policy rate constant and await further.
Data now, that is Chair J. Powell. He went on to note that the American economy may not be cooling as fast as some had expected. He went on to say that could in turn put further pressure on inflation right and perhaps warrant further tightening. We also heard from the head of the ECB, Christine Legard. She vowed to set borrowing cost as high as necessary and leave them there until inflation in the Eurozone is back under the ECB's goals. Separately, we heard also from the BOJ Governor Cuwaita.
He did not comment on foreign exchange rates. Now that takes us to some news here in the States and a possible legal settlement by THREEM to resolve hundreds of thousands of lawsuits over defective combat ear plugs. The story from Bloomberg's Denise Pellegrini.
Sources say three M has agreed to pay more than five and a half billion dollars to resolve the more than three hundred thousand lawsuits. This could help the company avoid a much bigger liability that Threem had tried to
curb through a controversial bankruptcy case that ultimately collapsed. Carl Tobias, law professor at the University of Richmond, says, it looks like in this case, Threem negotiated a pretty good deal for itself, and THREEM could use the legal quiet on this front because it also faces thousands of other lawsuits over so called forever chemicals, and that could cost way more than the ear plug suits to resolve. Denise Pelligriny Bloomberg Day Break Asia.
US Commerce Secretary Gina Romundo is in Beijing today with an aim of boosting business ties with China. It's a four day visit, the first by a US commerce secretary in seven years. Now, Romundo is seeking to expand business ties with China despite very very high tensions. Now we know that the Chinese economy has been slowing. That may make Beijing a little bit more receptive to Washington's message.
And we're hearing that Romundo is expected to announce working groups on export controls and US Chinese commercial relations in spite of a wave of criticism from congressional republicans. Meantime, China has lowered the stamp duty on stock trades for the first time since two thousand and eight. We have more from Bloomberg's Juan Wong in Hong.
Kong, China's Ministry of Finance at all half the one tent of one percent levy as of today. The nation is also pledged to slow the pace of initial public offerings. That's among lieu of new measures to woo investors back to as flagging equities markets. Regulators have also cut handling fees on stock transactions. They brought um usual fund managers to increase purchases of their own equity funds, and encouraged companies to do more share buybacks in Hong Kong and join Bloomberg day Breakasia.
Want to point out that industrial profits in China fell in July, but not as bad as in the month prior. Profits last month down at a rate of six point seven percent compared to last year. That compares with the decline in June of eight point three percent, So you might say some improvement. Yes, However, we know the recovery in China remains challenged and deflation does remain a risk. Inflation is obviously the story. In the States. The eel on the two year treasury finished the week at five
point zero seven percent. That was after j Powell stressed the Fed's intention to remain restrictive, keeping rates high until inflation comes down to the fed's two percent target. Even so, he did suggest that the FED could hold rate steady at the September meeting. Now, Bloomberg's Liz McCormick was saying on Friday, Powell has the bond market exactly where he
wants it, lacking conviction as to the Fed's next steps. Meantime, Bloomberg opinion columnist Mohammad Alarian was saying, Powell has retained maximum policy optionality. Let's get a look at Global news next.
How Speaker Kevin McCarthy says he will promote American natural gas exports when he meets with his group of seven parliamentary speakers in Japan. While on Fox News Sunday Morning Futures, McCarthy said replacing Russian national gas with natural gas with US gas for just one year with lower two hundred and eighteen billion tons of CO two emissions as US
gas is cleaner than Russia's. The speaker says energy policies would be on the agenda of the meeting as Europe continues to look to wean itself off of Russian energy. Imprisoned Australian pro democracy blogger doctor Yang heng Jun fears he could die in a Chinese prison, and after ten centimeters cyst was found on his kidney, Yang supporters are demanding that Australia's government do more to try to gain
Yang's release. Prime Minister Anthony Albanize is scheduled to meet with Shijimping on the sidelines of the G twenty summit in India in a few weeks, with Albany's expected to then visit Beijing later this year. Doctor Yang, along with Australian journalist Sheng Lei, were imprisoned after being tried in secret on national security charges. Florida is bracing for tropical storem Idalia, which is expected to make landfall as a
hurricane as soon as Wednesday. Currently, Idalia is drifting east off the coast of Mexico's Yucatan Peninsula with top wins of forty miles an hour. Florida Governor Ron DeSantis has already declared the state of emergency in thirty three counties, mostly along the Gulf Coast. DeSantis says to expect some disruptions.
Floridians along our Golf coast should be vigilant even if you're currently outside the cone, and indeed you could see impacts if you are in a place that's outside the cone.
Adalia's wins are expected to reach around ninety miles per hour when it hits landfall Wednesday, which would make it a Category one hurricane on a five step scale. Former President Trump has been cashing in on his arrest in Georgia, as his campaign says they have raised seven point one million dollars in donations just since Thursday. Then includes, by the way, four point one eight million just on Friday. Trump's campaign has raised almost twenty million in three weeks,
which covers recent indictments in Georgia as well as Washington. Trump, who is the first president to ever have a mugshot taken, has been using the image to sell merchandise such as T shirts, coffee mugs, as well as posters. Global News twenty fours a day, powered by more than twenty seven hundred journalists and analysts in more than one hundred and twenty countries. I'm Dan Schwartzman. This is Bloomberg.
Danny. Thank you. Let's get to James Abata. He is our guest, James's managing director, also the chief investment officer at Center Asset Management. He joins us from here in New York. James, it's always a pleasure. We had the Powers Beach on Friday, not really much of a surprise, but yields nonetheless drifted off a bit. What do you think we're dealing with in terms of a bond market
right now for the next six months? Will we remain in the range that we're trapped in now and elevated as we are at the moment.
Yeah, I think you've seen bond volatility come down, but I think we're going to see you know, further evidence that the two percent target is going to remain somewhat elusive for the Federal Reserve. I mean, it's clear. Let's give the Fed kudos that you know, they've been able to,
you know, bring a cyclical downturn and goods inflation. You could argue, you know, like Alan Binder has that a lot of that was just simply you know, production of transportation bottlenecks, you know, rectifying themselves after COVID and so forth. But nevertheless, you know, the Fed getting rates real rates normalized to the two percent level has kept the stable. We need to attract capital, which means both foreign buyers of treasury and foreign direct investment. So I think overall,
you know, the Fed has done a good job. And you know, people barking about the Federation rates too quickly, too much, too high, whatever. I mean, the people that are doing that are people who are running projects that didn't make sense at a zero percent cost of capital, you know, and sure we don't make sense at a eight or teen percent cost of capital. You know, we work it was an eventual bankruptcy easy to spot five
years ago. I think the real issue now as we move forward is we've had interest rate crises with the regional banks, we have not yet had a credit crisis, and that really is something to be seen as coming months evolve.
Here you have commercial real estate in many parts of the US and a serious trouble at the moment. Could it be from there? But as you know, ever with these things, they always come out of left field.
It seems well, of course, I mean, that's you know, the corpse has always come floating up to the surface of the lake. You know, when the FED basically is you know, undertaking a rapid increase in real rates in particular, and again you know, a lot of projects made no sense, particularly in the intellectual property and intangible area, which is where you know, bulk of investments have gone over the last decade or so. Real estate obviously has been another beneficiary.
But you know, we're back to rates that were normal. I mean, if you've got a mortgage twenty years ago or thirty years ago, you know this is a very normal environment in terms of both the nominal rate and the real rate. So we were in an unusual set of circumstances post of global financial crisis, and I get Powell credit for at least taking us out of that valley of kind of ridiculousness to a certain pregon.
There's still plenty of debate though, in the bond market, in particular whether that cumulative tightening is going to spark a recession, and then you know, we are dealing with inevitable rate cuts let's say the early part of next year, or as Bill Dudley was saying, I think last week that the bond market, the bull market in bonds is essentially over. Inflation is going to prove to be sticky, and then you talk about treasury issuance. I mean, you
just brought up that point. I mean, so maybe it's too soon, let's say, just to tease out one of those threads to talk about rate cuts being inevitable.
Yeah. I think it's going to be difficult for the Fed because again, I think they've addressed the cyclical inflation problems quite well and have been helped by the unbottling of the production and transportation issues. However, the structural issues, fiscal deficits, you know, there's an argument to inflate them away by raising the inflation taria from two to three percent.
Offshoring or onshoing, excuse me, is inherently inflationary. You know, the other thing, which is the elephint in the room, which is the productivity problem. Right, if you look at any measure of productivity, and the thing that we always look at, I think is the most preferred is you know, total factor of productivity because that takes some consideration both
labor as well as the capital that's been employed. And when you look at the level of where we are right now, it has fallen drastically without recovering since COVID, you know, indicating that despite the trend of you know,
capital investment mostly intangible. Again, as I said, if you look at the amount of capitalists employed per worker worker productivity, it just remains dismal, which by nature, unless productivity is somehow enhanced, the FED is going to have a very hard time reaching its two percent target.
So what we're getting is a situation where probably inflation also returns to the mean. If you will, and you know you quite rightly, perhaps highlight the structural reasons why inflation is likely to be hired. Don't forget the cost of decarbonization. Also demographics and an aging population to play as well. And I think you alluded to the deglobalization issue as well.
Yeah. Absolutely, I mean, by nature, you know, aging populations are disinflationary. But the on shoring and what we've seen now with regard to, you know, the geopolitical tensions that are going on. I think the you know, the expansion of the Bricks membership to six new members this week is one of those very significant events, you know that
may present the kind of geopolitical alpha event. I'm not saying it's you know, it's akin to you know, the Anglo Russian attunt of nineteen oh seven, which contributed to World War One, but you know, we're looking at an environment here where you know, you look at the countries that we're at at Argentina with its agricultural capabilities, Egypt with the Suez Canal, Ethiopia, which has a capability to control the Horn of Africa, Saudi Arabian UAE with energy production.
I think, you know, people have to look at this and we have to stop thinking about checkers and start thinking about chess. Because when you just step back to the earlier part of the summer, when Turkey acquiesceda Sweden's acceptance into NATO, what that essentially did is it cut off Baltic Sea, access of any warm water port for Russia.
So the fact that you now have you know, the I don't think it's a coincidence that the countries that are being added to the bricks here, and they were selected by Russia and China, have a very significant impact on in essence, you know, capability to you know, have access to the Gulf of Aden leading to the Arabian Sea, sus Canal capability. This is this is this is one of those events that you know, happens in August that
sometimes we fall asleep about. But you know, the last few events that we've had with the NATO expansion and now the expansion of bricks, and when you read into some of the details behind this, it's almost like the nineteenth century alliances chess game of the g seven versus the Bridge today and this may have very significant your political alpha tapabilities or detriments to many investors' portfolios that were coming years.
Look for us on your podcast feed every day on Apples, Spotify, and anywhere else you get your podcast.
You can also listen live each day on Bloomberg eleven three to oh in New York, Bloomberg ninety nine to one in Washington, Bloomberg one oh sixty one in Boston, and Bloomberg nine sixty in San Francisco.
Our flagship New York station is available on your Amazon Alexa devices. Just say Alexa Lave Bloomberg eleven thirty plus.
Listen coast to coast on the Bloomberg Business app, serious XM Channel one nineteen, the iHeartRadio app, and on Bloomberg dot com. I'm Doug Prisner
And I'm Richard Slam to join us again tomorrow for all the news you need to start your day right here on Bloomberg Day Vacation