Transcripts For BLOOMBERG Bloomberg Surveillance 20170905

We getting breaking data out of the eurozone. It will close the final figure for august, 54. 7, narrowly below the earlier estimates and still way above the 50 level that separates expansion from contraction. The figure is 55. 7, narrowly down from the earlier estimates of 55. 8. Below thelightly earlier estimates, but still showing strong growth. Big ecbpproaching the meeting on thursday, as if you did not know. Lets look at european equities, rising for the fourth day. Investors are shrugging off yesterdays geopolitical concerns, at least when it comes to the equity markets. The stoxx 600 is up by 1 3 of 1 . The swiss franc remains the haven currency of choice. That is the eurofranc, rising for a second day. Of sundaysans nuclear test. 10 year yields in the u. S. , down a couple basis points. 2. 11 is the level to watch, the level reached on august 31, the lowest since november 9. Hroughwest for 2017 and t november last year. Gold was a haven earlier. Coming down off the earlier highs, earlier gaining for a fourth day to the highest since september of 2016. But the haven assets are losing their allure, as evidenced by the stoxx 600. Look the bloomberg first word news. Reporter theresa may is to use a speech later this month to force the pace of breaks in negotiations. She will explain how her papers offer a vision of partnership with the block and will make the case for continuous talks to tilt the direction towards trade. This comes as the crucial meeting of eu leaders looms. Rockwell collins will be purchased for 23 billion. Shareholders will get 140 a share. The deal, one of the biggest in aviation history, will create a giant better to take on competition. The house of representatives will vote tomorrow on a Hurricane Harvey relief bill that will not contain language offed a attempted to stable debt. Bill would provide for almost 8 billionin aid. Kenyans will vote on october 17. The move comes after the countrys Supreme Court annulled last months election results. Economy expanded less than expected. Gdp grew 0. 3 between april and june, below the 0. 5 forecast by economists. The previous three months were also revised down to show almost no growth. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im nejra cehic. This is bloomberg. Mark kim jong un is begging for war, that is according to the u. S. Envoy to the United Nations. President trump has agreed to support billions of dollars in new weapon sales amid reports that opinion is preparing reports that pyongyang is preparing to launch a new missile. Nikki haley said they need to impose the strongest sanctions on the rogue state. We understand their responsibilities. Kim jong un shows no such understanding. His abusive use of muscles and his Nuclear Threats show that he is begging for war. Trump criticized south korea over the weekend. Is the relationship between the u. S. And south korea warming again after trump agreed to support billions of dollars in sales of new weapons to the nation . Yes, that 40 minute phone call between President Trump and the president this morning show the nations were willing to flux military muscles together. Weightting of these restrictions for south korea as well, giving the nod for south korea to fit heavier weapons on its own missile systems. That in itself, showing for the first time, they have lifted these restrictions in 30 some years. These moves are a deterrent to north korea. Those local reports show pyongyang is moving fast. They are working throughout the night, according to Asia Business daily, to move this icbm to a nuclear test site. There are some intelligence officials here in south korea that say this could be happening before saturday. September 9 has been a crucial date, since its north koreas foundation day. They are moving quickly behindthescenes it seems. It is not just the timing of it all, too, but the combination of these two events. It just goes to show how quickly and how advanced north korea has been when it comes to the Nuclear Weapons. If, in fact, these two scenarios are true, i dont think it is analysts have been expecting to happen so quickly. Mark thank you, yvonne man, giving us the latest. Joining us now, Steven Barrow. If i could start with you, we all love the function. This is on the day, steven. When you looking at all the currencies falling from the g10. When you look at the other currencies, it is more risk on than risk off. Why is the yen the haven trade . I think one reason is, if you leave aside the haven issue for a second, the dollaryen those very closely with the tenure spread of treasuries and jgbs. It is more so the case since the bank of japan targeted that 10 year yield level. Narrowing off and that has kept a little bit of the downward pressure on the downward yen. Mark nandini, the markets once again fo proving geopolitical resistance. Couldre a flashpoint that cause a more durable flight to haven assets . I think what the market is doing is what we tell the longterm investors to do as well. There could be geopolitical tensions. Looking at the fundamentals of the earnings story and the macro picture, it is actually quite strong. This morning we have strong pmi data coming out, good survey indicators, good gdp numbers across the board. That is what investors should be investing in. We cannot predict as well be geopolitical tensions as we can the macro fundamentals. Mark is that right, steven . Yes, obviously the problem is fundamentals get blown out of the water with a military situation. We are seeing investors, or traders, not investors, going in and out of these currencies as the news fluctuates. If we get to a military situation, then that really makes the dollar, for me, it becomes a massive safe haven currency. Mark you mean with the eventuality of a military yes, as long as it is worth and sanctions, then we carry on as we are. But in answer your question, what could take this to the neck level. Mark is it worth then, protecting ourselves in some might, nandini . Korea clearly is moving towards the abilities test. It has undertaken this nuclear test. We know it has the ability to fire Intercontinental Ballistic Missiles. We,d we, or can protect against the worstcase scenario, the military option . Sure, diversifying and having those save haven assets in your portfolio is a good idea. Do you take all of them and put them in a safe haven asset now . No, but we think that is the answer to protecting against these risks. They might be considered a more idiosyncratic or Global Political risk you cannot protect. That is why diversification helps. Mark thank you, Steven Barrow and Nandini Ramakrishnan. Both stay with us. Stay with the ra surveillance. The euros recent rise. That is the message from the decision. Ursdays ecb plus, details on one of the biggest deals in aviation history. This is bloomberg. Bloombergs get the business flash with nejra cehic. Reporter the u. K. Telecoms companies try to get out of mobile operations. They have held discussions with vodaphone and virgin media about selling the unit. They told the ftt they are shifting their focus. The maker of smartphone listed on the nasdaq, and they are turning a share issue of 30 Million Euros. They will target a dividend payout ratio of 30 of the net profit. There has been agreement to take control of aviva group. The group would be a reverse takeover of the british firm, which will issue shares to schneider, giving it a 60 stake. This great the business that would help design and operate Engineering Projects such as Nuclear Power plants. That is the Bloomberg Business flash. Mark we get the latest policy announcement from the ecb on thursday. Overshadowing it will be the euros 13 gain over the dollar this year. Mario draghi will address the news following the rate decision. The euro strength is most likely a consequence of the regions economic health. That means falling unemployment and eight closing output gap should help push inflation up, partly compensating the currency effect. Still with us, Nandini Ramakrishnan and Global Markets strategist, Steven Barrow. Is that right, nandini . We look at the euros upside, but we have an economic revival in europe. Does that take away some of the currencys impact on the inflation forecast . Ended, that 2 target is something that draghi and his team would like to hit, but where we are right now at 1 is not bad. A couple quarters ago we were struggling to get out of deflation. This is definitely a characteristic of that upswing story we like in europe. We expect draghi to knowledge the record low unemployment we have seen, coming down since 2011. We have seen it new people entering the workforce. We have seen strong pmi numbers, not just in germany or france, but across the region. We are liking europe as the macro story and the ecb will have to it knowledge that. The strength of the euro is tricky for keeping inflation close to 2 , but he does not need to derail from the story and that domestic demand has driven most of the gdp growth, rather than focusing on a competitive euro to get the rest of the world involved. Mark there is a temptation to look at the eurodollar. The best year as a whole since 2003. When you look at the euro Effective Exchange rate, which they tend to look at, its up by 6 . Is that significant . Yes, if you look at other Central Banks around the world, they have complained about the currency strength. The bank in australia, for instance. A lot of this is to do with the u. S. Dollar weakness. At the same time, i think even if the ecb and mario draghi on thursday in subsequent meeting say things about the euro, they dont like the euro strength, what impact will that have . To me, none. The eurozone has a current 3 . Ount surplus of thre the currency is not as valued. The ecb, it is moving towards less accommodation. It is moving in the wrong way. What it is doing is encouraging a stronger Exchange Rate, as is the stronger economy and all the rest of it. Its not exactly a steamroller. But i think its pretty close. Mark what are your nearterm, midterm and longterm forecasts . Wever the next year or two are looking at 1. 30 for the eurodollar. A large part of this is the weakness of the dollar as well. Still, a fairly significant increase. There will be periods within that where we see consolidation of the euro, perhaps pulling back. In the Fourth Quarter there might be developments on the u. S. Side that gives the dollar some support. We mentioned the korean situation, which might do that. The eurodollar rate wednesday theht the stay in 1. 15 range. I think it will depend on what the ecb does. At the moment, we see euro strength moving forward this year, not at the same pace. Thats quite a rally, that is taking quite a lot of the Political Risk off the table. But does it continue that path in a continuation . Probably not this year. We will have to see next year. We dont expect Interest Rate rises for quite some time. Because everything is based on those Interest Rate differentials, you might see more strength in the euro. Mark up next, one of the biggest deals in aviation history is agreed as United Technologies sets on aerospace. This is bloomberg. Mark you are watching bloomberg surveillance and im mark barton in london. United technologies agreed to purchase Rockwell Collins for 23 billion. Rockwell collins shareholders will receive 140 per share form the purchase, which will create behemoth. E bloombergs managing editor for Global Business europe joins us. What is the rationale behind this deal . Reporter hi, so the ideal is it is a bet that bigger essential is bigger. Industry aerospace remains particular and that we have a duopoly. If you are on the supply side, you must have scale to confront that duopoly, the Pricing Power they have. They are increasing the number of planes they are putting up, putting pressure on the supply side. We are seeing a continuation of a theme that has been going on for a couple of years now. Some of the Bigger Companies are absorbing smaller players. United technologies has played an active role in this field. Greg hayes, the ceo, he pledged a couple years ago that he would be willing to make big bets, and that is happening right now. Mark are there any concerns then, that this deal could be an unwelcome distraction for united . Reporter big deals are always distractions, but United Technologies is a fairly diverse company. They have the aerospace component, making up about half. They also have other sizable elements, like elevators and cooling products. This is a company that is juggling these different assets. They made an acquisition that was made as it says a couple years ago. So, they can spin these multiple plates. At the same time, they have issues going on with their new engine for the airbus plane. Some people, particularly at airbus, might be looking at this and wondering if they should not clean house first, get that in order before they embark on this next project . Rockwell collins itself is a rather chunky asset. That will take some time, but united tech is quite helpful they can make this work, much in the way they make good rich work. Mark thank you for joining us today, filling us in on that big aviation deal. May prepares to brexit the fear of the talks. We get a snapshot of the u. K. Services sector. This is bloomberg. So we need tablets installed. With the menu app ready to roll. In 12 weeks. Yeah. The world of fast food is being changed by faster networks. Data, applications, customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Fast connections everywhere. Thats how you outmaneuver. Mark you are watching bloomberg surveillance. I am mark barton in london. President trump agreed to support billions of dollars of u. S. Sales to north south korea. At the u. N. Security mating ticky haley said america would seek nikki haley would seek the strongest sanctions possible. Shows no such understanding. His abusive use of missiles and his Nuclear Threats show that he is waiting for war. Begging for war. Rockwell collins shareholders will get 140 a share in cash and stock, the deal one of the biggest in aviation history create an aircraft giant to take on competition from boeing and airbus. They will vote tomorrow on a Hurricane Harvey relief bill that will not contain language aimed at staving off the debt. Will not combine legislation that would raise the u. S. Debt ceiling. The harvey bill will provide almost 8 billion. Australias central bank has held Interest Rates, choosing to rely on lending curbs. The rba had left rates unchanged at 1. 5 since last august, choosing not to follow other key Central Banks and signaling plans to withdraw stimulus amid concerns about weak wages and tepid inflation. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am nejra cehic. Just getting some breaking services pmi crossing the bloomberg terminal, writtens service britains Service Sector grew at the slowest rate in august. Fell toet says its pmi 53. 2, the lowest since september , a sharperfrom 53. 8 drop than forecast. Continuing to signal growth, it industry50 markets reports which include manufacturing and construction. The composite index suggests the economy will grow about. 3 , matching the pace with the last few months. Chris williamson warning the decision to leave the e. U. Is weighing on optimism. The Services Survey showing ed. Iness weaken the slowdown in august was most evident in hotels, restaurants, and consumer facing businesses. Sectors services growing at the slowest pace in almost a year. Still with us, and dini ramakrishna nandita a ramakrishna Nandini Ramakrishnan on and Steven Barrow. Yesterday and services today, gradually being lost. Momentum, new order, new business ideas, new investment is falling and we are seeing it across the more sensitive areas, manufacturing and construction. Today, services as you mentioned , a much larger portion of the economy and important for Financial Centers of the u. K. Not having that momentum will be a challenge and it is why u. K. Growth does not look as strong in the outlook. Mark is there any talk of a rate hike in the near to medium term . We have two hawks on the mpc. His data like today pushing forward the case that the bank stays on hold for a duration . Steven that is our view and has been our view through this period, mpc members voting for a rate hike. The interesting thing about the theey as well is that Services Survey has been fairly flat line. Think it will probably weaken the Manufacturing Survey has been a bit more robust, reflecting the weakness in the pound. We had a survey from the Engineering Federation saying how Strong Manufacturing is, as largely a function of the strength in europe and domestic manufacturing. Said they suspect that strength from europe will tend to dissipate. I can sort of see that to some extent. We might be at the sort of sweet spot, if you like, of this demand from europe as a function of how the european economy is doing, how sterling has been Going Forward if that support for manufacturing starts to wane and the services are not picking up, the forecast will be a little bit worse than maybe they were suggesting, one point 6 this year, 1. 3 next year. Mark what about your forecast for sterling . Steven put my hand up straight away and say sterling is the most difficult currency to forecast, among the major currencies. My view in general with respect to the dollar is a weaker dollar, and i think sterling will tend to match the dollar weakness. Probably 1. 20 and 1. 30 type range. Selling eurosterling has gone up to about 97 pence. There is this talk of parity and i would not rule that out, but it is uncertain because of the brexit negotiations. It makes it a difficult currency to forecast. Mark the big news is we are hearing there will be a big theresa may policy speech possibly in late september where she is going to force the pace of negotiations. It is possible she will soft in her tone soften her tone since her last big policy speech in january. Could such a speech move things forward . Could they bring the two sides closer together after last weeks talks . Chance there could be a that the speech moves thing forward and aligns some of the priorities that it is difficult, because if you look at the european side, financial contribution, the european workers and citizens as a priority for the european negotiation but for the u. K. It is clearly economic stability. When you see these numbers falter, how do you protect trade, export and services, financial businesses in the u. K. . It is focusing on that other than the topics on the table for the european side. Getting momentum would be ideal. Mark do you see momentum in the near term or not . This summit, where hopefully some suggest we might be able to make progress and move on to trade, that is when the decision will be made. Is that too soon . Steven they will not make a decision on trade until the figure is agreed to. There will be no progress on trade, i am pretty sure. The problem of the conservatives is the conference is that the start of october, they probably do not want to be talking at that conference about a bill of 50 billion pounds or the sort of numbers that have been bandied about. A bill isn fixing probably going to have to come after the conservative Party Conference when the political noise has died down. Maybe at that stage, progress can be made but for the next few weeks, there will not be much progress. Mark thank you. The u. S. Congress returns from recess to avert a default on the countrys debt. This is bloomberg. You are watching bloomberg surveillance, i am mark barton. Here is nejra cehic. Some we are seeing resilience with european equities, the stoxx 600 rebounding after the loss yesterday. Resilience among european investors despite the geoPolitical Risk, perhaps more focused on the Central Bank Meeting later this week. This chart showing how buying european stocks has been a winning trade for u. S. Investors. In the blue you have this stoxx 600 in dollars and in white you have it in euros. Does it leave investors wanting more, wanting to stick with this trade, or is it time for pullback . We have seen outflows coming out of the u. S. Etfs even though they have been pretty strong so far. Hsbc saying european earnings will underperform that saying on a valuation basis, if you take into account currency effects, european equities still attractive, so a big question from here. A great chart, 1958 you can find on the bloomberg. Talking about resiliency in europe despite geoPolitical Risk , the treasury market is reopening after labor day, the treasury yield about two basis yield up. The bund this is the treasury bund spread , tightening up at the end. This has been tightening since the beginning of the year. Moving on to other safe havens, we are still seeing the yen big, a weaker dollar tracking the 10 year treasury yields but has beenngly, the yen lagging behind gold amid rising tensions with north korea. This is the nominal Exchange Rate and the spot price, and we are seeing a tiny bit of softness in gold coming through this session. I have got to talk about the yuan because we saw 14 Straight Days of gains on the longest. Inning street streak we are seeing a little bit of a pullback in today. The pboc fixing was a little weaker than expected and questions are arising as to how tolerant the pboc will be of this strengthening yuan, some people calling it a safe haven currency amid north korea. Mark. Mark Congress Returns from its august recess today a couple of weeks to pass a stopgap spending bill on september 30, and divert a default. President trump planning to end an Obama Era Program to pause immigrants on brought as children. Nandini ramakrishnan and Steven Barrow with us. Rump will delay daca does that take off some of the pressure he will receive from the Business Community . Wanted him to keep the program so the fact that he is ending it is not a good thing in their eyes. He is letting Congress Come up with an alternative and i do not have a lot of faith that will happen. We saw how well that went with health care. Is there a viable alternative that has been suggested . Kathleen not really. There are been a couple suggestions over the last few days but nothing members of congress have coalesced around. Obama acted unilaterally because congress could not come to an agreement. Ceiling, dothe debt you tie to harvey or not . Kathleen that is what the white house would like to see and it remains to be seen whether that will happen initially. The harvey the house will vote on tomorrow does not include the debt ceiling. Mark the spending measure, is it tied to building the wall . Kathleen how many other things can we pile on . Or is a deadline coming up at the end of the month so they have to deal with that as well and if trump is demanding money for his border wall which the democrats will not stand for, have to see where that will go. Mark what is the perception of trump, how he has governed during the harvey crisis . Kathleen i think he has definitely met the bar, but it is not a very high bar in terms of what he has had to do. The real challenge starts now in getting the aid through. Innandini bring lets bring in nandini and stephen. Are we in for a fraught september . Steven the debt ceiling will be raised, no doubt. That will go through somehow or other so any issue of default is completely off the table. A Government Shutdown on the budget issue, that looks probable or certainly very possible. The disturbance to the market should be fairly limited, certainly was in 2013 when it happened, and i suspect it will be the same. Markets can digest a shutdown . Nandini yes. We do not expect a default by any means from the u. S. We would expect market noise and news out of washington that rattles the market but our longterm investment view, this should not affect our general sense the u. S. Economy is strong. The general sense of economic strength and potentially optimistic about other policy efforts that may come later on, perhaps as Corporate Tax reform, perhaps as financial deregulation offers investable opportunities in the u. S. Equity market. Mark and the fed announces Balance Sheet reduction in september. Our view, thats we start that 10 billion a month reduction of and one rate hike in december up to next 2, 3 next year depending how the data pans out that we see them continuing their process of normalizing. Mark do we see the dollar continuing to defend . Steven we are in a longterm doubt dollar downtrend. In the dollar trades Effective Exchange rate terms, forget about individual currencies, these trends tend to last six or seven years, and often associated not with the Economic Cycle or the monetary cycle that the fiscal cycle. We have seen these tendencies over the last 20 or 30 years for decline during republican presidencies and go up during democrats. That is not a coincidence necessary. Necessarily. Policiesunction of how have changed. Sometimes it is bad block, geopolitical events bad luck, geopolitical events. I see the risks of recession at some point as we are in a late cycle for the u. S. , i would think there would be a recession at sometime during the next four years or eight years if trump wins again. The dollar will be on a downtrend and it does not matter too much if the fed raises rates more or less than anticipated. Mark thank you very much, Nandini Ramakrishnan and Steven Barrow stay with us. September surprises, why it is the cruelest month for u. S. Equities. You are watching bloomberg surveillance, i am mark barton in london. Lets get the Bloomberg Business flash. Nejra talk talk is trying to get out of mobile operations according to the financial times. It has held discussions with rivals about selling its mobile unit. They told the ft they are shifting their focus to fixed line. Birdsartphone game angry is listed on the nasdaq helsinki. They are planning a share of about 30 Million Euros and will targeted david the end dividend payout france has reached an agreement to take control of aviva group, essentially a reverse takeover of the british firm, issuing schneider a 30 stake. This will create a business to help design and operate Engineering Products projects. That is the Bloomberg Business flash. Mark thank you very much indeed. I want to bring up an article on. He bloomberg september, usually the cruelest month for u. S. Equities. This year could be particularly harsh, the s p limping into the month over high contentions with north korea and historic flooding in texas. It could set the tone on Financial Markets for the rest of the year including centralbank policy decisions, the german election, and potential u. S. Debt ceiling shutdown. Nandini ramakrishnan and Steven Barrow, what worries you most . What is the biggest hurdle for the market . Nandini i think increased Political Risk distracts from the fundamentals. For just a month of september, there are central meetings, german elections, trusting the alls, those do not look to be way from the market friendly reaction. We are not too stressed about september and are monitoring Global Developments that distract. Monthseptember is a cruel for u. S. Equities, an average. Oss of. 7 your outlook for european equities is positive for the next six to nine months. Nandini earnings expectations have been increasing over the year for the first time versus the past several years, for analyzing companies in the stoxx 600. You also see the technical argument, 60 billion worth of euros went out of european equities in 2016, 20 billion come back in and the 40 billion that remain on the sidelines, as we get past a few more months of positive pmi and macro data, you can put your money back in, especially if you are a u. S. Investor where the equities are more expensive. Mark what event has the potential to shatter the calm in the market . Steven the german elections are quite interesting for me, although probably most people would have that quite a way down on the list. Potentially the most interesting, strangely if nothing happens. The cdu, spd, and grand Coalition Government at the moment, it is possible given the cdus lead in the polls the government with the ftp, i do not think there will be much reaction. If they have to govern again with the spd because the rise of marty chance as the leader, i am sure that he will want that finance ministry post if he comes if the spd are in government again. The German Economy and Financial Markets have been very used to the ever present merkel and ever present shop look. If he wants to be replaced by schulz who is much more euro sympathetic, given his role as commissioner president parlett present parliament president. That could be a significant shift, not a shattering one, but in terms of the longerterm consequences, macron coming in maybe potential positive things happening as a result of that over the longerterm. That for me could be the sort of outlier amongst the many risks. Mark nandini roma Nandini Ramakrishnan and Steven Barrow, thanks to both. Johnson. Joins guy this is bloomberg. It is back to brexit for Prime Minister may and the conservatives. Is the Prime Minister in control of her party. President trump belabored on labor day, responding to the clear and present danger of north korea. Meanwhile, the president and his attorney general consider daca and the dreamers. It is the 30 billion role of United Technologies as they Rockwell Collins. This is bloomberg surveillance and im tom keene in the art. Guy johnson is in london. Is there a feeling of a renewed vigor to the brexit debate, or am i wrong . Guy im not sur eif there is renewed vigor. Theresa may have got so many things to deal with over the next few weeks. She has got to deal with the Party Conference, whether or not she will have a cabinet reshuffle. Too much to think about, really, for the markets to price in. So, they are focusing on the data and the latest data out of the u. K. Is not exactly great. We will catch up with that story later. In the meantime, heres the bloomberg first word update. Reporter President Trump and south koreas president have agreed on an arms deal. Meanwhile, a newspaper reports that north korea is preparing to launch an Intercontinental Ballistic Missile on saturday. The house will vote tomorrow on a Hurricane Harvey aid bill, but it will not include language for a debt bill. The debt ceiling needs to be raised by the end of the month. Hurricane irma has picked up steam, and florida is bracing for potential landfall over the weekend. The residents preparing to board up their homes. A hurricane warning has been issued for a number of islands. And british Prime Minister theresa may will try to force the pace of the brexit negotiations. Later this month she will make the case for continuous talks. The u. K. Wants to move on to trade, and the eu wants to settle other issues first, such as the exit fee. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. This is bloomberg. Tom let me get to the data right now. It is a tuesday jumble. Thanks to our london team for driving the conversation forward yesterday. 1. 1825 ondown to renewed dollar strength. Oil plays a little bit stronger. The vix, 11. 6. The markets closed in the u. S. Yesterday. I thought we would see a 108 yesterday. Gold futures do spring from 1300 up to 1336, after recent highs as well. Guy what is interesting is the swiss franc and th eyen seem to be playing a much stronger role. European strokes, to be honest, i think are waiting for direction out of wall street later on. The dollarswiss bouncing back a little bit. The eurodollar, trading 1. 1833. The french data, a little bit of a disappointment and bitcoin, tom, a big down day yesterday. Tom the bitcoin story i am not up to speed on. Heres the bloomberg and here is my thermometer on korea. This is the yenwan. I thought we would be appear with all the angst over the last three days. We are not. This is stronger yen, and a weaker korean won. We were supposed to get up to hear and we did not. Once again, we do go up on attention, but nearly as much as strong yen and weak korean won as i suspected. That is a measure that i use. Guy the markets seem to be pricing more on the trade side of things. Im going to take you back to the bitcoin story, tom. Bitcoin, parabolic recently. Chinese authorities came out yesterday, saying what they want to do is curtail primary issuance of bitgoin. We have increasing Financial Market regulation. They are trying to clamp down on it. You can see them of yesterday to the downside. Percentage moves. E tom i think matt miller bought an island nation off his bitcoin earnings. Guy he had some, tom. And now hes lost them. I suspect he is looking for them, though. Tom, we should get back to the politics that will be dominating the agenda in september. President trump has agreed to sell millions of dollars worth of arms to south korea. We had the u. S. Security Council Meeting yesterday. Nikki haley said the u. S. Would seek the strongest possible sanctions. Nuclear powers understand their responsibilities. Kim jong un shows no such understanding. He is begging for war. Guy lets get the latest on yvonnebringing in you wan man. There are reports we could see an icbm test at any moment. Reporter that is right. We were expecting saturday, september 9 to be a pivotal day for north korea, foundation day. It looks like kim jong un is working quickly behindthescenes. They have been moving this icbm, according to local reports, slowly to a nuclear test site. The combination of events, if in fact, north korea has developed this miniature Nuclear Weapon icbm, itlatch on to an goes to show how far they have come in their Nuclear Weapons program, something a lot of analysts did not expect to happen so soon. Tom we have seen so much of this from the 1950s. I guess you could go back further. Is there a generational shift . Is there something new and distinctive about the people of south korea reacting to these threats . Tom, take a look behind me. Its business as usual. You hear people say, we have been through this before, but something in the air seems to feel like it is a little bit different. We heard earlier today from the nikkei news in japan. The government is preparing the evacuation plan for the 60,000 japanese citizens that live here in south korea, if we see some type of military strike hitting the peninsula. They are saying this is a contingency plan, but they are willing to move ahead of this, before the u. S. Or anybody tries to put this publicly out as a military threat. Tom what is your reporting from china . There is a lot of silence from beijing. What are you seeing about the chinese response to north korea . Reporter tom, its like we hear from the u. S. And nikki haley, we hear from china saying, look, they are still hoping for a peaceful resolve. They say they will never allow chaos and war on the peninsula. And you have south korea in the middle, leaning towards military might with the u. S. They are hoping for some peaceful negotiations moving forward. For china, the big question mark comes to oil sanctions. There has been speculation from analysts that china could be a little more tolerant here on temporary oil sanctions, but nothing permanent. And we will know by september 11, when nikki haley plans to draft these new sanctions and present them to the council. Guy thank you very much. Lets bring in james bevan. Good morning, james. As you watch events unfold on the korean peninsula, is it changing your investment ideas . I rather anticipate the Fourth Quarter will be difficult because of global liquidity trends. Gold. T a supporter of for the gold price to rise on a sustained basis from here, we need inflation protected securities yields to move by about 40 basis points. I dont see that happening. However, i worry the global liquidity trends are becoming much more hostile in the Fourth Quarter. For me, it is about sticking with quality and growth. Tom wonderful to have you as our first guest in the u. S. After labor day and looking at the september kickoff. Lets go to the chart and look how everyone has been wrong. Heres the gloom and doom chart, top of the lehman lows, the equity market. Im sorry, james. Theres a trend. Why have they got this so wrong . I think they have been looking at the wrong target. They said a high priceearnings multiple is inconsistent. Weve been able to achieve strong rates of return. They have ignore the fact that if you nail interestrate to the floor, the risk premium can remain elevated an indeed, at the moment, it still looks about a percentage point too high. A you said to me, what might reasonable prospective be of evaluation for the s p 500 on a 12 month view, i would say, if we are correct in anticipating u. S. Growth is consistently around two percentage points, inflation is around two percentage points, the Federal Reserve will tighten no more than 200 basis points. That to me, says the fair priceearnings multiple can be about 18 times. In indexthat by 150 earnings in that gives a 12 month target of around 2700 points. That is completely mad in the m idnnds of the bears. I think you need to be very careful when you say buy the dips. If you stick with quality growth, the opportunity is very limited. What is interesting is the dips dont go down as far as they used to. If you wait for the dips, you miss the upturn. I think it is an error to wait. Guy im not saying you wait for it, but if there is one . It depends on if the dip is caused by fundamental factors. I see two principal risks. One, liquidity. T think if you were to plo the amount of capital from china, it was about 20 billion in this year i think it is about 6 billion, i think the u. S. Will have to issue more debt to us that the Fourth Quarter. And that to me, is a worry. Guy ok, we will come back. James bevan is going to stay with us. Coming up, we will be speaking to a member of parliament. 0 30 new york time and 11 3 london time. He was a close advisor david campbell. Reporter this is bloomberg surveillance. Lets get straight to be business flash. There is a blockbuster deal in the Aerospace Industry as United Technologies agreed to purchase Rockwell Collins. The combined Company Makes everything from touchscreen displays to jet engines. Schneider electric has agreed to group,ntrol of aveva creating a business that would design and operate Engineering Projects, such as diesel engines and Nuclear Power plants. Us Kevin Cirilli will join in the next hour, the right now we get the treatment from london. It is a most is the day for the president. We look at the daca, the streamere streamers immigration debate. This is something we have talked about before. I whenever there seems to be a change in immigration this way or that way, it goes down in flames. Is this time any different . This will be a very interesting one because the president is playing an interesting game. On the one hand, he has communicated to his base, given ing them what they want to hear about the socalled dreamers. Congress, meantime, and business and lots of interest groups, the vast majority of the population, want him to go the other way. It will be interesting to see if congress basically bails him out of the hole. And if we go down this road the president puts this on the table, how do the democrats pushed back against it . And do they pushed back against it when it comes to the debt negotiations and the debt ceiling . I am wondering how these different factors interact with each other. I dont know. [laughter] interestingly, when it comes to the dreamers, the democrats can let the Republican Leadership to a lot of its work because the republican leaders, especially from the border states and from texas, awant this program to continue. In fact, it might be critically important to get a labor force that will rebuild houston. You get the dynamic of rebuilding texas on top of the debt ceiling, on top of extending the authorization to fund the u. S. Government. The one thing we have seen, interestingly, is the white house chief of staff signaled they are pulling back from the wall. To fund the border so, that will be an interesting thing. And really, some things have to pass, the debt ceiling and funding the government. Tom very quickly here, the hallmark to me of where we are in september is finally, we have a president with many different issues. He has been lucky so far, not about the politics, but about one issue here, one issue there. Finally in the last couple weeks it is a story of many issues, as many president s face. Not only that, tom, but you will notice if you look at the polling that he is extremely unpopular. It speaks to his leverage. Does he have the kind of leverage that a president needs . Obviously, he is popular with his base, but you wonder if the Republican Leadership, especially in congress, feel the pressure to fall into line behind us president . Does he have the political leverage to do what he wants to do and does he even know what he wants to do, frankly . Tom james bevan will stick around. Lego could be missing a few pieces as the Company Reports a decline in profits. We will speak to the chairman. That is next. This is bloomberg. Guy this is bloomberg surveillance. Lego has posted a decline in sales and profits, saying it will cut 8 of jobs, 1400 jobs globally. Joining us now, jorgen vig knudstorp, the lego chairman and former ceo. How did lego overextend itself to the extent that it did . Things were going very well for a while, but those even within the company were becoming worried you were overextending yourself too much. How did that happen . Good morning. I think what has happened is we have unfortunately built an organization that is too complex and our execution discipline has dropped as a result of that complexity. Guy was it a mistake of putting one from the operating side in charge of the business . The problems the Company Faces now isare creative. Guy is the price point too high . No, not at all. Lego products are very popular. They score very high, which indicates our users are very satisfied. Tom wonderful to have you with us. Upare going to bring onscreen the Worst Nightmare of lego, which is lego and minecraft. Guy, i dont know if you know this, but this is spread through acreages of the house, lego and minecraft. Thats not complexity, that is genius. How do you dovetail your execution with your new need for entrepreneurial simplicity . How will you keep the pixie dust and go simple as well . Yeah, i think there is a balance point that is tricky for any Global Business, to have intimacy with the customer and have scalable operations. We have decided to reduce the number of legos in the organization. We have streamlined our Management Structure and are taking out layers in the organization. Then we have the market heads report directly to the ceo in the future. That is how we are driving the entrepreneurship. Tom that is very good and when i see the simplicity with the operation, will i see is implicitly with the brand . When i go to the lego store at rockefeller center, will there become fewer products . Today it has become almost a branding blur. I think the assortment has become quite stable for a while. You are certainly right, we are off with a focused assortment, rather than expanding the assortment more. We launch about 20 different types of product themes every year and we do that fairly constantly and we have some that stay with us for a long time, they are very stable. Then, there are others that come a bit more in and out. An example would be Something Like jurassic world, things that relate to a popular movie at this point in time. Guy it is interesting to see what impact lego batman will have on the business. We will look for details on that further down the road. Time, jorgen your vig knudstorp. Tom, you talk about minecraft, but i would urge you to avoid a millennium falcon together. This is bloomberg. Tom good morning. Guy johnson in for francine in london. It is a busy tuesday. We will get to the white house, korea, this immigration announcement, the daca announcement. We will get to that throughout the day. Now to your first word news in london. The u. S. Ambassador to the United Nations says kim jongun is begging for more after the countries latest nuclear test. Meanwhile, a south korean newspaper reports north korea is getting ready to fire another icbm as soon as saturday. President trump has agreed to sell billions of dollars of weapons to south korea. He plans to and the Obama Era Program that provides relief for immigrants brought to the u. S. Illegally as children. Will wait several months so congress can come up with a permanent solution. Refiners along the gulf coast are coming back online. Two of the refiners in texas are back to prestorm rates. Shute point the storm had down 19 of u. S. Refining capacity. U. K. Will turnhe some existing european trade deals into bilateral ones. They will begin with the swiss and south koreans. Outside of the eu, the u. K. Has more than 40 trade agreements. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Guy news coming through on the south african economy. A recession in the second quarter, we have q2 gdp expanding at 2. 5 . To be honest, the data are not really the central focus. They remain secondary to what is happening politically as we come to the end of the year and the country starts to think about what is happening in a postzuma need to dohat they to change the employment dynamics. Tom exactly. The employment dynamics are remarkable. 27 unemployment rate. Maybe the september correlations are there right now, but james bevan, this textbook on fixed income in the market, that textbook has been thrown out of the market, hasnt it . In terms of the risk premium, i think it is still an important concept to determine how much capital you are prepared to allocate for risk. The equity risk premium is still a principal allocation. Guy is it a good value . Generally not. Get aelieve we will strong return to inflation. I think the u. S. Inflation will peak around 2. I think these forces are here to stay, and that is what we will continue to see, deflationary drivers in commodities. Out ahe market has priced fed rate hike in december. Still very low in the cycle generally. I think the peak of the cycle, which is important, is to percentage points, no higher. Tom lets go to the trump fade chart. Where pushing up on one year of the trump election. James, what happens if the yield curve flattens out and goes below the summer of 2016 . What is the ramifications if we get lower yields . 2 10yearut below yields, is that good for equities . I think ultimately it isnt. I think yields will be heading higher in the Fourth Quarter because i anticipate the u. S. Government will have to issue a lot of paper, i am pricing and issuance of around 600 billion to make sense of the mathematics. The u. S. Has been spending cash rather than issuing debt this year. There has been a relative absence of supply with near constant demand. We are talking about the fed as well. The rolloff of the Balance Sheet, do we get back next week . We will be back. To get more from bloomberg, the government Bloomberg Businessweek. The United States, the top story focuses on Hurricane Harvey. This thenilever, is last good company . Greater insights, elses, etc. It is also available on your bloomberg. This is bloomberg. I am guy johnson in london. Tom keene in new york. 5 37 in the big apple as the u. S. Returns from the labor day holiday. Theresa may is expected to speak later this month to increase the pace of brexit negotiations. Case formake the continuous talks in an attempt to tilt the direction towards trade, this comes as a crucial meeting in october of eu leaders looms. Thejoined by conservative party from thatcher to the present. Still with us, james bevan of ccla investment management. Good morning. My guess her house 2. Lancaster house 2. 0, what does it need to say . Not much. Guy things have moved a long way since lancaster house 1. 0. They . There was certainly a disasters election campaign, but she is still in government, and the lancaster house principles are still the principles as far as i can see. Papers, while they certainly layout some details are all things you could have addicted entirely from the white paper in lancaster house. Guy how does this speech take us any further forward . These negotiations are a sort of dance. They are a very complicated dance. There are quite roles in some bits quadrilles in some bits, waltzes in other bits. The complexities are all in the details. There are really serious issues that are quite simple. In the end they get decided one way or another, it is quite binary. You probably get to decisions in the last hour or something. Guy we should not be too upset by the lack of progress so far . As journalists, you should. It will be profoundly boring. You will need things to talk about. I think to some degree that is doing, feeding the beast with papers and speeches. On, headd, this goes of government, head of government at the last moment on the crux issues. I believe you will end up with some kind of framework agreement, nonspecific, but it clearly lays out principles and gives a period of one or two or three years in order to get the complicated details sorted out. Tom you have a wonderful heritage within your family back and thehatcher years London School of economics, i would assume people love to make the compare and contrast between the present conservative tone of Prime Minister may and thatcherism. Can that be made . You can certainly do it. I mean, the difference is chronological in the sense that when Margaret Thatcher came to power, we were in a completely different economic setting in the u. K. And the battles we were trying to fight were completely different once from now. Of course, that might all come we were dealing with largely nationalized heavy industry with the country essentially run by trade unions and a massive rigidity to the labor market that had led to sustained decay to on employment, which has completely changed, not least because of mrs. Thatcher and away mr. Blair carried the Thatcher Program forward. The within that, what is main philosophy . May philosophy . Ofont have a construct within the brexit conundrum what the may philosophy is . You should distinguish between those two ways you formulated that last question. The question what is mayism has no answer at all. Im not aware of anything that would constitute mayism. If youre asking what is her basic philosophy, i think it is probably free markets, but social markets informed by a high degree of social justice and so on and a considerable attention, and this is the point at which there is overlap that is different from the trump agenda, attention being paid to the people who did least well out of a combination of the of thes and the reverses mainly the5 period, people she describes as just about managing. The people that were hard hit, are hardworking, but they are not actually feeling that the country is working for their benefit. I think it is that shift of focus onto them, away from the free market, the benefits, those who are doing quite well, the upper half of the population in terms of income and the people right at the bottom of the heap that are after by social justice programs. She has focused remorselessly on that third quartile and recognizes mornings to be done for them. Guy james. The blue labor agenda would give her a majority, clearly that did not happen. Learnedhe have something about the strategies she has to play . Aboutont actually think i havent talked to her about the election. I dont think it taught her to focus on that strategy, but it taught are not to conduct an election tactically in that way. Ver. Ank you what are you hearing within westminster . What is your sense of how people are positioning around theresa may in terms of a possible leadership challenge . How big of a mistake was it that rejection,e fighting and where is she on the tactical basis on that road . I think it is a big decision for Prime Ministers to say i am staying or going tomorrow. If you say you are staying forever, people will say why are you going on forever . Guy you cannot say anything. You only say anything if you feel forced to say something. The main point is there is an overwhelming desire on the part of the conservative Parliamentary Party that she should remain through the brexit negotiations at the very least. I dont think there is any appetite at all for a change of leadership while we are going through this process. What happens after that depends on how that all goes. Eight months from now is a long time in the political history, and it may look very different. Guy does this mean i can reshuffle off to one side . If you take a look at the cabinet and figure out how progress has been made in key areas, you can argue very little progress has been made. People joke about Boris Johnson on where the u. K. Is on the north korea issue. The u. K. Is nowhere on that issue. Some would argue a reshuffle is required. That is lots of questions in one. Is theresa may safe . Abundantly, yes, totally. As i said to you before we started this interview, i have not the slightest idea, my advice would be to delay rather than advance because it gives more leverage to her. I think on your third question, we are in a position that is impossible to make any serious progress in any Foreign Policy until the brexit issue is over because the entire weight of the British Service and ministers is all devoted to this incredibly important task, so we should expect the u. K. To be playing a massive independent role in world affairs, and once that is all resolved the position is very different because everyone knows where we are and people can remit thanks to beat dealt with in detail and get to big items. I dont think the foreign secretary is responsible for not making progress. Tom it is back from the summer, back to work, is the city threatened by job migration or is it overplayed . I think it is substantially overplayed. There are all sorts of issues about regulatory equivalents and ensuring that also its of activities, things like derivatives can continue to be traded in london without being in default of european regulation. Those will need to be resolved. But they are at a pretty finegrained level of detail, and my impression for many years to come the weight that the city has on Financial Affairs in europe will continue. An enormously Bright Future reaching out to india and china. The city is beginning to be a Major Trading area for the randy and the rupee. I think that is a strong basis for future activity. I dont think any other European Center in our times can expect to compete with it. Guy thank you for your time this morning. U. K. Member of parliament. James bevan of ccla will stick with us. You can watch what is happening on the bloomberg, and you can critically access some of the functionality we have been using on air this morning. The next few days are pretty big. We have the ecb coming up on thursday as well. You can use the functions. This is bloomberg. Guy this is bloomberg surveillance. I am guy johnson in london. Tom keene in new york. United technologies is to buy equipment maker Rockwell Collins for around 20 billion. Rockwell collins shareholders per share. 40 james bevan still with us. Buying a supply chain for airbus nd iscredibly complicated a this good news for the aviation sector . I would say this is goodness for United Technologies and rockwell. They are looking to build out their portfolio because as you areairbus and putting immense pressure on these suppliers. This will give them more room to negotiate. Tom i want to make clear this is a 30 billion transaction. This includes net debt, which states that 20 billion out to a larger 30 billion dollars. To spinperfect for utx off their other is this is like Otis Elevator . Is that part of the transaction or down the road . They have not discussed any possible spinoffs. I think it is still too early. They are looking at the deal they just announced. Some are wondering are the noncore businesses possible to be spun off . I think it is still too early to say they will do this. Its plateas a lot on now. They have this deal and a number of other deals. Are mullen berg, if you are running boeing, do you worry about the transaction that utc is trying to push forward at the moment . You do. Airbus came out with a statement that was some of a veiled warning not to get distracted. That is airbus saying these deals, we might not be able to block them, but we are watching closely. Tom let me bring in this chart, normalized utx on this historic emergence. Ae red line is collins with leg up. Normalized percentage change from the lehman lows. You are going to arbitrage congolomerates every time. Mergers and combinations unlock value, dont they . There are two rather different m a savers, those which are based on industrial logic, and the two big deals we have had. They are great deals for longterm businesses. Through the glory years of private equity and there was way too much money to deploy, large numbers of deals were done for the reason of Financial Engineering as the zeitgeist of buybacks in the states. That resonates. There is a lot of hot air and not substance in these transactions. Tom thanks so much. Appreciated greatly today on you tx and Rockwell Collins. Much more on this in the next hour. Coming up, a conversation with Carl Weinberg. This is the perfect way to get the new year started, the business new year. Kids are back in school. Maybe we think back up on thursday or friday. Carl weinberg will assist us on all boats rising. This is bloomberg. Tom President Trump labored on labor day, how to respond to the clear and present danger of north korea. The president and his attorney general consider daca and the dreamers. The state of the global economy, are all boats rising . In this hour, Carl Weinberg of highfrequency. Utx acquires Rockwell Collins. This is tom keene from new york. Guy johnson in london. What an interesting brexit hour we just had. How does exit play out in these first two weeks of september . Guy guy it is going to focus on the domestic politics story. Theresa may warming up for a big speech, lancaster 2. 0. Party conferences coming up. The labour party interesting in all of this as well. How will they position themselves . There is some talk of a reshuffle. Some interesting talk when it comes to u. K. Politics. Overshadowing all of this is the eu leadership summit. Tom lets go to first word news in new york. Taylor the u. S. And south korea are showing some muscle after north koreas latest nuclear tests. President trump and the south korean president have agreed to an arms deal were south korea will buy millions of dollars of military equipment. Will vote tomorrow on a Hurricane Harvey aid bill. It will not include language to increase the debt limit. Treasury secretary Steve Mnuchin has said he wanted the two issues combined. The debt ceiling needs to be raised at the end of the month. Hurricane irma has picked up steam as it approaches the northeast caribbean. Florida is bracing for a potential landfall over the weekend. Irma is now a category four storm. A hurricane warning has been issued for puerto rico, saint martins, and the u. S. And British Virgin islands. In london, theresa may will try to force the pace of the brexit negotiations. Later this month she delivers a speech that makes the case for continuous talks. The u. K. Wants to move on to the issue of trade while the eu wants to settle other issues first, such as how much the u. K. Will pay as an exit fee. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom thanks so much. Right to the data now. Negative, curve flattening this money, oil with a little lift. The vix 11. 78. Yaun shows lack of hysteria in the markets. There is very Little Movement in the markets over the last three days. Guy this is the picture around the world. European stocks waiting for the u. S. To respond. Wall street to get back up and running. The swiss franc beginning to fade against the dollar now. We are seeing the yen still big, which is interesting in the risk on risk off trade. Curtailese decision to or issuance of bitcoin. She is in the forefront in visible because of the challenges of the present with his secretary of state, the u. S. Ambassador to United Nations, nikki haley. Here she is on north korea. Nuclear powers understand their responsibilities. Kim jongun shows no such understanding. His use of missiles and Nuclear Threat show he is begging for war. Tom the ambassador to the United Nations. Kevin cirilli in washington and yvonne mann. We have lost a little because of satellite difficulties. We begin with Kevin Cirilli in washington. It will be a challenging tuesday to say the least for the president. What do you expect on korea this morning . The present working with secretary of state Rex Tillerson to try to address the growing threat of a nuclear north korea. This is their most brazen effort yet on behalf of north korea over the weekend where they tested their latest missile launch. U. N. Ambassador nikki haley trying to form a cohesive alliance with our international counterparts, and we should note where days away from the u. N. General assembly meeting. Look for how russia and china withbegin to intermix Ambassador Haley and look for Steven Mnuchin to consider new sanctions against china and russian financial institutions. In yvonne mann this morning south korea. What is the backdrop between this ancient challenge, koreajapanese relations . How linked are they as they face this crisis . They certainly have a long history, a lot of angst. It looks like we are seeing more of a united effort as this debate heads to china and russia. The Eastern Economic conference moonere shinzo abe and are heading next. Moon speaking in the last hour saying they are hoping for peaceful negotiations with pyongyang, but now is not the time for that dialogue. We have seen flexing of military might. 20 vessels with these live fire drills after we have heard this icbm launch may happen earlier than expected. Guy what is happening domestically with the white house, what is happening with the debt ceiling, what is happening with daca, or is it the International Stage with north korea . How good is the president at juggling . That is a good question. The present and white house will suggest they are able to walk and chew gum at the same time. That said, Congress Returns from recess today. They are set to take up in the house the 7. 45 billion worth of a to harvey. That will not be tied to the debt ceiling. That is a win for the Freedom Caucus. Additionally to that, youre tong to see congress trying deal with raising the debt ceiling. A lot of investors concerned about that and the uncertainty that could come out in the weeks ahead. Mann, is the public in south korea happy to see the u. S. Rities turning more on defense equipment . How does that story go down there . Respectsk in certain you see that there is an alleviation of concern when it comes to how the u. S. And south korea are reacting to all of this now. A couple of days ago, we saw that tweet from President Trump criticizing south korea for their approach to pyongyang, saying this time of of these make no longer of appeasement no longer works. Tom thank you so much. Kevin cirilli, one more question on this incredible immigration debate in the United States. Who are you watching on capitol hill . Who matters in the dialogue with the president . Mike pencesident where he stands on all of this. Tom why . When you look at the coalition of folks he formed with the evangelical right, many of those folks are against the daca policy debate from their christian effective. Yete Speaker Paul Ryan has to put out any comment on all this, remaining silent. Apparently he is not going to be able to do that until after the president makes some announcement. This has severe implications for the future of the Republican Party. Tom Kevin Cirilli, thank you. It is a perfect tuesday to be briefed by Carl Weinberg. He has ample International Economic history, including negotiations. Of have been at loads negotiating tables. Are we in the mood to negotiate asia . I think asia is the real challenge, korea is a challenge. When i look at the different scenarios from north korea, why elschina dragging its heal in negotiating with north korea . There has to be something behind it. They had the power to shut north korea down. I wonder what they hope to gain by doing less at this particular juncture. Tom we have to have a Carl Weinberg chart. This is a g7 chart. This is not as complex as it looks. I made it quickly. Here is the average Economic Growth of the g7 before the financial crisis. Here is where we are now. Economic growth. Are we going to sustain that all boats rising g7 gdp . We are seeing growth in a lot of places, and that growth is looking better than it has before. The level of activity is still quite low. Unemployment in europe is close to 15 million people. That is an unacceptable point. While we are feeling, we have not yet healing, we have not yet healed in all dimensions. Investors have to think about investing in an environment with low levels of activity but decent rates of growth. Guy does north korea have the potential to change the direction of economic recovery . They have the potential, but the only way to change the economic recovery now is to start a nuclear war. It is hard to understand the motivations of north korea, access to resources is part of it, but unless they are well and to take us to a place no one wants to go, but i dont think they can otherwise. The are a tiny part of World Economy and a tiny part of chinas trade picture. My answer is no unless the worst happens. Tom wonderful to have you here this morning. We have the yuan meetings coming up as well. We are going to drive the conversation forward on economics, finance, international relations. From london, from new york, stay with us. This is bloomberg. Taylor this is bloomberg surveillance. Im taylor riggs. There is a blockbuster deal in the Aerospace Industry today. United technologies has agreed to buy Rockwell Collins for about 30 billion in cash and stock. The combined company is everything from touchscreen displays to jet engines. They will be better positioned to withstand pressure from boeing and airbus for price discounts. Deal will create a business that will help design and operate Engineering Projects such as engines and Nuclear Power plants. Capitalgroup and bain are interested in buying nestles confectionery business. To bey is also said interested. That is your Bloomberg Business flash. Tom thanks so much. Lets talk to car Carl Weinberg of highfrequency traders. Where we are right now, everybody got the dollar call wrong. Outgot stronger euro well to standard deviations. How skewed is the foreignexchange market now . Placeis in an interesting pouncing fundamentals, which suggests a stronger dollar against most currencies other than canadian dollar. There is a lot of confidence in the u. S. After the trump election and Trump Inauguration, but that seems to be dampened. Weakness dates back to the inauguration day. Tom bring up this chart. We will put it out. Out,is euro strength way one standard deviation, two standard deviations. We are nearing a three standard deviation move. Mr. Draghi has to respond to Trump Inauguration dollar dynamics doesnt he . I think he views this as a consequence of Economic Policy rather than an object of Economic Policy . Tom what does this mean for mercedes sales . I think there is a competitive this issue. Right now their trade balances are doing ok. The most important story for exports out of europe is not the Exchange Rate or the competitiveness against additional currencies, but it is the increased access of european exporters to 4 billion new customers across asia and india. Im optimistic about europe moving forward because of the fact that companies in europe that have anything to sell to emerging asia at any Exchange Rate with the euro cannot do so. We see Companies Like volvo can now do that. We see Companies Like volvo benefiting from this. They will continue to benefit. That europe faces now is one of dealing with the structural rigidities that exist. How much faith do you have in mr. Matt graves mr. Macrons ability to deal that . I am waiting to see what happens. He has stepped into a conversation that has gone on for decades. Labor rigidity in europe and france has been an object of the function of the economy. This is the tradeoff i am watching. I dont really have a strong view as to how it is going to turn out. I think it is premature for investors to take up thats on whether it is going one way or another. Isse shutdowns that paris susceptible to we talk about changing the labor laws, they can be a powerful impact on any reform macron proposes. Guy how much thinking are you doing about the fact politics is going to reassert itself in europe. As aerman election is seen nonevent. You have conversations happening today surrounding the catalan referendum. We are dimensions what is happening in france. We still dont have a government in the netherlands. Our people prepared to put politics to one side now . Know. I think we always have to watch the politics. I think it is calmer than you suggest. No government in holland is normal, usually months after the election. The union with ms. Merkel is close to getting a majority, and we see the trend in that direction. We may see the grand coalition go away. Returns as a fourth term leader and strong voice for europe, that gives us the possibility to see us see her for us to see her leave europe in a positive direction. Tom i may need to be medicated on the break because i have never seen Carl Weinberg this optimistic. We will come back with Carl Weinberg of High Frequency economics. Tomorrow from frankfurt, germany, may be speaking with the ecb, who knows . Morgan stanley, the 6 00 hour. This is bloomberg. Theresa may is planning a speech to jumpstart sluggish brexit talks. Meanwhile, the British Government gets back to work today as Parliament Reconvenes after the summer. Tom ininberg still with new york. He was there a few minutes ago talking about the fact that lancaster house 2. 0 is going to look similar to lancaster house 1. 0. I find that hard to believe. I find that hard to believe too. You can never point to the moment where the government transitions. This isnt quite a uturn. This is a change of position. If you have said to brexit january, inps in september you will be cheering along the idea that we might still be in the eu, not quite in the eu, but the Single Market in 2021, and we might be paying 10 billion pounds a year for that privilege, that our trade deals that we are very excited about my essentially involve photocopying the trade deals the eu has come i dont think they would have greeted that with quite the enthusiasm they are now. About the state of the city, and he seems to be optimistic the hysteria would not occur. At riskyour update, how our jobs in the city as we go to the autumn months . What is happening now is finance directors are putting together their plans that they will be presenting to boards at the start of next year for what they are going to do in the coming years. Essentially not much has happened despite brexit, so perhaps it is all all right. We are waiting for the other foot to fall. At some point companies have to start planning for 2019. To do that, they need to know what the british Regulatory Environment is going to look like in 2019. No one can tell them. I cannot tell them. The government to not even tell them what they want it to look like. They acknowledge a lot of it will be different. At the moment we have not seen anything. I think we are now going to see a load of stuff coming in the coming months where businesses start moving. Guy thank you very much. Carl weinberg from High Frequency economics is going to stay with us. We have a lot of m a in the market this morning. We will talk about it in a moment. This is bloomberg. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. Guy tom keene in new york and guy johnson this guy johnson in london. Snyder will receive a 60 stake in the company. Lets talk to the company, phil aiken joins us on the phone. Congratulations on the news. Are you confident that the deal is going to stick . Phillip as you said, we try to do this deal back in the middle time, we hadt that not carved out this Software Business, this time, they have carved the business out. Therefore we have been able to come up with an arrangement which will be sending out a perspectives tomorrow and having our shareholder vote at the end of the month. Guy it is quite a company to structure we have formulated. Why is that . They see the opportunity of having a standalone Industrial Software company is probably the best way of growing the Industrial Software is this. This group will be a Global Leader in software. Tlc andbe a standalone therefore being a specialist Software Company gives them the ability to not only grow the existing business but growth future business. Schneider is a huge company that has done huge roll ups well over one is a 50,000 employees. You are tiny. How are you going to retain the aveva. Tware engineers at what are their incentives to stay around. Philip there internationally based. We have employees scattered all over the world from india to quite a few people in north america. I think our people will say this is an increased opportunity. There will be a part of a larger group with a much bigger footprint. We are comfortable that the employees at the aveva will say this is good. Tom i believe we have a reorganization in boston, massachusetts. What does schneider need to do to maintain their competitive thrust in Engineering Work . Industrialthe Software Business we are talking about, we really have it with this new enlarged company, the ability to cover all Products Solutions right across the hold Digital Asset management. Look at the software at schneider with avevas design and engineering software, you have a very unique organization which will have a great footprint over multiple landmarks and geographies. For schneider and viva and aveva this is an example of two into making five. Guy this is another company that has fallen into foreign hands. Do you wear that British Companies are sold to early . Philip this company will be based in the u. K. It will be based in cambridge enlisted in the k and it will have a 40 shareholding in the u. K. And it will have a 40 shareholding. Markets. Es across i think this can be seen as positive for the u. K. Tech sector. A lot of the products in the schneider portfolio, you can say we are bringing products to the u. K. I think overall this is a positive. I think it is the Global Leader in this days. Tom with your international experience, give us an update on brexit. What do you need on Prime Minister may and the europeans to keep International Business moving forward flacco philip forward . Philip the Biggest Issues are about certainty. People say the importance of Going Forward and working out where the future is. It is about making progress. I dont think this really affects a lot of companies. Aveva, it ist this a small part of business in the u. K. In terms of markets. A lot of companies see opportunities Going Forward but the Biggest Issue is the uncertainty and desolate as they can reduce that uncertainty, theyll be better for this is overall. Guy a quick followup. Ofe you had any issues talent saying i will not go in live there because i am worried about the teacher status that i will hold in the United Kingdom . Philip we have not personally seen that. There is some markets where there has been some degree of that but we have not seen that at all. In fact, we find people still find the u. K. Quite attractive. Imagine i am minister in by birth and i think long forward australians see opportunities in the u. K. Because in the future they will be treated differently. Australians are treated theyre not europeans are they are treated in a different status. Is the positive things Going Forward. Tom thank you very much. Leslie to first word news. The United Nations says north koreas kim jongil and is begging for war after the latest nuclear test. South koreanays newspaper reports that north korea is getting ready to fire another Intercontinental Ballistic Missile us in the saturday. President trump has agreed to dump billions of dollars of weapons to south korea. Trump plans to end the obama era according to administration official, the president will delay the end of the Dreamers Program for several months so congress can come up with a permanent solution. About one Million Immigrants are protected by the policy. Global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. I am taylor riggs, this is bloomberg. Om thanks so much it is this and that on a tuesday as we begin to look toward autumn and nowhere is the focus on many reasons greater than in washington. There is the debt, the deficit, korea and on and on. Stephen bell is in washington right now with the bipartisan policy center. I want to speak to you this morning. Is anything going to get done in september . Steven we have to pass the debt limit. Number two, even if we dont pass new bills to give the government open, at some point we are going to have to pass these 12 spending bills, none of which have passed so far. The first two things are the most important and then you get into a variety of other things that used to be very important. Tom you live the oped that john mccain wrote for the washington post. You worked for Senate Budget back on the process was normal. Is there any chance to get the legislative process in september back to what senator mccain requested in that important essay . Steven i think senator mccain was right, can we get back to regular order . I think after what we are going to go through in the next 90 days, i think everyone will be ready to get back to regular order it right now we dont have a budget. We dont have any spending bills passed. We have a debt limit coming up. We dont even have the Defense Authorization act done yet in the middle of our severe global tensions. Quotes was our key the idea of the Defense Budget being the new quantitative easing. Having said that, is the defense does the pentagon come to the stimulus rescue . Steven in may but i have to tell you we are not going to get the big increase the president wanted for the next 90 days. Will get something that will keep defense spending flat compared to where it was. That is going to be disappointing. What im outlining is for President Trump about three of four major failures over major things he wanted to get done this year. Taxes are very uncertain defense increases will be delayed. He will have a big fight on spending cuts in domestic programs. You are going to have some real fights over things like, are we going to do infrastructure . Are we going to do new stimulus pizza far, it looks like he will be zero for four. Guy is time harvey to the debt story in mistake or an opportunity . Opportunity. An it should be put on the debt bill. The Freedom Caucus in the house has objected. People in the senate are going to take a different look at that. Well get the debt vote done. We will get the 8 billion for harvey done. The question is when will he get be next on what could 160 billion price tag. Guy do think the authorities have decided theyre going to park obamacare for now and focus on tax . Or are we going to have another look at obamacare in the near future . Steven we have a possibility of patch. Acare i have been in contact with people the hill that ice to work with. That i used to work with. People were optimistic about tax reform should have another look. They should have a talk with the staff at the Center Finance Committee that has to do the work it out a caution people. I think that tax reform at the best is going to be a next quarter that is First Quarter of 2018 issue. I dont think theres any chance to get it passed now. Tom steven bell, thank you so much. Us. Tor Carl Weinberg with he has been squirming with us. How do you frame this with your domestic colleagues the debate in washington . Chief u. S. Economist has marked down his expectations for infrastructure spending, he has pushed tax reform off for long time until ever it harvey, if we get 100 billion worth of by athat will be offset loss of economic activity. Theyll be knocking things down that has to be rebuilt. We are scaling back a little bit of trump effect that we put into our forecast. We never expected much and where getting less than we expected. Tom how susceptible is the United States to a shock right now, just the sucks the come along . Paralyzed,gress is it doesnt feel the Republican Party can agree amongst themselves on what has to be done about anything so we really are vulnerable. Anything that requires working together. Tom this is the republican from iowa, congress and steven king looking at this as a great big civil war. We will see that after attorney general sessions announcement after 11 00. The first one is harvey, the story here about the beginning of that huge story in texas. Unilever looking at consumer goods and great challenges. We saw some of that this morning. Well. Re synergies as stay with us. This is bloomberg. Tom bloomberg surveillance. Guy johnson in london and i am tom keene in new york. United technologies check yet cedar rapids, this is steeped in history low back to world war ii , the development of the p 17 mama technologies the b17 bomber technologies. Douglas, you just told me off the mic that boeing has a huge effect here. Take us on to a new boeing and what is the effect on that airplane from Rockwell Collins . Creates the acquisition the Worlds Largest aerospace supplier. Every highmargin component engine that you can think of so when comes the boeing who is the Rockwell Collins is the supplier of their avionics system which is a lucrative business, now that they have United Technologies behind them, clearly an effort to thwart any pricing pressure or competitive at the market pressures. Guy good morning. It is guy in london. Airbus trying to ramp the 350 right now. The critical airframes for both companies. They need the supply chain to function. Is this going to be a massive distraction . It could turn a be a bigger problem for boeing that could for airbus. Douglas theres a concern for the oems. Airbus came up recently said they want the supply base to remain focused on the task at hand. They are ramping up production. They are going to make a concerted effort to make sure they remain on track and improve Program Production rates Going Forward. It is a clear concern among the investor and supply base. Tom help us with ge aviation. They have to have a response. Look at beleaguered general to the new management and how this ge aviation respond . Douglas they have the task of maintaining a focus on their aerospace business. With the Competitive Position and that scared now they are going to be dwarfed by this United Technologies acquisition. It will behoove them to make some strategic effort here in the aerospace business. Guy this is in the first consolidation we are seeing in the pier 1. Where else do you see we could see some consolidation . Douglas up and down the supply chain as bone near continues as boeing air continues for improved pricing and increased production rates for the narrow bodies and aftermarket efforts that boeing is making in the space. You could continue to see consolidation. Spirit, although they backed away from some of their acquisition talk, they said for some time that they were looking to make a pretty sizable acquisition. I would not say it is off the table. That is boeings biggest supplier. Tom douglas, thank you so much. I really cant say enough about the endless articles and perspective of our aerospace people on Rockwell Collins and United Technologies. How about bloomberg tv . If you have a terminal, there it is. You can go back to a no charge and you can go back to an old chart and you can import it to your desk. Carl weinberg next. This is bloomberg. Guy this is bloomberg surveillance. Guy johnson in london. Tom keene in new york. Good morning, david. David good to be back. First day of school after labor day. Congress is back in session and a lot going on in washington. Tax reform. Gary cohn spoke with alix steel and saying Larry Summers is out today saying he will have none of that. On him with an exclusive interview. Tom greatly appreciate that. Then we do a single best chart it we have eight we could do. How on china . This is one of the surprises of the summer which is not only strong euro against weak dollar but strong renminbi where we really arts down a set of two standard deviations. What is the why here . Weiss china make it for a stronger chinese yuan why is china making for a stronger chinese yuan . It wants to make a yuan the strong currency. Tom are we seeing that . Arele are doing what they hoping. Carl nursing trade and rail traffic out of china we are seeing trade and rail traffic out of china. Seeing companies in europe gear up, the same goods going back to china so they are creating huge amounts of trade. That is evidence of the data and that is where world trade is growing and that is where we should be looking over the next leap forward. It is going to be chinabased, not g7 based. Guy you can find a map of the chinas silk road project. You can see it here, all of the linkages. Many of them running into africa and europe. How big a beneficiary is youre going to be. How ready is it . Bei know how ready it should in the know how ready investors should be which is this is huge. It has an additional 4 billion consumers along all those containers they go from china to europe dont have to go back empty and along the way they touch between the maritime in the land come altogether 4 billion additional consumers, 25 of world gdp. Investors having unique desktunity to invest in without having to invest in that part of the world. Carl weinberg, thank you so much. Michael mckee joining me today. David wesson was just talking about school session. Let me do a foreignexchange here. Yen stronger but really not where i expected. I expected a 108 handle. 109. 30, start again not all that much. Yenwon churning. A 119 on europe. Much news out of washington pierced stay with us across bloomberg. From new york, this is bloomberg. Wargames. Ambassador nikki haley six sanctions against north korea as trump supports billions of dollars in weapon sales to south korea. Commerce returns to work facing a debt ceiling and potential Government Shutdown. Buysg, United Technologies Rockwell Collins for 23 billion, the biggest deal in narrow space history also created a behemoth that could outline jetliners from to detail. David i am david west and alongside alix steel. David. Elcome back, he is awake, the eyes are big. The is where we stack up on september 5, it is a couple of hours into the open here in the u. S. S p picking up a little bit of steam. Zero dollar flat across the board but it is a weaker dollar story that is emerging in the markets