Transcripts For BLOOMBERG Bloomberg Surveillance 20170912

Good morning, im Francine Lacqua in london. It is a very packed show in terms of data flow, this is what i am looking at. Lets put everything into context with Asset Classes. Overall we are seeing quite a lot of equities higher after we saw the s p 500 rise to a record, treasuries tumbling after we had less damage than originally feared from Hurricane Irma which supports a case for gradually improving economy. This is a picture for the stoxx of thatthe back hurricane we are also looking at crude oil and this is one to look at, europound and pounddollar. Heres sebastian salek. Sebastian the Un Security Council has approved a new sanctions aimed at punishing north korea. The u. S. Dropped key demands to win support from russia and. Hina wil it seeks to give countries the freeze to freeze cargo ships who dont agree to inspection. Today we are intending to take the future of the north Korean Nuclear program out of the hands of its outlaw regime. We are done trying to prod the regime to do the right thing. We are now acting to stop it from having the ability to continue doing the wrong thing. Governmentsk. Plans to leave the European Union have cleared a major hurdle, lawmakers allowed to continue progress through parliament by 326 votes to 290 after the Prime Minister promised to describes concerns before they have to vote again and to consider allowing more time for debate. U. S. , the people of florida are assessing the damage of the second major hurricane in 15 days. The state avoided the worst predictions of destruction, but some 2. 3 Million People, more than half the states population, are without services. Norways Prime Minister has become the countrys first conservative party leader in more than three decades to be reelected. Of lawmakers who supported her lost seats and the labour party had its worst result since 2001. And the Federal Reserve chair janet yellen met with Donald Trumps dollar and advisor yvonne in july advisor ivanka in july. Commentas declined to on whether she would like to stay in the job and most economists expect them to pick some of the else. Global news, 24 hours a day, powered by over 2700 journalists and analysts in more than 120 countries. Im sebastian salek, this is bloomberg. Francine European Equity markets are higher this morning for asia and the u. S. The s p 500 jumped to the most since april, hitting an alltime happenedr less damage then was originally feared. Where bringing in the chief Investment Officer at london you andgroup, thank good morning. Is volatility back . Unfortunately not, that is the problem. Uncertainty is back, and it has been with us for many months, political uncertainty, geopolitical uncertainty. Unfortunately because of the way of the structure of the market it is mostly done by algorithms and systematic traders who have difficulty assessing, pricing, and managing risks. How do you put into the model the potential of incredibly impactful yield. You have a situation where markets are exacerbating the trend, and volatility is structurally not going to come back. When you see spikes of volatility, he will be much more sediment people expect. Instead of markets gradually repricing, what you will see is that all of the models are doing the same thing at the same time, which will probably mean that it will catch us offguard and one day they will be marked down 60 basis points. Francine do you agree with that . Correction . A we do agree with that. There are many unknowns that will lead to a higher fall environment. We have the sterlingbrexit backdrop and there are idiosyncratic risks around the world which suggest that we are going to get those periodic market but the way the has been relatively resilient given the noise we have had from north korea, the hurricanes as well, it suggests that these spikes are going to be sporadic. Francine does it change in fed policy changes . How much does this seem to be normalized for the market to start resuming its primary function . Its a good point. For many years you have a situation where the real economy was underperforming and now we are in a situation where the real economy is doing ok, businesses are increasing, net exports are stable, and we could well see Financial Markets underperforming. The interesting thing is not only when rates are increased but also when the size of the Balance Sheet of the fed really does not increase but does so meaningfully. When you have all these safety nets that come into the market pointsktaking at that i think we will see higher volatility than potentially we will see a situation where the market will go back to the state where they should have been, ande fundamentals matter that has really never been a good scenario. Francine you could argue that it is the currencies that has taken the brunt of do politics moves or uneasiness. Will that change, or is it replacing the vix . Currency is always the most and weform to look at are seeing it today. I suspect that will change again. Limited anding is the market prefers to work in the currency space. Francine how do you trade volatility . How do you trade risk . Being, is ithuman more difficult to trade risk now than it was 10 years ago . A lot more difficult, because you are in a minority. Those of us that follow fundamentals make sense are a minority. You have a large amount of that can onlyding adjust risks once it is measurable. A lot of the risks we have at this current juncture are by definition on manageable. How do you price that . Said policy, Nuclear Missile development, hurricane impact. Important to the numbers and because of that we have to review the overall rate level that we should be running and run the risk on days like today to not play the game. The dollar has been losing a lot of value and that has undefeated the u. S. Market. I would argue that the dollar is probably closer against the euro and sterling and that will have impact. It will become less cyclical and have less use because when that shift in risk happens it will be much more disquieting. Francine we will get back to you. Thank you for staying with us. Lets get straight to the Bloomberg Business flash. Sebastian volkswagen has announced sweeping plans to build electric versions of all 300 cars in the lineup. The comments, the Worlds Largest automaker accelerates the shift away from Combustion Engines and tries to draw a line under the emissions scandal. Volkswagen has learned from the past, and over the past two what, we have understood people understand by sustaining mobility, and the roadmap that we have announced is a self commitment going forward. Sebastian a former Deutsche Bank head of subprime trading has been accused of to rotting traders. The u. S. Justice departments civil lawsuit says he misled investors about the quality of loans resulting in hundreds of millions of dollars in losses. The lawyer says he categorically denies wrongdoing. Standard chartered is being called in by regulators to discuss allegations of bribery after an Indonesian Energy company. The Financial Conduct Authority is meeting with Standard Chartered this week on the issue. Spokespeople declined to comment. Apple holds its highly anticipated new Product Launch today. The ceo is expected to unveil three phones as the Company Marks the 10th anniversary of its iconic iphone. Bloomberg will bring you special coverage of the announcement. Francine thank you. The United Nations Security Council has improved new sanctions aimed at punishing north korea for its latest missile and nuclear test after the u. S. Dropped key demands to win support from russia and china. The resolution seeks to slash import and give countries the ability to freeze assets of cargo ships if operators dont agree to inspections. Totoday, we are attempting take the future of the north Korean Nuclear program out of the hands of its out regime. We are done trying to prod the regime to do the right thing. To stop itacting from having the ability to continue doing the wrong thing. Francine still with us, the chief Investment Officer at London Capital, and the director of g10 fx strategy at merrill lynch. I will talk to you about the distortion in the currency market but first of all, thank you to our viewers who sent in questions. We have a question which i think you kind of answered but i want to know more about what you think, if humans do a better job than machines in assessing risk. Its a good question. I think machines will be a lot because they will go away from behavioral biases and cognitive distortion. Until we get that level of sophistication, i think that humans still have an edge because they can assess the risk and probability distribution that is easily quantifiable. I think the distortions in the currency market are a development over the last five years as a Political Risk premium you can even see it through norway with the reelection of the right government. It is very difficult to quantify how much of those distortions matter from day to day. On given the brexit vote it is very difficult to quantify. Metrics,of the broader dollaryen remains on bellwether. Francine what about euroyen . Is athink euroyen battle between the ecb and the bank of japan, the battle towards normalization and yield curve control. Francine what is your take when you look at dollar dynamics . Is that dictated to by the fed or the Trump Administration . If you look at the beginning of the year, there was the battle of trump traders, high yields, longer dollar acrosstheboard. As the disappointment of lack of followthrough in terms of policy saw those unwind, and we are moving to a point where it focuses on Balance Sheet discussion combined with whether the fed is in any mood to hike rates. I think we are moving to a more fundamentally driven market. Francine how much do you look at currencies to make Investment Decisions overall . They do matter, especially when they overshoot. Currency implications have important exposure and we are beginning to feel a little more comfortable in the thinking that in terms of how much exposure we have had for exporters and champions in but obviously the currency has not been going in that favor. Because of the fact that currency is the only area where you see pressure, currencies will develop quickly more than other Asset Classes and we will have to monitor. Francine thank you both. They stay with us. We will be talking about risk and how to deal with north korea. Up next, following the polls and fighting of critics, Emmanuel Macron will he be able to stand up to protests against his landmark labor reforms . This is bloomberg. Francine this is bloomberg surveillance. Emmanuel macron is facing the first major street protest of his leadership against his landmark labor reform. The unions has 180 demonstrations are planned across lands as they target commuter trains and oil refineries. The nations president wont be there to see them, he is traveling to the caribbean territories that have been devastated by Hurricane Irma. Caroline connan has the latest on the protest. I guess it a be more news that there are no protests, so how seriously should we be taking this backlash . The expectations are quite low. The second Biggest Union they have called for his striking so if turnout is bigger than expected, more than 200,000 people, which is the target, that will be considered a success for the protesters. Demonstrations are expected to take place or hours from now, around 2 00 p. M. Wrench time. But so far the disruption is mainly from trucks blocking parts of the shelve trumps presidency elysees of the champs elysees. It is really the turnout and the impact that his comments may have had on some of those who were not necessarily planning it. He said opponents of the labor reform were the the week, the lazy, and the extreme this may have upset some people who were not planning to participate. Francine if macron passes the test, will this be enough to help his popularity in the polls . He has a very long way to go. He has made a few faux pas over the seven nations, miscommunications, being considered arrogant, he is more and more considered out of touch for parts of the french population. She is extremely popular in the Business Community and the Financial Community but the discontent has been spreading to some parts of the population. The finance minister was saying on the radar this morning that he is asking the french for a cultural revolution and as you know this is not something easy. Francine it certainly isnt. For most of europe, to be fair. Caroline, great work on the ground. Lets bring in the chief Investment Officer at London Capital group and they had of fx strategy at merrill lynch. On thisb policy depend Franco German access and the success of macro policy . The policy for as long as i cannot member has been emphasis on structural reform and that wont change. They need to take it in terms of structural reform and governments need to continue the structural reform agenda will stop it will just be a Consistent Team that we have seen for many years. Francine what if france doesnt push the reforms through . This has happened before where residents came through with great intentions, but were landlocked. It is not good news, obviously. And is going to be interesting to see how the reforms potentially will clash with merkels program. Obviously she is laying low because she has very shortterm concerns of her own. But ultimately i think france has the chance to do it would reallyry good example to lead in terms of structural reform. They have been mainly in the they are running out of runway and need to do something to cause attention. But in terms of product activity, i think that will be fantastic. Rallying atould be the time of reasonable situations as opposed francine when does europe he come to expensive for the ecb, or for the exporters . At the moment, what we have is lip service to the rise in the euro. Growth is still strong. We have not heard a huge amount from the community there are metrics that it is the sweet spot in terms of valuation. I think we are a long way away obviously it will start to feed into the ecb but at the moment the Growth Profile looks relatively robust. Francine thank you both. Stay with us. Up next, the latest u. K. Inflation data ahead of the Rate Decision on thursday. We are looking at cable, europound, is the one to watch out for. I think it was 12 30 at night, Theresa Mays Brexit law passed a major hurdle, but regulators demanded some rewriting. This is bloomberg. Francine you are watching bloomberg surveillance. Lets get straight to the first word news with sebastian salek. Sebastian United Nations Security Council has approved new sanctions aimed at punishing north korea for the latest missile test after the u. S. Dropped key demands to win support from russia and china. The resolution seeks to slash imports of petroleum products, band tech products, and give countries the ability to freeze cargo ships who dont agree to inspection. Today, we are attempting to take the future of the north Korean Nuclear program out of the hands of its outlaw regime. We are done trying to prod the regime to do the right thing. We are now acting to stop it from having the ability to continue doing the wrong thing. Governmenthe u. K. Plans to get out of the European Union have cleared a major hurdle. Lawmakers agreed to allow the withdrawal bill to continue requirements but came after the Prime Minister promised to discuss concerns before they have to vote again and to consider allowing more time for the next phase of debates. In the u. S. , the people of florida are assessing the damage of the second major hurricane in just 15 days. Estate avoided the worst predictions of destruction after it weakened to a tropical storm, but more than half the states population are without service last night. And the Federal Reserve chair janet yellen met with Donald Trumps daughter in july, according to the public schedule. Eight days later the president told the wall street journal that yellen was in the running for a second term at the helm. Yellen has declined to comment on whether she would like to stay in the job, the most economists expect the president to pick somebody else. Global news, 24 hours a day, powered by over 2700 journalists and analysts in more than 120 countries. Salek, this is bloomberg. Francine thank you. We are going to u. K. Inflation data, accelerating, pushing pretty close to 1 after the biggest surgeon called prices in almost we decades. This number may put fresh pressure on the bank of england policymakers who are already grappling with price growth low 2 . They have been split in recent months with two members pushing to hike from the record low of 0. 25 . Lets get back to our guests, the chief Investment Officer at London Capital group, and g10 fx strategy at merrill lynch. This is a nightmare for the boe. Strongerthanexpected, absolutely. Who we thinkrs will vote for a rate hike this week and the key outlier will probably be the conundrum that faces the u. K. Is slowing growth. We think the risks are the tolerance for accepting above tolerant inflation. We have recalibration over the past 48 hours and heading into the mpc meeting i think the market will be expecting a hawkish tilt. Francine can they hike this year . I do think so. There is good inflation and bad inflation, this is bad inflation , and your respective of the fact that in a parallel universe that would make the models say it is time to hike, nobody hopefully in their right state increasingld risk the pressure on consumers at a time when we have brexit uncertainty. It makes life more difficult and we dont think it is translating into hawkish stance. Francine looking at pound, what happens to pound for now . We still think it will head into Political Risk. What i would highlight is that there is symmetry in Sterling Price action. The market has been reluctant to price in rate cuts in reaction to the slowdown in growth momentum. This week we have had a retrenchment and recalibration and expectations have been supported for sterling. A lot depends on the progress of the brexit will obviously we have quite a lot coming up that might be the key drivers over the nearterm. Francine what is the one thing that will move the currency for now . If its brexit negotiations, or will it just be inflation hard data . Obviously this is not the base case, but a total breakdown in talks is not going to be conducive for the sterling backdrop, given this large overseas investment. Is that we key continue to see a relatively robust macroeconomic backdrop , i if the npc moves through think that would be conducive to the nearterm outlook. Francine do you like anything u. K. At the moment . Does it look attractive, or is there anything you like . Not necessarily. The one area we continue to be instructive about is the financial bonds of the u. K. Entities. But other than that u. K. And thisare extensive is something that should make us cause for breath and brings us back to 2011 where you really had a lot of pain for u. K. Workers in terms of real wages. Where weay this is not have a lot of conviction. It is watered down, kicking the you wouldlow probably see sterling reacting on the back of that, you would probably see some deflation pressures easing. Francine what happens to the pound . Ultimately if wes be a further kicking all see progress of tony blair and potential eu immigration we have been more broadly constructed in the mediumterm and we think it is ultimately a deep transition. Francine gentlemen, thank you so much. Up next, vw revs up for an electric future. We hear from the ceo about his sleeping, multibilliondollar, 300 model plan. This is bloomberg. Francine these are live pictures from the frankfurt motor show, where vw is unveiling its new suv. Models, vwews of new also saying in is putting full force into electric cars. Volkswagen has announced plans to build electric versions of all 300 models in the lineup. Said to the ceo, and who said they will spend 20 billion euros to bring it to the market by 2030, and invest another 50 billion on the batteries needed to power the cars. Volkswagen is very robust, financially speaking. Worry,t really have to we have the necessary implements of course wey are making investments every , we, investing in profits did it in the past and will do it in the future and make the money we need for those investments. Do you still feel the need to sell off certain units, if theres talk about the possibility of a sale of ducati, maybe an ipo . Is that all Still Necessary for this plan . Well, i have been reading about this in the newspaper and sometimes i dont really understand the ongoing this russian. One of my most important tasks is to think about our Product Portfolio on an ongoing basis and make sure they are properly positioned for the future. And ifrelaxed about it and when decisions need to be taken in terms of an acquisition or sale, then we will talk about it openly. You didnt say today that you plan on an electrified version of each of the 300 or so models in your portfolio. Does that mean we will see an electric ducati monster, or even a superbike . Well, you have to ask ducati. But to answer your question, looks like an has learned from the past, and over the past two years we have understood what people understand by sustainable mobility and this roadmap we have announced is a self commitment and is going to be the plan going forward. You do have a goal for yourself of 2025, to have 80 electrified vehicles. Be thee going to infrastructure . In germany i dont see supercharger stations all over the place. Even in the u. S. , outside major urban areas, theres a lot of work to be done. Well, yes, you are right. Its a legitimate question. Germany. Is not just germany, we dont have the and maybeastructure we can say that the offering is bigger than the existing infrastructure, so over the next few years we have to strike a balance but there are other countries in the world and even in europe that have a lot more charging stations than germany. We are a global company, we want to offer to the entire world and that is what we will do. Are their countries or regions that you think are further ahead in this regard . For example, in china, did you see quicker Movement Toward that kind of electrified infrastructure . Well, that seems to be the case, as things stand at the moment. If the right positions are taken, we are taking note of that. We are preparing for the situation. Then we are going to offer electrified products in china when the time is right. Francine still with us, the chief Investment Officer at London Capital group. I wonder why the car for the futures will be something to invest in, or some of the other carmakers, or if you look at a facebook or amazon to be the carmakers of tomorrow. It depends on the time frame. In the shortterm you have to look at manufacturers, the u. S. In late cycle recovery which is showing weakness, and most importantly auto sales in the and that is really evidence that the consumer has done well but is running out of steam. In europe, Car Manufacturers will do well but the recovery is there and the periphery story is a positive one. Longerterm you have to look at the model and that will be a model where less cars will be there because they will be more ring of infrastructure anybody who has this technological advantage will see Car Manufacturers becoming Technology Companies are the other way around because it will be a smaller market with less , so in the short term we are still positive, longterm meeting three to five years historict will the consolidation and disruption. Francine thank you so much. Up next, apple gets ready to unveil the new iphone, but will it be enough to take a bite out of the competition . This is bloomberg. Francine this is bloomberg surveillance. We are getting breaking news for the pound, the highest we have seen in the year after u. K. Inflation accelerated or than 3 ecast, pushing to close to after the biggest surge in prices in three decades. Now lets get straight to the Bloomberg Business flash with sebastian salek. Sebastian the former Deutsche Bank head of subprime trading is the accused of distorting investors before the financial crisis. The u. S. Justice Department Civil lawsuit alleges he misled investors about the quality of loans, underlying 1. 4 billion. His lawyer says he categorically denies wrongdoing. Standard chartered has been called in by the u. K. Market regulators to discuss allegations of bribery. According to a person with knowledge of the plan, Financial Conduct Authoritys are meeting with Standard Chartered on the issues. Spokespeople declined to comment. A Pharmaceutical Company has sold its contraceptive business as the Worlds Largest maker of generic drugs looks to reduce debt. Since yesterday, shares soared after the end of a sevenmonth search for a new leader. And thats the Bloomberg Business flash. Thecine 10 years after first one, the ceo tim cook is expected to unveil three new iphones, including the premium iphone 10. The expectations surrounding the iconic gadgets is a reminder of how much it relies on smartphone, which still represents that 63 of sales. Atning us now is a Partner Special envoy. One of my favorite guests, thank you for coming in. Are youexecutives concerned that the trajectory that apple is taking is not sustainable . I think the trajectory for hardware dependent is not on the right path but i think what is clearlyin our favor is they continue to market and launch new hardware devices, but at the same time the Services Business is now 20 of the and it is selling that may be the disruptor you are thinking about, whether they can keep things for very long. Francine that is one of the main things people want to know about. Talk to me about the apple 10, it is expensive. Double the seven. They are going for expensive components, the are edge to edge display, facial recognition, augmented reality are virtualreality it is not inexpensive to will the phone and their margins are still pretty tight, but they are going very highend. That is the 10th anniversary of the iphone, they stole some many billions so they will probably make a statement and at the same time come up with the iphone eight and maybe this is a marquee statement but it is hugely expensive. Francine how do you measure success . We will be interesting to see what the stock does today. And inear alltime high, wonder if people will be jittery ,bout higherend phones although it has had good reception in the past. Generally markets are all wish about the fact that more people continue to use these apple services. Francine i like having you want because you always give me quirky trends. What can you see on the horizon that has real potential of working . I dont know what might have a potential but they had a foray in health, a year or two years ago where it was a big part and they are thinking they will help people think about wellness, heart rate, activity through the watch but also through phone and hightech devices. One of the other things people are expecting them to launch is there competitor to google home, which will be a home speaker. Perhaps that will help people with wellness. To be honest, i dont know what new devices will work for apple. Phone,t it right on the and it sells pretty well, and all they need our new access points. They just need to keep getting more and more people. Francine who is the main competitor . I know they are different faces, but heres the but who is the challenger . From a Technology Point of view, we think about earlystage and what started as a single function company, they were selling personal computers and had investments in autonomous vehicles, they are looking into ai, a lot of artificial intelligence. I think competitors are your big others like alphabet, google, facebook. I think everybody is trying to compete for personal access to ones own environment, whether it is work or home, and that is what will get more services and data and the ability to provide a more enriching experience. Francine you are a special envoy to fin tech. Are you worried about brexit . Brexit is obviously a and we need to think about how we will think about it. For the industry i think the biggest threat is the potential threat to talent. What worries me is not necessarily the policy, because comey to bullish or optimistic, i believe that policymakers in the government and ministers are saying they will continue to support highly skilled talent to they wanted to continue to be an attractive place. What worries me is the perception, that people might think it doesnt look welcoming right now. Maybe i will consider going somewhere else. If we can get around that i have no doubt it will be the sin tech capital of the world. Francine eileen burbage. Bloomberg will bring you special coverage of the apple iphone event from 6 p. M. U. K. Time. Dont miss it. Bloomberg surveillance continues in the next hour. Tom keene joins me with an update on irma. The s p at a record high last night, what does that mean for european stocks . That is what we will be discussing next. 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. Francine risk on returns, european equities climb after the s p 500 its an alltime high. Markets breathe a sigh of relief after irma does less damage than expected. On the brexit front, theresa mays eu repeal in its first hurdle. An electric future, what does the industry view from other auto giants, we speak to toyota. I am Francine Lacqua in london. Tom keene is in new york. Well talk regulation, industry, and the calls on financial repression. Tom what a stock market yesterday. A sigh of relief after the hurricane missing the bigger urban areas of florida. Extraordinary that move we saw in equities yesterday. Francine it is amazing. In the u. K. , the pound is up significantly after higherthanexpected inflation data. Lets get to first word news. Taylor we are starting with the hurricane. It was that but could have been a lot worse. Florida is still assessing the damage caused by Hurricane Irma. 12 Million People, or than half the states population, without power. Because of damage in the florida keys, the 10,000 people who rode out the storm there may have to be evacuated. Still it was not as devastating as beer. Governor rick scott said he thought he would see more instruction. The u. S. Had to back off of several divans to win support from china and russia on new sanctions for north korea. Measures, a cut in imports to her Friend Petroleum products and a ban on textile exports. The u. S. Backed off of the demand for a freeze of kims assets. Theresa mays brexit law cleared a hurdle. Mays government had to discuss critics concerns before they have to vote again. The bill is controversial because it lets ministers change legislation without false for me in parliament. In norway, the Prime Minister has become the countrys first conservative party leader to win reelection in more than 30 years. Form al still have to Coalition Government with three other factions. 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. Equities, bonds, currencies, commodities. We will do the data check, then the bloomberg, then a sterling chart. Sterling explodes stronger this morning. Euro a little weaker. Off of the great day yesterday. I put the doubt in there with the vix at the 10 level. A nine vix would be a huge deal. We are not there. Euroyen shows stronger euro over weaker yen after the last few days. Francine, i know you are looking at sterling. Francine that is definitely left, right, and center. This is after u. K. Inflation accelerated, reaching 2. 9 . As soon as it hits 3 , mark carney has to explain why it is one percentage point above their target. European equities heading for the longest winning streak in five months nine months. Irma andfter hurricane what we saw in the u. S. Yesterday. Tom how do you look at the great market and how do you look at it with how far we are right now . This is the bloomberg, a vanilla logged chart with the old 200 day moving average. I usually dont do this. It works there. There is the move off of the old 200 day moving average. Here to 2013, we are going back 15. Lets zero in like this. This is what you do on a trading desk. There is is same the same equivalent move when it was more extended than it is not. In 2009, the first move off the bottom, the lehman lows. Where are we now in 2017 . We are not that extended. Francine i hope no one has motion sickness. This is a simple chart comparing u. K. Inflation to wage growth. Inflation growth in the u. K. Means it will be more difficult for mark carney to dance around the fact that two months ago he may be hiking according to him. This is the type of inflation that is because of weaker pound. If you think about it, boe policymakers who are already grappling with price growth meeting other targets, our meeting thursday. They are expected to push for an Interest Rate hike. Inflation growth is going higher and inflation wage growth is going nowhere. Tom francine identifying that large win32 level. This is sterling at 128 in august. Here is the 130 level, which was newsmaking itself. Look at this leg up with the inflation news out of england. This is 1. 3273. Francine remarkable chart. It is risk on for the markets after the weakening of storm irma. European equities are heading for the longest winning streak in five months. Allianzus for the hour, Global Investors chief officer, Andreas Utermann. Talk to us about what is most distorted in the market now. The bond markets continue to be most distorted. We continue to see u. K. Inflation heading up. There is an upward pressure on inflation rates all over the world. The bond markets are still not responding and appear stressed. Francine we are looking at a record high on the s p 500. Part of the narrative is markets are functioning differently because you have outdoor those that are not able to price Nuclear Threats coming from tweets or north korea. Is that true . I am not sure anyone can price Nuclear Threats. I would not know how to start. I dont think it has to do with it isthms or etfs, but what we have been talking about for 10 years, which is quantitative easing and the politics of financial depression, which we have seen in the u. K. With real wage growth under pressure and negative Interest Rates. The consequence of that is there is still no other way to go then take risk. Tom within the equity benefit is the idea of higher inflation have seen in the u. K. And greater Revenue Growth is a general statement across any nation or gdp. His alliance modeling and better Revenue Growth . We are. We started to see it in china since 2016. We expect a reasonably good earnings season in the u. S. , and we have seen good surprises in europe. Overall inflation and higher Earnings Growth are often correlated. There is a limit to which equity markets like inflation, and that is typically around 4 to 4. 5 . We are not merely there. In the initial phases, it will be picked up as positive by equity markets. In particular if the yield curve stays low. Tom Great Charity event for september 11, i was there with bloombergs and the traders, and what kept coming up was United Technologies rockwell collins, another merger. We are getting to the kind of mergers you see with higher valuations and higher premiums. Is that the theme next year . We are seeing more of a merger and transaction style we saw five years ago and 10 years ago . I think that is quite likely. A promising way to improve the earnings profile of an organization, particularly because you can look at the opportunities a merger produces from the revenues and costs side. That is attractive. Look at all the m a activity that has occurred in asset management. I expect to see that continue. Francine the continue because of fees or because of regulation pressure . I think it is regulation, which increases the cost base of companies. It is the increased bucks the of distribution and the competition from etfs, which put a huge pressure on margins. Francine we will talk at length about this. Thank you so much, Andreas Utermann of alliance stays with us. Schwartz, 10 30 a. M. In london. This is bloomberg. Taylor this is bloomberg surveillance. Lets get to bloombergs business flash. It is apples most highly anticipated Product Launch in years. Tim cook will unveil three new Iphone Models today, one is expected to be a Premium Model expected to cost over 1000. Apple still relies on the iphone for over two thirds of its revenue. Stay with bloomberg tv and radio for special coverage of the 1 00 from cupertino at p. M. In new york. Selling off another asset to reduce debt. They will get 1. 1 billion for their contraceptive device business. Teva as more than 30 billion in debt. Volkswagen has announced plans to build electric versions of all 300 models in its lineup. They promise to bring electric bys to model by to market 2030. Looks like has learned what drug in has learned from the past volkswagen has learned from the past. What we have learned is sustainable mobility, and this roadmap we have announced is a self commitment. They spoke with matt miller at the frankfurt auto show. Tom thanks so much. This is an important conversation, we hope you are getting value on our conversation on nick at. How are you going to compensate the brainpower of global wall street . Andreas utermann is wellequipped to discuss this, the chief executive officer of allianz Global Investors. The german allianz has to speak to the german Deutsche Bank. How does that conversation go . Andreas it goes the same way with Deutsche Bank thwith every other Research Provider on the street. We said we would pay for research in hard dollars and go to a clean execution fee model in europe and the conversation is getting value for money on wall street and other Research Providers. That is what our shareholders like. Tom what does hard dollars me . Youre not doing it by commission or transaction, are you doing it by syllable . Andreas that would be very simplistic. I hope that is not the way we look at the value of research. It is doing with what they can bring to the table. World, much analysis, Balance Sheet analysis, is already freely available. It is looking for the extra, the insights into a companys strategy, a particular sector, and Analysts Research at a particular house might have an insightful view. We expect regular feedback on that silly can feedback to the Research Providers and negotiate the appropriate fee. Thes not very simple at moment to negotiate these rates in payments because there is no agreement on what constituents value. Francine who are the winners and losers on this . On the sell side, can bigger firms take more of a cut . Are the the winner clients. They will see execution costs reduced. If you will, the losers are the investment banks that will have to ration how much they invest in research departments, as well as Portfolio Managers will have to take it on their own p l. You might argue the richness of Research Available in a particular market will suffer. Time will tell. Francine on the equity side, what kind of price are we settling in . Is it too soon to tell . Andreas it is too soon to tell. Negotiations will start at the last possible moment when you have developed negotiations, that is best difficult negotiations, that is always the case. Tom we are friends here. You have to make tough decisions. Are there going to be layoffs on the sell side . On aone has a paycheck given friday to pay these guys a lot of money. Are there going to be layoffs on the sell side . Andreas what i can tell, let me give you two insights. The first thing we have done in our firm is to give our negotiators a clear maximum budget they cannot exceed. We know that is what we are going to get the most. Tom you have to go to fewer players. That is where this is heading. Andreas that is most likely one of the outcomes. The other point is it does not necessarily lead to layoffs. If you look at 2008 and 2009 when equity markets collapsed and therefore the revenues of our firm collapsed. We had a tough choice to make, layoff people or cut compensation. I surveyed my senior team, and they were in favor of cutting compensation in the view that this was likely to be a cyclical and not structural phenomenon. This is what you call that investment banks are going to have to make. Is this cyclical or not . Tough to say. Francine you have said all dishonest and regulation will have a part to play in consolidation, but most consolidation is due to passive person of active. How much does this exacerbate that . Andreas i think it is massive. I think the cost of our compliance and legal department, a Risk Department have risen manyfold over the past five years. I dont know exactly the number. I know that is the biggest area of fte growth over the past few years. The number of regulatory exposures we have is just massive. A lot of smaller players, including smaller hedge funds are taking the view is no longer profitable for them to invest in those type of resources given the margins expect. Francine what will Global Investors be suggesting we do with our money . Andreas they wont be advising me. Francine there you go. I hope you get this out on our digital video and audio products. We will continue our discussion through the hour. Coming up later today, the finance minister of mexico. This is extremely welltimed. There will be no walls to this interview. That is in the 3 00 hour. Stay with us. This is bloomberg. Lacquae i am francine in london. Tom keene in new york. The ecb prepares the wind down its ultra, the stimulus. One must understand the process of normalization, the process is gradual. Utermann, allianz Global Investors ceo and cio. As far as i can remember, we were interviewing you while we were talking about our natural repressions. Where do you see successes in the markets . Andreas i mentioned earlier the bond market. Notink the markets are repricing risk. It is quite interesting. We had an initial rise in the yield curve a few weeks back. Then the Central Banks came in clearly, the fed and the ecb saying not so fast. We dont want in on orderly unraveling unorderly unraveling of our curve. Francine is there too much powder out there . Is this the right time to take risk . Andreas you know, we have seen the charts. Equities are at an alltime high. Bond yields are very low or negative. Is this the time to take risk . No. Is this the time to take some risk if you havent taken some already . It is because this is what you need to do today. If you are already long the market, the equity market, would you want to add at this point, probably not. It will depend on where you are today. Tom i know we are talking Central Banks. I was stunned as mark carney did the ballet on inflation. Here theing was not last time he talked about this. What is he going to do . Andreas i think he is going to explain the inflation rate away and point towards the underlying inflation. Particularly, i dont think he wants sterling to rise against the euro. We talked about table. Against the euro, sterling has not been strong over the last three or four months. I think that is dollar weakness more than sterling strength. You dont want this to turn into an allout trade for sterling strength. That would make this all the more difficult. Tom how big of a deal is the next boe meeting . Francine it is thursday. I was looking at research before the inflation figure, and most were expecting them to vote for a hike. I think this might actually change, and we might get mccafferty voting and someone else. Andreas look at your chart, we had Inflation Higher and nothing happened. Francine we will be back with Andreas Utermann. More on brexit. This is bloomberg. Tom bloomberg surveillance. London, a busynd day, record highs on the doubt. Ian bremmer will be joining us in the next hour. We are looking forward to speaking to dr. Bremmer. Right now, your news update. Here is taylor riggs. Taylor florida will be feeling the aftereffects of Hurricane Irma for weeks to come. More than 12 Million People do not have power. Millions have been displaced. The florida keys were so heavily damaged that the 10,000 people who stayed during the storm may have to be evacuated. Governor rick scott took an aerial to her and said he thought he would seek more damage across florida. The Un Security Council has unanimously voted to impose more sanctions on north korea. The new penalties do not go as far as the u. S. Wanted. The Trump Administration dropped demands for an oil embargo and a freeze for assets on kim jongun. That cleared the way for russia and china to back the new sanctions. British Prime Minister theresa may asked President Trump last week to interview in a Court Dispute between boeing and lombardia. Mays government relies on north ireland for votes. President trump is planning an aggressive roadshow to sell the idea of tax overhaul. He will travel to as many as 13 states in the next seven weeks. The white house is trying to avoid repeating the Communications Failure of its attempts to repeal obamacare. In norway, Prime Minister ernest gver has become erna solber has become the first conservative party leader to win reelection in over 30 years. She will still have to form a Coalition Government with three other factions. 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. Francine thank you so much. Showyears frankfurt motor focuses on electric vehicles as german automakers push into electricity following the recent diesel scandal. Toyota is spending 20 billion euros by 2030 to roll out electric automobiles. They are showcasing their latest hybrid model. Matt miller is in frankfurt. Congratulations on a great vw ceo interview. Now youre talking to the toyota ceo for europe. That is right. Johan van zyl is with us. Seachangepowerful towards electrified cars and hybrid automobiles. Of course, toyota has a massive head start on everybody else. Do you expect to gain market share in europe . Johan we have been in the hybrid business since years ago, and we have been very good in the first six months. We grew faster than the market. Continuing trend into the future. Said we wille further enhance our strengths by adding more in the states where he is to seeing as many toyotas as we see ford and chevy. They are ubiquitous. In europe, you dont have the same presence compared to the german carmakers. Will you be able to significantly boost your presence in europe . Johan in europe, we see ourselves as a challenger. Our drive in europe is not volume, but in developing Sustainable Operations and this is a competitive market. We are competing in the background of so Many National brands in various countries, but we would like to see growth in our business in a sustainable way. Also through differentiating herself with hybrids, ourselves with hybrids, we are seeing success. Toyota has experiment it with a number of alternative powertrains, what is the way forward when it comes to ditching the internal Combustion Engine . Johan ditching the internal Combustion Engine in terms of the future is hard to predict what will happen. By theall dictated technology that will be developed. On our platform we will be able vehicles, electric vehicles, and we have fuelcell vehicles. We believe the various technical applications will be determined whether usage of our customers. We will continue to develop our products. A full range will be offered. Inhow optimistic are you talking to governments and the eu about building some electrical infrastructure . Hybrid, or a plugin fully electric vehicle, you can feel great about yourself, but there is nowhere to charge it until you get home. The infrastructure needs to be developed. It cannot just be developed by industry. It is a cooperation between government, industry, energy suppliers. Everybody will have to Work Together to establish the infrastructure for this. The real acceleration of selling. Battery electric vehicles will development and the pace of development of charging and recharging facilities and speed of charging, and the infrastructure itself. I see a new land cruiser over there. That would be my choice, but i am too old to be your core customer, your target customer. When you look at the little cars, can you make the same margins as you do on a land cruiser . Can electric little cars make the same margins as gasoline little cars . Johan when you produce new technologies, to offset the development initially, so you have to invest initially, so the margins will be lower on those cars then established technologies. That is just the fact of economics. Initially, there will be quite the investment required for industry. Our landve seen with cruiser, its application, the Engine Technology is a euro 6. 2 diesel, so we still believe in that application. Itcan use technology to make environmentally friendly and recover some of the costs. Will there be an electric land cruiser . Well, of course, it is possible. Anything is possible. We will have to see how the market reacts. Not anytime soon. Diesel has a lot of torque. I appreciate that. Emea president here. Automaker is talking about the billions of dollars they are investing to change powertrains over to electric. Of course, toyota did it first with the prius. Tom it will be interesting to see if the audience, the public wants electric vehicles in five or 10 years. We will be having a most important discussion on the votes in britain, the brexit vote, Prime Minister made. You watch us in the morning, and when you get into the car, bloomberg daybreak, coasttocoast, all across america. Stay with us. Tom good morning, everyone. Bloomberg surveillance. Tim ross with a killer article this morning across bloomberg. I will get it out on social. We will get to that in a moment. Right now, a chart on trade weighted sterling. This is a great chart. I did not come up with this idea. Here is brexit over here, june 23, the question collapse of sterling. Up we go. Strong sterling. And we go down. We are a sustained low trade weighted sterling. That is a very different chart than pound sterling against dollar. Francine this is exactly what Andreas Utermann, allianz Global Investors ceo and cio said today. Close have gotten more expensive. You see concerns for the boe. You are worried when trade weighted pound starts raising. Andreas that is what mark carney will be worrying about. That is the answer to the question you asked earlier. Francine how does he do with that . Andreas i think he will try to keep the current policy in place. He does not want sterling to rise. Real wages are being squeezed. That is not good. The last thing he wants is to have to raise Interest Rates and have a stronger sterling. Francine you see this great chart, which looks exactly like what youre saying. It is a simple chart looking at cpi. Inflation going up. You can see basic wage growth, threemonth average, actually staying flat. What does this mean for investments in the u. K. . Andreas it means you probably stay away from the more consumer issues, more tilted towards exporters or dollar priced companies. We like shell. Final comment on that chart on real wages and inflation, inflation hit 2. 9 . That is on the current definition of inflation. We happen to believe that probably understates the real inflation rates most people are seeing by a very substantial amount. The real wage depression were getting through qe is probably more significant. Tom well said. I look at clevelands cpi in the United States versus u. S. Cpi. Lets look at this chart. Francine came up with this chart, killer. Here is strong sterling in the early 2000s. How to use it for governor it for Governor Carney to manage sterling . He will never admit it. Is the governor of the bank of england actually managing pound sterling . Andreas he is probably not doing that. I think he has his eye on the economy overall and inflation rates. Sterling has been a resulting variable from that. What you would not want to see given the political background is a Sterling Prices. That probably means sterling as weak as it is today on a trade weighted basis is probably as we as it is going to get. Weak is this going to get. The last sterling crisis was in 1992 and then in 1976 when we had to go to the imf. We dont want to go there. Tom i want to weigh in. Francine, help out because i am not up to speed on this. Tim rosss article on what we in the United States calls executive privilege in the u. K. Going back and using what is called henry viii rules where Prime Minister uses executive privilege over parliament. That was the heart of the postbrexit debate in the Early Morning hours. Francine it was. You had that bill asking for me, but this was the concern for remaining in the eu. It brings back the kind of what is a need for lawmakers to abide or not abide by that referendum on june 24 of last year. We just want to get your call for euro pound of last year and then the more theoretical debate on brexit. Are we going to see parity with found . Pound . Andreas i think that would be my lower bound. I would be a strong buyer. Think if the euro strength goes further on a trade weighted basis against the dollar, i think sterling will go with that , and there is for the room for upside for sterling there. Francine talk to me about the possibility of the u. K. Crashing out. Is there likelihood . Andreas given the long history of the u. K. , i think it is low probability. Politicsevelheaded will prevail. I think it is rather ironic because i agree with the comment that there has been an attempt by part of the conservative party and theresa may to concentrate power to much in the Prime Minister and bypass parliament. I think the public got a whiff of that, which is why the conservative party lost its majority. I think it is ironic that one of the reasons for brexit, the desirability of brexit was to get away from the socalled dictate of brussels, and look what we have not. It is my view the bill will be substantially altered or lawmakers will not vote for it. Francine thank you so much. Andreas utermann of a liens Global Investors stays with us. Allianz Global Investors stays with us. You can go to your bloomberg and ask the guest a question. We will put those questions to him next. This is bloomberg. Taylor this is bloomberg surveillance. I am taylor riggs. Lets get to the business flash. Toshiba will try to reach an agreement tomorrow on the sale of its chip unit. A deal worth 19 billion. The leading contenders are groups led by bain capital and foxconn. Is buyingias prince a 16 stake in fransi bank. That is your Bloomberg Business flash. Tom thank you so much. There are two hurricanes, and they are over, but they are not over. Michael mckee has been spending a lot of time looking at the impact of harvey and now irma. Lets go to the immediate news for waking america. The photos from key west are remarkable. No electricity, no sewer, no water. The keys were hit very hard. Government Flood Insurance means i am going to rebuild, right . Michael it does. That is the problem. Owe 25 billion to the treasury tom who owes . Michael the federal Flood Insurance program. They fall behind every year because the premiums dont charge with the payments they make. Tom how do you link the politics into that 25 billion number . Do politicians really want to stop that freebie to people on the coasts . Michael no. They do not. There was a reform measure, it was rolled back after complaints from constituents. There is an enormous number of people who need Flood Insurance who do not get it. Fannie mae requires it if you are in a flood zone. The fact that flood zone maps are out of date is another problem, but 50 of people dont have it. They let their policies lapse, and they are not covered. When you get a flood like this, you have an enormous number of people who need to go to the government for help. Texas,county, houston, only 25 of the buildings were covered by Flood Insurance. Francine do we assume the fed now ignores this . Michael yes, they ignore this. We will see the data corrupted for the next couple of months. And bought water in retail, then you will have a drop off. In october you will see a lot of car sales. As many as a million cars destroyed in the two states. Inflation goes up a little bit with gas prices, but the fed looks through that. By december, most of this will watch out of the data. Wash out of the data. Francine last week it seemed like the president had a pretty good week. He was on top of the hurricanes and got the debt ceiling. Michael the debt ceiling is an interesting matter of debate because it is until december, but the treasury can take extraordinary actions. That will be a debate that will be had through the winter and into 2018. For donald trump, a reasonably good deal. There is still a lot on the horizon he has to deal with, clean up the hurricanes, north korea, the list goes on. Address, what does this mean michael was suggesting this is something the fed will look right through, but some are suggesting it will have an impact. Andreas it was fortunately much less powerful than feared, so i think other factors will play more important roles. Tom there is that grey swan at the bottom of florida, the everglades. Any reports on the ecology of southern florida . Michael we have not gotten this specific reports. The market has decided this is not a big deal. Tom away from the markets. Michael when you look at flood maps of the future, most of southern florida disappears because of rising sea levels. It is already a problem in miami. One of the reasons they had such flooding in jacksonville is because c levels have risen. This will add to the debate of whether you can even talk about climate change. Francine Hurricane Harvey seems a long time ago, and is not. Any word on the refineries . Michael some of them are coming back online. Oil prices are lower because they have not been using as much gasoline. Things are getting back to normal. It will be several weeks. Florida, all of those service stations were out of petrol, so it will take a while for them to resupply. Tom we have to thank you for a lack of hysteria. You can do the on the beach thing. Michael we will do it with a blue screen. Tom very reasonable coverage. Andreas utermann, thank you very much. Note,s an important tonight in the u. S. , it is handinhand, a benefit for hurricane relief. This is 8 00 p. M. In new york. We will be taking a one hour live telethon intended to help those affected by the two hurricanes, harvey and irma. 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. Him market signal expectation of profit or growth to come. There is an rate increase sooner. Prime minister may in the United Kingdom says henry viii, i am i am. She is negotiating with conservative lawmakers. Ian bremmer and tillerson on manus in this hour. Good morning, everyone. This is bloomberg surveillance. Im tom keene. Francine, this is a big deal. Inflation datave more than expected. I think it is crucial because it is nearing 3 . It is the biggest surge in almost a decade. It throws up all kinds of questions and how boe and mark carney do with inflation. Tom when is the meeting, thursday boe . Francine thursday is boe. , two people voted for a rate hike. I dont know if that will change dynamics. Tom ian bremmer to come in a moment. Now to Hurricane Irma in florida. Here is taylor riggs. Taylor it was bad but it could have been worse. Florida still assessing damage. The storm was 12 Million People without power. Flooding a record of in jacksonville. Because of damage in the florida keys, 10,000 people who rode out the storm there may have to be evacuated. The storm a surge was not as devastating as feared and governor rick scott said he thought he would see a lot more destruction. The u. S. Had to back of several demands in order to win support for russia and china for new sanctions on north korea. The u. N. Council voted unanimously to punish kim jongun and his regime for the nuclear tests. Export. Textile the u. S. Dropped demands for an oil embargo and a freeze on kims assets. In the u k, Prime Minister theresa may cleared a hurdle. It was after midnight when the bill was allowed to continue. Mais government had to agree to critics concerns. It is crucial because it lets administers change laws. The first conservative party leader won reelection in more than 30 years. He sent a record amount of oil to prevent a recession. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Beeler. Riggs rings. Ggs. Is bloomberg rings this is bloomberg. Tom lets get on with a 10 point 59 on the big screen. I noticed the sterling was down 22,000. Francine . Francine and everything starts from what we saw in the u. S. Last night. The dollar struggling to sustain rebound. That is to pound and the biggest story. Inflation data much stronger than expected. The pound jumped. Tom it is the kickoff to the new business new year. We knew september was a big deal. December may be the new september. Lets look at the morning mustread as we two Kevin Cirilli. In the spring of the hopes, gop leaders placed a bet that they could change President Trump and passed legislation despite him. The wager was large and the wager lost. The president has no discernible the last three or strong policy views to portray. His leadership consist mainly of flexibility. There is this reality and hington have an cyrillic Kevin Cirilli is our chief correspondence. What does the Senate Majority do . They looked miserable. Kevin i love that because it highlights the bottom line and this is a essentially President Trump look at the leadership and if you think im a relevant, i am going to make a deal with the democrats. That is exactly what he did. Heaping the government funding funded and buying three months of wiggle room. It also sent a signal to Republican Leadership that essentially, you guys are going to have to work with me. Thiss is they deal is the idea of the new trump. President yesterday give a Campaign Speech at the pentagon. David put out a note how he talked for two moments for silence. Who is managing his instincts . Kevin general kelly, the new chief of staff, has received widespread praise within certain circles here in washington for being able to bring order to the white house. Thats was something many folks had pushed for in terms of getting an organized apparatus. , can tell you that regardless republicans and democrats have garnered praise for general kelly as chief of staff. Francine i read a story about janet yellen and ivanka trump having breakfast together in july. I was perplexed. You have background . Kevin this is an interesting meeting. Janet yellen having that type of meeting and this is frequent with her and she has done this time and time again. Lists and lunch with people like senator warren as well. It is an opportunity for them to get to know one another. Interesting to see what Janet Yellens political future will be. Thelatest report about Federal Reserve chair and who will replace or has a list of six people. It is early on in the job hunt. Vicious overwas so that lunch talking about nominal gdp and xyz space. Hank you so much he disappears in august. You would think he was having a average of his choice and making the party circuit. That would not be, dr. Ian bremmer. Inre will be a book out april. It has a global feel to it. He could have written a book on the American National interrelations. What is the distinctive feel of the new president . What does the new president need to do to drive Forward International responsibilities . You go around the world and it is very clear that countries and their leaders do not understand or respect the new president. Abilityear, americas to get other countries to do what they want to do has been deteriorating for a long time. Of the sense that we dont know. Tom i saw on the stage at the pentagon the secretary of defense and the joint chiefs of staff squirming over what we saw. How does the president right the image . The first thing i would say theor the last two weeks, president has not treated like a crazy man. That is a positive. That you, the fact also had another stage in yesterday and last night at the Security Council with 15 countries lining up and voting unanimously and supporting the Trump Administration and sanctions against north korea. The United States is still the United States letter who runs it. Even though trump can act in a way that is completely belying the power of the presidency, a lot of countries still want to see what he does. Lets look at the chinese for example. They dont react to rhetoric they want to see policies. They want to see competent people around him who will say aregs that look like they working for the administration. It creates more stability than was otherwise felt the general kelly became chief of staff. It has been more stable. Tom lets bring in francine. Francine what is the biggest risk . Is it north korea . The biggest risk is if these leaders around trump leave. The biggest risk is trumps reaction to that and what happens if they can no longer contain and control and drive a policies. The biggest thing that has happened that trump has undermined is the saudi versus. Utter fight qutar fight he basically said i am with you and go for it and beat up on american ally qutar. Korea as an north unfettered crisis certainly for markets as long as the people around trump are making the decisions. To go,y or mattis were then we have a problem with north koreans and russians and chinese. Geopolitical environment will be a lot more dangerous. What do the people around the president actually suggest he do . How does he get china to get more involved in this . Ian they are talking tough. Having all with options on the Table Including explicitly military options. Agent not expect him to use them. Rather they want him to use that to get other countries around the world including most notably the chinese to up the ante on squeezing north korea. Far, that has been effective. Tom tillerson has been invisible is secretary hailey auditioning . Ian certainly she is. Tom christmas . Ian he doesnt need the job. I dont believe if tillerson goes than mattis automatically goes. That tillersont does not have the same level of direct access to the president but most of it is done doing Jared Kushner is frustrating to tillerson. He is not going to use sharp elbows to ensure he has a seat at the table. He has been running exxon mobil and at that company for his entire career. People have to come to him. The fact that the secretary have state is weaker has become a forer position is a problem him. Tom we have a lot to talk about including the United Kingdom and international relations. Coming up today, a timely conversation with the minister of finance. Look for that and the 3 00 p. M. Hour. Stay with us. Im tom keene in new york. Francine loquat in london. This is bloomberg. Francine lacqua in london. This is bloomberg. Taylor this is bloomberg surveillance. The Kingdom Holding will pay 1. 5 billion to credit agricole. Of Worlds Largest maker generic drugs has agreed to sell left another asset to reduce debt. For aill get 1. 1 billion contraceptive device business. Now to Bloomberg Business flash. That is Bloomberg Business flash. A weaker currency and the pound is down 11 and the u. K. Since the u. K. Elected to leave the European Union. That puts fresh pressure on the banks who are grappling with growth above 13 target. What does this all mean for sterling . Ofs is the head of the bank england governor, mark carney. People think the boe might hike rates. It might that . The dangers ifen a lift rate in response to cpi rate. The waging states are still very weak. The danger is they are responding to a transitory change. I wonder how long that can stay a positive story at sterling. We are nervous sterling should be rallying when it is contained within headline inflation with very little evidence feeding back into the broader economy or market. Fencing what are you expecting from boe on thursday francine what are you expecting from boe on thursday . Adam lets not forget we have been here a couple of times here in the recent past where we have had policy for a number of successive months. On both occasions, the dissent has moved along with the consensus. That is still our central view that we will see a couple of higher rates. Ultimate, if wages fail to pick up, it will move back to the consensus and rates will stay on hold. Tom strayed trade at sterling is a lot different than what we see with sterling to cable. We will put this out on twitter today. It is a good chart. It is a low of 208. Tell me about the trilemma that Governor Carney faces. What is the impossible trinity for Governor Carney . There is difficulty is a very material overshoot for headline inflation pushing 1 . The economy ise, now going below trend. We have seen a couple quarters of gdp growth. The gap is widening. There is little evidence wage growth is picking up. Elsee one hand, everything should be flat. That is the dilemma the bank has to deal with. Its a policy target variables and Everything Else is tightened. Francine thank you very much. We are back with ian bremmer. When you look away from boe and the brexit bill, we had a and it saidpeech they are having a lot of arguments about henry viii powers and taking away from parliament. Is this a danger for brexit negotiations right now . Is more thater parliament is a very divided on this issue and while may got her vote yesterday, it will get more practice for the labour party. Will requirerty more softening on the brexit policy. I suspect you will see the same thing coming. To me, the danger continues be not an overly strong executive in the u. K. , but rather the parliamentary process ws down and depend potentially derails the negotiations. Tom i want to come back and talk about a brenner book bremmer book. Coming up, an interview of Goldman Sachs president. We hope it is a strong september for you. We are with ian bremmer. Stay with us. This is bloomberg. In this is bloomberg surveillance. President the french president is made facing protests as labor reform is pushed against one Labor Union Says protest are scheduled across france. Lets get back to ian bremmer. Demonstrationhuge because there is only one labor union. What are the chances of the president delivering labor reforms . Think 100 . He has negotiated pretty well oneonone with the unions that are not participating in these strikes. Labor strikes in france are nothing new. Anyone who flies there understands that. The fact that the president s popularity has toppled dramatically since he has become president and labor reform has bedeviled every french president. It is impossible to fire a french worker. He has gone more modest with the initial reforms. He has taken off the table things like talking about a 35 hour work week. For at least this first hurdle, there will be a headlines there will be headline saying he is evil incarnate. Tom cole and to go back, is the tom is the j curve different than 18 was five or 15 years ago . The j curve now is different. Is thee j curve relationship between openness and a stability. It shows that countries can be stable if they are open. It can also be stable if they are quite closed. I would make the argument that in both the United States and france, the baseline of stability is so much higher than other countries that you can tolerate an awful lot of damage and you do not get revolution. You get apathy. In france, you will see the ability to tolerate awful lot of demonstrations before it comes apart. Tom we will come back with dr. Bremmer. Lots to talk about including an update. Dieter hecking the of nyus stern. We are doing that next. Stay with us. 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. Tom good morning. Bremmer and peter will join us. Here is taylor riggs. Florida will fill the aftereffects of, for weeks to come. For weeksicane irma to come. The florida were heavily damaged. The people who stayed there may have to be evacuated. Rick scott took an aerial tour and said he thought he would see more damage. Roads are being cleared. People are assessing the damage. Council voted to impose sanctions on north korea. The penalties dont go as far as the u. S. Wanted. The Trump Administration dropped fordemands to clear the way russia and china to back the new sanctions. Trump toay asked intervene in a dispute between boeing and. The goal was to protect jobs that bombard ea planned in northern ireland. Imposewants the u. S. To tariffs on the planes. Roadshow. Ive to as many asvel 13 states in the next seven weeks. The white house is trying to avoid repeating the communication failure of its attempt to repeal obamacare. 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 ian bremmer with us. Joining us, peter henry. Here is his book. Book,ou dont see in this which is lovely, he goes back to his childhood in jamaica. Jamaica was spared in this hurricane. Caribbean is leveled. Who will help them . The u. S. Used to be a reliable partner. Tom are we now . Peter i would like to think so. It is important for regional stability. The economy is important for the u. S. World bank and imf aid, will they come to the rescue in the coming months . Peter they will be a big part of the picture. Tom your concern about the middle class, your study in the science of where we are, what did you learn over the summer about the quality of our inequalitys . Peter the issues facing the u. S. Is how do we drive more inclusive growth . Productivity has slowed. Manufacturing jobs have been on the wane. Over the we have had last 25 years, the middle class does not factor into those gains. I dont see anything on the table that is compelling. We need a serious approach to address the skills gap. We have money sitting offshore. Said we are going to allow you to bring the assets free, a National Skills development pool, that we give you a 250 billion endowment to address the skills gap. I have seen nothing on the table to say we are going to address the downsides of globalization. Francine is it globalization or robots is a nation ro botization . It is the Fact Technology is taking over. Peter technology and robotization is the most important driving factor. We have had gains over the last 2. 5 decades. The downside, you need less workers to any job. It means the jobs of the future will be different than the jobs of the past. For workers to do those jobs, they need to be retrained. There is a bipartisan report in 2012 which says in 2020, there will be 1. 5 million too few skilled workers for the u. S. Economy. Francine what if we dont know the jobs of the future . We dont know what extent robotization takes over. Peter you want to give people general skills. You need an agile workforce. You have to make sure you are educating todays workers. Is scared stiff. Is i agree with what peter saying about the nature of where solutions could be, but the fact that none of them are on the table now, more importantly. You see a complete change in the way america thinks about immigration, that we are talking about skills base and pay for play as opposed to we need to bring in more demographics to lead to more growth. That change comes on the back of the fact we are not going to address this issue. I was in jackson hole in august. You had a conference talking about structural reform. Leaders are not talking about the real issues. Our central bankers are having to use their bully pulpit to get leaders to think about it. For your greatou work. Many of our staff have gone through your program. Are these theories going to do about a person in ohio, three houses down the street, the kid is on opioids because he cannot get a job. What do you do about senator portman or the democrat on the other side . Peter we need to deal with the immediacy of the issue. A tangible program to address the skills gap. Happening,ng that is an opportunity to work, an organization doing a better job of matching workers were skills to jobs that need those skills as opposed to workers with credentials. Credentials, a university degree, there are millions who have the skills, but not the credentials, to do a form of work. We need to read train and doing a better job of getting workers with credentials into jobs they workers with no credentials into jobs they can do. I would study math, took writing classes. I think languages are also important. Less so than they once were given our ability to translate with technology. Francine a lot of us went to school where they were strong and math. Do you go for out the rhythms . When i was growing up, math was great. Today need to be able to solve problems. For peoplere looking who are problem solvers. Skills andalytical the significance of the problem solving, that is what companies need. Tom you are going to exit stern in january. You have a wide set of choices. What do you see yourself doing . Peter i am fundamentally an educator and researcher. Tom you dont qualify for bloomberg surveillance. Right now, we are talking about how do we get the 3 growth back in the United States. If you look at the countries in the last three plus decades, there is evidence in how you do that. There is a lot of work that needs to be done. You were going to Say Something romantic, like the New York Knicks needs a lot of help. With dr. Ontinue bremmer. We brief you in the morning in the United Kingdom and here. Look for the commute with bob moon and karen. They do that on bloomberg radio. Bloomberg daybreak is coasttocoast on sirius xm channel 119. This is bloomberg. The business get flash. Toshiba will try to reach an agreement on the sale of its tip unit. It could fetch more than 19 billion. The leading contenders are groups led light tank capital in taiwan, foxconn. Apples most highly anticipated Product Launch. , one isw Iphone Models a Premium Model. It is the first smart phone to cost more than 1000. Bloomberg television and radio for coverage of the event line from cupertino. That is today at 1 00 p. M. That is your Bloomberg Business flash. Tom this is the one day i have fun with this. We talk about the whizbang toys. We do that with paul sweeney. Great team around him. You know i am driven by the chipset. Thene talks about Engineering Technology that makes us glued to these things. There will be another rampup here in technology. Applewhat you will see at is a lot of features, bells and whistles. You have to support a thousand dollar price point here. The Technology Allows it to drive the simultaneous use of apps. The phone controls everything in your home, whether it is tethered to your watch, your computer, your tv. Or two ago, the surprise has been ipads and computers and other stuff. Dont they continue to do pretty well . It is two thirds of the revenue is the phone. Another one third is the products growing well and they get some investment by the company. If you are an investor, you are in it for the phone and what services can be layered on top of the phone. Focuss where the investor has been. Where can apple take its Services Business . Do they need to get into entertainment, other Tech Technologies . Francine the components of this phone are getting more and spence of getting more expensive. Who is there main competitor . The largestg is coming out of korea. The biggest change has been some chinese manufacturers. China, not necessarily the highest form factor or functionality that wins the day in china. That is why apple has not been asked successful in china. Competitors coming out of china and samsung. Apple is right there. They have carved out the high end of the market. One thousand the dollar price point resides. Francine how will you measure the success for apple . Iphoneuld unveil a more 8, a mega iphone, and iphone x. Paul the interesting thing about the iphone x, how many markets are going to be able to roll that out in . Do they have production delays over the summer . Will that limits the number of countries they can launch in and limit the splash they can make. Apple the company for the global elite . They figuring out the rich market is the one they want to dominate . They are doing that letter than anyone else. Phone is the Global Consumer product that everyone has. Apple, this is the market they have carved out. Tom this is apple back 30 years. It was one dollar a share. Concave, which means growth is not what it was. What is the growth of it five years out . Case for the story is the underpinning of the growth and cash flow and the ability to reinvest will come from the iphone. Anotherxtent there is leg up in the growth of the revenue stream, it will come from the Services Side of the business. The company has not been able to articulate what the next leg is. Anit another product like ipad or watch . It looks like these Services Side of the business will have to take the stock to the next leg up. Tom you have the bloomberg function on the iphone. We use it all the time. Tv , there it is. You can come over here and click on a chart and look at ian bremmers work. You can steal the chart and poured it over to your bloomberg. Stay with us. Francine live pictures of hong kong. Ofare looking at pictures berlin. It is beautiful. Youou are a radio listener, are missing out on the beauty. The emerging vacuum of power. Tom i will start with the single best chart here. In the spring, you will see us versus them. Here is the growth rate, the average of a decade or two ago. Gre is the new normal, a 1. 1 . Are we still there with diminished Economic Growth . Europeans are all now positive. That feels good. As you were talking with peter henry before, who is the growth going to . The average american not feeling good. Tom us versus them, that sounds like something trump would say. Is that what this is about . About the failure of globalism. A lot of people have not done well. That schism will grow. Think of it as climate change, how it affects the urgency around the world. Francine we saw trump being elected. What is next. It is more about walls, the ability of countries, governments and corporations to use technology and use strategies to separate and divide people. It,ou are not going to fix you deal with the more divided the side the more divided society. I am going to explore, how societies will be more effective in dividing their citizens from one another and dividing their countries from other countries around the world. In a sense, the antithesis of globalization. It has real market implications. Doubt in yourheir mind that emerging markets want globalization . Emerging markets have done because they have been cheaper in terms of labor. Globalization has allowed them to develop their own middle classes. Is muchrward, labor more expensive and you dont need as much of it in terms of services or manufacturing. If you are walmart, it is not clear to me why you would manufacture out of china. Focus on the local market. That is great if you have a massive consumer market. For a lot of others, the dynamics look the same as they are now. Tom we talk about nations. Qatar is two nations. The tribal differences going back years. Is there an american tribe . Is that what we are talking about here . Some of it is. Why there are those dog whistles about a muslim bryant a muslim ban and mexicans are coming to rape your the reason that resonates is because of this feeling of insecurity. These people have come in and they are not us. Dangerous for our security, taking our benefits, competing for our jobs. True or not,is most of that is not true. For tribal resonates reasons. Anyone who watched steve bannon this weekend understood that. He had a message that would have taken anyone in manhattan, but it resonated to that tribe. Tom lets continue this conversation. David joining me on radio. A Foreign Exchange market here . Sterling, 1. 3278. Jon the Un Security Council approves sanctions aimed at punishing north korea. The president of the United States plans and aggressive travel schedule. Up to unveil three new smartphones. From new york city, good morning. Welcome to bloomberg daybreak. I am Jonathan Ferro alongside david westin. After yesterdays pop, we are back at all time highs. Futures are positive. Up about four points. Yields keep climbing. Up two basis points. 2. 16. A oneyear high on sterling. Inflation rising to