Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Leie. We bring you insight from the best in economics, finance, investment, and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course on the Bloomberg Something A lot of people forget, Tomas that phase one is about agreeing to withdraw from the European Union. Let's phase one. Then you've got to agree what the future relationship looks like.
There's still a lot of work to be done. And as you point out, Tom, an agreement between the EU and the British government. Now we've got to get it through parliament. Headline just crossing the Bloomberg that according to party officials, the DUP won't vote for Johnson's Brexit deal. I want to try and re establish that connection with ros Then Matheson now bloom Big Executive editor for International Government.
Great to have you with us. Let's just talk about what's been agreed between part Prime Minister Boris Johnson and EU and why the DUP is still against this deal. So, as you said, we're just getting news crossing the Wye now that the DUP says it won't vote for Johnson's Brexit deal. He's going to put it towards before Parliament in the UK on Saturday. There was always the key question and now the question really is did Johnson jump begun?
Did he did he get an agreement with the European Union when he still has got things ironed out at back end in terms of lawmakers in the UK, because it's one thing to get the agreement with the another thing to get it through Parliament. It's unclear if the DUP is still just holding out as a negotiating tactic and with a with a bit more discussion over the next twenty four hours, they might come on side. But what they're saying is fundamentally nothing for them has changed.
Nothing in the deal that was announced today has addressed their concerns um and that they won't be backing it on Saturday. That's a significant blow to Boris Johnson at
this point in time. Ross what is the big change in this agreement between Primeister Boris John's and the EU and the agreement between Primus the Main the EU And with that in mind, what is the biggest sticking point still for the d u P. Well, it seems to be very much still around the issue of what you would call, in broad terms, the idea of a backstop, and that's the training arrangements that avoid a hard border
on Ireland once Braxit takes place. And that's been a key concern obviously of the d u P. And what we've had put forward isn't a way a sort of a version of what the Reason may at one point put forward, which is to have customs arrangements in effect at some point in the Irish Sea and no hard border on land, and arrangements can be transitional that Northern Ireland can scrap them at some point if they disagree. Um. And that seems to be the latest version of where
we're at. But the DUP just a couple of days ago was saying that that was still not okay um. And it sounds like Boris Johnson hasn't managed to get them over the line. As a result, negotiations might be finished in Brussels, they will continue at home. Ross great to catch up with you as always ross the matthis and that of blind Back. Well we are fortunate to have with us right now in our studios in Washington.
Someone well timed to speak on this for years, I've owned his affiliation with Schroeder's and then on to his work personally for Mark Kearney or Francis Laquax. Speaking with the Governor of the Bank of England tomorrow here in Washington. But John farrells, you know ku Venstein has has taken on new duties for u b S the Union Bank of Switzerland as a senior advisor UH as well, and uh ku von Stein has joins us this morning here. There will be a parliamentary vote on Saturday, which will
set us up for the domestic politics. Do you sense within all your reading and all your contacts that this is a general election that Prime Minister Johnson would win in that it will be a leave general election UM or thanks Tom. Look, the it's been very striking how in the opinion polls Boris Johnson's being able to win more support and you know, to get an outright majority. Hidd read about thirty eight percent of the total electorate
and he's get knocking on that door. Now. Clearly there's a lot of detail there about how the opposition parties will either tie together or splinter. UM this Saturday is really critical because you know everyone assumed that Boris wouldn't get a deal, and he's come through and reopened the
backstop agreement. UM. I think it would be very interesting to see how the DP and the opposition respond and whether they want to tag on a referendum and then we go into a general election with a referendum, or do they try and stall for time. But it's I think the odds now are much higher. Cable fading here, Tom still passing up on the session, but way off session highs. We are up by just a tenth of
one percent one pound one. Johns fer a New York on term Keenan, Washington, and again John and I with our coverage of these I m F and World Bank meetings, and where this Hu von Steins of u B s here, let's walk away from Brexit, which is certainly front and center, and there'll be something in one hour different as well. It is a most interesting set of meetings here in Washington, in the heart of the matter, and you've been a student of this for for many decades. Is the multilateral
nous of it? There's that I m F logo of a hundred and eighty whatever nations. Is it gone in the Trump world is our multilateralism gone. Look, I think it's a great question Tomaine, certainly the behind the scenes of my conversations yesterday, but really around the trade war and to what extent we can get a resolution to some of the trade war, but whether there'll be a tech war which just just carries on because I think both US and China reviving for supremacy around tech pros
and they used in the economy brilliant. What's the ven diagram of the trade war in the tech war? And I guess is there's a little bit overlapped there hugely. But because I but I think what's very clear about the tech is um is there a re establishment of supply lines. So if you if the US is not using Kuawei, you know what will it be doing instead? And so I think there's this ongoing anxiety around big
tech and how that plays out. And you know, whether it's Brexit or Europe, they're not quite sure you know which way to turn on this because we're you know, beneficiary of both both large blocks. The heart of this is the mercantilers structure of President Trump, which is fine, it's a strong opinion, and let's be clear, he has a large number of Americans who support not only on technology but on other issues as well. Do you detect a permanence here or is it an amendment of four
or eight years? Um. Look, I think there'd be better people than me to judge. But I think I think the big challenge here is how we get a global growth and it's very very clear that the uncertainty from the trade wars has clearly been a dampener on markets and on business activity. I think that we since certainly hope there will be some resolution, but maybe we reached
peak populism. It's been very striking also in whether it's whether it's a Boris Johnson looking to do a deal, whether it's the Italian saying they will no longer leave the euro of the Northern League. Maybe we've reached peak populism. But I think these underlying tensions between the big blocks, particularly in a low growth world where everyone wants their ship fair share or even a disproportion share, I think
these tensions carry on. Vanina, thank you so much. He is with You'll be as a senior advisor to Mr Mudi right now. This is a thrill. Jason Furman with us with a service to the country as a former chairman of the President's Council of Economic Advisors for President Obama. But maybe more than anyone I know, there's a few others out there playing in the policy pond, but actually figuring out policy and applying it across all of them America that have they have not really trying to think
about executing and doing policy. Maybe Rick Michigan up at Colombia would be someone else like that. Before we start in here, adjacent and too shorter conversation and celebration. The other day Michael spent salaurea on our London desk with one Michael Kremer of Harvard University. You know Michael Kremer and his policy action on poverty. What is original about this Nobel Prize for poverty? Something we don't talk about enough. Um, it was a great Nobel prize. Everyone I know is
really excited about it. To other people from a college, I don't know what After the flow and Avogate, Boundgy run wanted as well. And what you saw here is has been a really big change in the way we think about development economics, the way we think about helping poor people in poor countries from you know, huge, big dramatic ideas to let's do experiments, let's test, let's see what works, let's see what doesn't work, um, and then scale it up. And that sounds easy. They've been doing
that in medicine for a long time. But one the idea to do it UM wasn't an economics but too when you do it in economics, turns out is actually quite tricky and quite complicated to figure out how to design those experiments, how to figure out whether they'll scale up, take them to the next stage. And those three are in the middle of making progress. I'm a question. I mentioned professor Kramer Pascal in upon and her work as well in malaria years ago. Great, why can't we do
this in the United States? We're real good extending poverty. Is that we have a Lackey in structure? Is there an Americanism where we can't translate this across our inequalities? Yeah, I mean in that that paper you are, I mean bestal deposit work. I mean two hundred, three hundred dollars per life saved from bednets. Um from malaria you do
insecticide treated bednet three hundred dollars per life saved. It is the single best thing one could possibly do UM anywhere in the world when it comes to the problems in America, we are seeing more of that UM. There was something called j PAL that was founded. It's housed in Cambridge, and it was doing experiments on development. Now they're doing some of those randomized trials you know. Here in the United States, you're seeing more of that on
you know, preschools. That's something we've done for a while. Now. The evidence is incredibly clear. I don't think we need to collect much more economic evidence that preschool is a great idea. Now it's really up to the politicians to do it. You've seen that happen in some states. Too. Many states haven't expanded preschool. I don't know how we can talk about it. You are a great student on this.
I don't mean to interrupt. This is so critical in that with great respect for the halves, distrust government spending. That's an ethos in America, clearly a successful ethos. How do we disperse our knowledge and technology to the haves of America? Yeah, yeah, I mean, just to stick with the one I was on. Whatever trust or distrust you have in government, most of us are quite comfortable with the fact that the government spends money educating children between
the age of five and eighteen. You know, maybe we want the money spent differently, Maybe we want more money, maybe we want some reforms. But I don't think anyone debates that the God that we have a stake in having educated citizens. So let's extend that to age three, extend that to age four, same idea. Out of time, we could go, we gotta I gotta come back to Washington, John and and meet with Dr Furman. Maybe we can go see the capital's place that you can come to,
come to Cambridge, Massachusetts. All we can see Bruins Canadians. That will work out as well. Jason Furman, thank you so much, of course, with the County School at Harvard and his service to the nation's former chairman of the President's Council of Economic Advisers. Yea, there is just a
ton of uncertainty out there. The macro risk persists, as it has done over the last eighteen months with trade, through the last three years with a Brexit situation, and it has just become so finely balanced that one incremental shift one way or another, one incremental piece of news can shift perception quite radically from one week to the next to weigh in on that from New York and Police to say Monama, John joins US now as Global
Investors US investment strategist, Mona, let's talk about that, just how finely balanced perception of the global economy is right now. Yeah. Absolutely. You know, I think just a few weeks ago there was a lot of pessimism built into this marketplace, driven by that week p m I number, particularly that came out in the US. Interestingly, since then, and I'd say over the last couple of weeks in particular, we've gotten somewhat incrementally positive news on two of the biggest overhangs
in the economy and the globe economy right now. You noted US China trade as one, and then secondly Brexit. These are two issues that have been really lingering and weighing on the markets, and over the last couple of weeks, i'd say we've gotten perhaps incrementally positive steps now to your point, it's always two steps forward, one step back. Sometimes it's been one step forward two steps back in
both trade and Brexit. We'll be watching, in particular on the trade side, whether or not we can one come to some sort of Phase one deal, but more importantly whether or not these tariffs that have been the overhang for the consumer and the business investment community can be removed. Those December fifteen tariffs, in particular that way on the consumer are important for US aside from trade and Brexit.
I would also just point out that incremental news around earning season thus far, around the yield and yield curves, and then even a potential for p M E s bottoming, have all helped support sentiment and our view. We'll get to the earning center worlder issues in just a moment. Let's talk about the price levels on the SMP five. We found out multiple times this year that life above
three thousand points, for whatever reason, is difficult. We've mentioned this several times, Miner, I think you and I have discussed it many times too, and the same in the bottom market for the ten year life below one fifty incredibly difficult. We found that out time and time again over the last couple of years. Do you think we can finally break out of these very volatile trading ranges? Narrow as they might be, but they have been very volatile over the last several months. Do you think we
can finally break out one way or another. You know, I think that three thousand level on the SMP is critical and I do feel like we've been hovering at that range for about eighteen months now. When we look towards the end of Q four, you know, we're talking to our teams, we think of three potential scenarios. One is we have some sort of melt up or maybe a ten pc upside going into Q four in particularly those last few months of the year. The other two are,
you know, we trade sideways. And the last and probably least impressive for investors, is that we we moved downward in the last or now. Given what we know thus far, the incremental positive steps around trade and and Brexit, the potential for bottoming out. Our base case remains that we can actually potentially see a breakout to the upside, and so I think that's where we're coming from and hopeful for. But data keeps coming in and as you said, it's
a weekly adjustment. Well, I think I've mentioned this before. You have one of the coolest undergraduates going Wharton and also computer sciences at Pennsylvania, which folks, is a legendary double major. Are we in the middle of a binomial tree like all of Brexit today, which John has done such a good job of covering. Is it just zero one zero one toggle switch where if we get through
these problems, we just toggle switch back to normalcy. You know, it's interesting because both of these issues have such nuances and the devil is really in the detail. You know, even if we get a trade deal, is there an overhang around enforcement? Is there an overhang that President Trump can come in any moment and arbitrarily impostarriffs. Anyway, I think it comes down to the old adage. Markets do not like uncertainty, and so to the to the extent
we can eliminate uncertainty in the marketplace. So with trade that would probably imply removal of tariffs, but also some sort of enforcement mechanism, and also businesses should know what kind of you know, tariffs are supposed to be paying, and I think that that type of certainty is important. Similarly with Brexit, you know, is it a soft is it a hard? Regardless, they have a long slog ahead of them. How are they going to get through the
next two to five years as well? What does that mean for the European economy and the global economy, and so you know, when you start thinking about the details beyond just the binary outcomes, you start thinking about the potential impacts to the economy and a longer term basis. There are some issues to be worked out, but I do think um those headlines would be incrementally positive. We just want some of these issues resolved. The risk of
persisted for so long. I think people are exhausted and just want some clarity about what this looks like in the future. Luckily, we've got a break from these kind of stories through the next couple of weeks as the earnings come through. Just before we let you go, Minor, i'd love your view on the bank earnings that we've
had from the last twenty four hours. Pretty decent so far. Yeah, you know, our our take is that it's a positive um and again kind of leads into our story about how Q four could end up being ultimately positive for the markets. But I think a couple of takeaways. Um. One, the banks have been lagging this year, so I think there is some room to to play catch up, and it's interesting that we've seen some of the value sectors
lagging in general. Could this be a catalyst potentially for banks in particular to play some catch up in the markets. Number two, what we've been talking about this entire year is that there's a dichotomy between manufacturing and the consumer. I think this bank earning season is really showing us consumer strength is still out there, and I think that's positive for the economic story broadly. So we're positive incrementally on the banks and we think that could be a
good sign for economy as well. Morgan Stanby certainly likes the news this morning. The stock does anywhere. The stock is up by more than four percent, Earns coming in pretty solid. Might great to see you, and now you've got to run Mana Mahajan, their Alliance Global Investors, US investment strategist. Let's get to the story for European politics, shall we. We have an agreement between the European Union
and Prime Minister Boris Johnson. The challenge for Prime Minister Boris Johnson is getting this agreement through Parliament this coming Saturday. Will he need the support of the d UP if he does so. Far, the Democratic Unions Unionist Party confirming that they will not be able to support these proposals, putting out an emailed statement just moments ago. Sterling is still positive but barely cable. Is that's the pound against
the US dollar one fifty one. We had a session high of nineties, so we're well off those levels, so it looks finally balanced. We have an agreement. Tom, can the Prime Minister get it through Parliament on Saturday. If he can't, what's next? What comes next? And I think that's key because a lot of paper assuming that if he can't get it through this Saturday, ultimately the next step is not a hard Brexit. It's an election. Although
I'm not convinced either way. Where we are here. We have an agreement, he's managed to get some concessions from the EU. He heads to Parliament Saturday. It's very delicate, and you're not the only one yawning. Who's born and stick its heart of all of this? I read, you know what one vibe. I was ignorant on the War of the Wars of the Roses from like the fifteenth century, just on the War the Roses. So yeah, you know, I'm gonna read Lady Jane Gray next. But you know
I'm reading the stuff from like five hundred years ago. John, Nothing's changed. I mean, it's the parliamentary system. You guys go on and on and on. I agree with you. Jane's got Jane Foley has got a system. Jane Foley has got to do this every day. Rubber Bank's head of effects, strategy and senior analysts. She joins us out of London. Jane, your thoughts this morning please on the
agreement that is yet to be agreed in the United Kingdom. Well, you know, as you talked about Saturday, we really will be crucial now in Parliament. We know that Boris Johnson needs to get three votes to pass this steal through and there are only two D eighty seven toys now. Also, if we look at some of the comments from Corbyn this morning, Corbyn says he of course is a leader of the Labor Party. Johnson's select deal should be rejected. Now. There will be some rebels within the Labor Party who
will vote for a deal. There are a number of Labor MPs that represents constituencies that voted leave in that referendument in twenties sixteen. But clearly there will be pressure on the Labor MPs to reject the steal. There will be pressure from the Liberal Democrats also to reject this steal. So it's far from clear that this is going to get through. So, as you rightly pointed out, the focus should be turning into what happens then. Is it going to be a heart Brexit despite the then at or
is there going to be an election? I think almost irrespective of what happens, there will be an election in the next few months. Will Johnson be able to put his deal into a manifesto and say, look, Voctory, there's a deal and Brexit gets done, or will the lecture not by that? And right now there's a lot of opinion polls that suggest that, like you and like me, the elector and the UK are sick of the Brexit negotiations. So it is possible that many people will vote for
a party that has a deal in the bag. But on the other hand, Corbin this morning raised the prospect of another referendum, so it seems one way or another we will be at the polls again in the foreseeable future. So sterling is back to where it was in mid May, and I think we've got to go through the different permitations. Let's conclude, just for the premise of this conversation, a basis of this conversation that on Saturday this degreement does
not get through Parliament. The next steps are important, as you point out, Jane, to what degree is the downside and cable limited? Given the most people assume that a heart breaks, it won't be possible to what degree is the downsiding cable at this point, given what you know and working through the different permutations, to what degree is the downsiding cable right now limited? Well, a week ago we were trading on about and I think we could potentially be back at if a deal is off the table,
assuming the probability of a heartbreaks it doesn't increase. Now, then what happens is isn't the market begins to look to the opinion ples. It begins to look at the probability of a general election. Now if there was a Johnson. If there was an election, the opinion ples are currently saying that Johnson's Story Party would be the biggest party.
But although support for his party how increased recently, there is still an indication that he wouldn't be able to get a majority, that there would still be a hung parliament, and there's no confirmation now that the DP would support his government as they are currently doing so. In those circumstances,
the opinion polls would become increasingly important. Now if it looked as if he could get a majority, and of course he says that he can, then that would probably be very good for Sterling on the assumption that the deal that he has made would be done. But of course again if the Tories began to talk about a no deal again, then that would be very negative of Stern. And Jane Foley with raval Bank with us this morning. Jane, very quickly, here can you say on interest rates? We
hit bottom, we've moved up. On yen, we hit yend strength, we move weaker. Is there a permanence to this latest move even if we're still within range? Well, and probably not. I mean in terms of the yard, of course, there's a lot of geopolitical risk factors that can impact the yen um and certainly, I think in terms of foreign policy, we know that there's lots of geopolitical risks out there. In terms of interest rates too, how much lower can
we go? And certainly there's a big debate, certainly within wind in Europe and even Australia now as to whether or not negative interest rates, you know, are going to prevail and be seen in more countries than they are currently. Jenna, want to put you on the spot, just to wrap up this program. Cable sterling against the US dollar one, what do we see first, one forty or one twenty. Well,
clearly that depends on the outcome of of Brexit. Even the news that we have right now, I think probably one twenty is more likely if we get this still through Parliament on Saturday becomes more nightly. James fably, very diplomatic, as always, very sensible. Robert back ahead of a strategy and seeing an analyst joining us out of London. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform
you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.