Transcripts For BLOOMBERG Bloomberg Surveillance 20170918

Check out what is happening to european london european stocks. Stocks arising for the second day for the biggest weekly increase in two months it sterling low against the dollar down by. 2 . June 24 last year, biggest weeks biggest weekly gain last year. Sterling rallying 3 against the dollar as the boe turns hawkish. Up fiveyear yield is basis points, higher since august 22 after rising 15 basis points last week. You know the fmos fomc meets this week. Dropped theounts most since january after a. Ecord expansion lets get the bloomberg first word news. Sebastian a peaceful resolution with north korea but Rex Tillerson has warned his two parents use military force if necessary. Those comments came as trump prepares to ask allies to confront the regimes threat. In a tweet, trump mocked kim jong un as a rocket man. Marias wins have picked up eight to five miles per hour. Warnings are being issued to several islands. The u. S. Is bring for rain, and beach erosion. The day has lowered its threat from critical to severe. The u. K. Has lowered its threat from critical to severe. At least 30 people were injured on friday by a homemade bomb on a train in london. The uks fifth terror attack this year could u. K. Lawmakers have called for Boris Johnson to be fired after he threw himself back into the Brexit Debate. In an article, johnson outlined a glorious decision for the chaos that of the eu, prompting criticism that he is undermining resume. Undermining theresa may. China is giving Foreign Investors greater access according to people familiar with the matter. It will discuss is proposals and get feedback from chinese institutions. Global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. Salek and this is bloomberg. Mark the Federal Reserve today policy meeting kicks off this week. Economists think officials will announce the Balance Sheet unwinding program with its starting in october. The chairman of j. P. Morgan told international has bloomberg it is time for the fed to start normalizing policy. All of the conditions that has to be in place for normalization have been for filled. We have very healthy labor markets, unemployment is very low, the duration of unemployment has declined. Economic activity in terms of growth, Health Growth has recovered. Even inflation is on the up direction. Mark ray dalio is a billionaire. He prays on central bank officials. He spoke to Erik Schatzker. Quickly betake Monetary Policy come i think they have done a you takee if Monetary Policy, i think they have done a remarkable job. They have done a beautiful deleveraging. Mark lets bring in simon french. Atbelle Mateos Y Lago blackrock. Good morning. Isabel, what do we get from the fed this week on the Balance Sheet . Isabelle i think we can be pretty confident that they are going to start unwinding the Balance Sheet in late october. Very much david that and avoid signaling anything to clear as far as further Interest Rates and rather try to not change the market to avoid confusing the message. Our expectation is they would focus on the Balance Sheet normalization, saying this plan we have outlined, we are getting started. Mark how relieved are fed officials as last weeks inflation data instance toward 2 instant toward 2 . Does that make the telegraphing of the message easier . She is not going to claim success in terms of their views that the low inflation of the us economy with tons of traded to seasonal factors. I think she will wait until she gets enough print to be able to say, we see a stable trajectory and therefore we feel we can do Balance Sheet production alan sheet reduction in lead the market toward mark what his work telling us, isabelle . 47 chance of a rate hike. The fed has room to hike. Isabelle there is alsos of uncertainty since the hurricane and the impact it is good to have. There is the return of the uncertainties around the debt ceiling, also in december. As simon was saying, they are awaiting confirmation. Their stories of growth and inflation was temporary. Our analysis suggests theyll get the confirmation, but it will be they dont need to rush whether data is heading. It makes sense for them to wait. However, we will get a new set of data. If there is a new a move downward, the market could react. Mark how would you expect on the dot side . It gets pushed back a bit. Simon i think youll get a gentle approach path in 2018 and 2019. First of all, we may get some Price Inflation return. Wage inflation in which the mediumterm trajectory on use inflation will be materials. Tight. Dline measures are secondly, the rest of the world Central Banks which the fed cannot decouple from remain and hyper stimulative mode. Remain in hyper stimulative mode. The ability to decouple nominal quite ambitious trajectory. Mark when you look at u. S. Basis pointear, 50 rise in the yield last week, dollar had its best week since april. How we set up for the key u. S. Assets this week and this big fed week . In this big fed week . Isabelle the fed will confirm that the Growth Prospect remains positive so that should be good for stocks. We should continue to correct these moves in the dollar and longterm rates that we saw in recent months that were a bit of an anomaly given everything we think we know about the state of the economy. Normal,that return to of the u. S. Bond yields. Mark diver oversold dollar oversold, simon . Longerdollar cycles are than current down play. The market momentum is still downward but i do think we havent mentioned geopolitics yet, and affect the last couple of weeks where had a more relaxed Market Sentiment toward risk that almost impossible to forecast because they combat on the table. The asset class on dollar and equities and treasury so changes very sensitive. French ands Simon Isabelle Mateos Y Lago, they stay with us. Snapchat has removed from its platform and saudi arabia amid a feud between the gulf states. It complies with the local laws in the countries where it operates. Accuse of it backing terrorism. Strapped 82 fletcher today. Ryan and strapped 82 flights yesterday. The Budget Airline said the cancellations which amount to about 2 of its net worth will not have an impact on its earnings in september and october. The founder of Bridgewater Associates says he plans to share his Corporate Culture with the world. Ray dalio discussed a radical decision during an interview. Next we are about to take algorithms and we are going to give them to others. Figuring out how to make that fit into a number of other companies to just pass it along. I love these tools to build the be used. Thats tools to be able to be used these tools to be able to be used. Mark the signs of the Consumer Spending squeeze has passed. That is up from 1. 2 , after sterling climbed 3 last week. The bank of england policy makers say there were hedges toward raising Interest Rates of the first time in more than a decade pierced still with us, simon french. Mile isabelle Mateos Y Lago. What the market is expecting on the right front here in the u. K. , november, the big meeting. The bank historically tends to 60 hings for up to beginning of last week. Well below that. Is that too hawkish when it comes to the probability given the events of the last five days . Simon you have two different stories. The data which the mpc have really guided the markets to expect Wage Inflation start to come through. There are very few signs of it is a lot of commentators are scratching their heads to justify november hike, particularly back in august they guided markets to look for net exports and investments, the two key parameters in which the success of the k is ready for a rate hike. They are spooked by the fact that they are coming for a lot of criticism. They want to get the monkey of their back. Mark was a gated off their back . Will they get it off their back . Simon i think they will. Data lead investor banker than ideological central banker. What you have is mark carney reversing out of the position, markets just going to believe him. Markets are going to believe him. Mark given the tone of the august Inflation Report when the rhetoric around brexit was fairly gloomy, we have seen quite a switch. They have acknowledged that data has improved. Simon touched on wages which in the last three months stay at 2. 1 excluding bonuses. Did last week warrant such hawkish rhetoric . Isabelle you would hope they wouldnt change their view on one week of data. What is happening to trend inflation . Has it peaked from the current level which is well above the boes target . Allkly, we are not sure at based on the data that we look at. The wage growth is an issue, but even when you look at what has been driving inflation, we dont see strong evidence that it is going to keep rising. The one should note is statement that the bank of england issued was hedged in the sense that we would consider a rate hike if the economy remains on the same path. There is uncertainty and i think in particular it would be very important to see if we come to break the deadlock between the u. K. Government and the europeans on the discussions around the transition. If between now and november, markets have confidence in agland that there will be transition. I think that would be very positive for economic sentiment. It would also boost sterling. You have to accept how these two factors balance each other. A lot of data points and uncertainties for the boe to consider. I would hope that they would not be too concerned and they would decide on the right move. Mark were getting a big speech on thursday. We know what the tone is going. O tail thats going to entail if theresa may and just as the bill to some extent, if she addresses transition, is that a game changer . What is the impact on the pound which had its best week last week against the dollar since 2009. Much more sensitive to the trajectory of the euro, the u. S. Dollar and more recently the central bank here in london. Therefore, i dont think florence will be a key milestone for sterlings next trajectory. Whatever theresa may says, whether she sets out the basics from ongoing payments remaining in the zynga market i dont think people are going to include that that sets in stone a soft version of brexit. Politicsso much other to go on, the german elections this weekend is her own future secure . The secretary has made very bullish comments but the u. K. Leaving and making no payments. Mark simon french, isabella mile isabelle Mateos Y Lago both stay with us. Ray dalio says the fallout since the brexit crisis has been remarkable. He is now sharing his story and ideas in a book called principled. He spoke to Erik Schatzker and gave his sentiment to policymakers. Theres fiscal policy in Monetary Policy. If i take Monetary Policy come i think they have done a remarkable job that we have had a significant, beautiful deleveraging pete what i mean is deleveraging here at what i mean is our debt burdens have gone down while the economy has grown. We havent had an inflation problem. They did that by understanding the mechanics and the engineering. I think to some extent i was able to be of some help in terms of that excess. If you look at the economy right term, whereshorter we are, we have a situation where we dont have too much inflation and too little inflation. We dont have too much growth and too little growth. We dont have a debt bubble and so on. We have something that is reasonable in terms of conditions. This is very different in 2008. We have a political situation which is difficult that we have a wealth cap and an opportunity gap which is a difficult situation. We have very big obligations coming forward, pension obligations, health care obligations that are going to be a burden. That is going to be a gradual problem. The way that those monetary those who are running Monetary Policy has done has handled that well. Well. Policy, reasonably it is a much more politicized area. That is a much more favorable characterization that a lot of people would give fiscal policy. Was people would give it two thumbs down. Most people would give it two thumbs down. Youre a hesitancy in the giving a continent. The political environment itself is such a difficult environment. Politics itself is dysfunctional. We have to talk about how to deal with meritocratic decisionmaking. Nevertheless, if you take the individuals and you put them in their jobs and you are asking how do they do even those jobs, all Things Considered . That is the problem, those are the things we have to consider. They have done fiscal policy well. I think the political system is a very challenging situation. If you were advising the president , what would you suggest that he do . The most important thing is to make sure that we understand what the countrys principles are that bind us together, rather than those that divide us. To have idea meritocratic decisionmaking, to try to come up with the best collective decisions. Inbring the country together an idea of meritocratic way. I think that deal that we are in reminds me the period that we are in reminds me of 1937. At that time, it was after the which is thesis equivalent to our 2008 2009. They printed a lot of money. Interest rates to zero and we had a large wealth gap which created populism. The central bank continues to tighten Monetary Policy. And theyad a populism fall in the stock market. We are going again at that precipice . Yes. We cannot have a tightening of Monetary Policy that is material. We have a very large wealth gap, a very large gap that at the top. 2 of the populations wealth equals the bottom 90 of the populations wealth. It is not just wealth, there is a polarity. This is the time where we have both of those things. You cannot have an economic downturn, because politically we cannot stand and economic downturn. We would be at each others throats. Thoseanalogous that tensions, the conflict are in many ways analogous. That is fearful to me. When you ask what i would remake thats what i would recommend the president to do is to try to deal with conflict well, to bring people together, to not make one side in battle with the other side, and to try to have idea meritocratic ways to get the best decisions. To eriky dalio speaking schatzker pitched still with us, simon french, isabelle Mateos Y Lago. Isabelle, he touched on central bank is good policy, trump comedy wealth gap trump, the wealth gap as well. On trump, by postponing decisions on the that ceiling the debt ceiling, what period are we approaching now between now and december . Can trump focus on what hed wants to focus on, tax . Is a code that is the goal. Goal. Belle that is the market expectation is quite low. Paradoxically, this may be a positive, because if anything realistically were looking at early 18. If anything at all can be done, there will be an upside surprise because right now there is so little that is priced into the market. Lets see where that goes. Mark is that right, simon . Of the postnovember trumpflation trade. They need to look at the u. S. Financials in the trajectory they have had, the regulation in the tax reform has gone quiet. The enthusiasm of the trump administration. Ray dalio talking about reaching out and getting people together, he is talking on a perspective of social politics. He also related to how the president relates to congress if you have any chance of getting to a meaningful tax reform and revisiting some of the predatory practices. If he is successful, and bring those traits back in the play. I tend to be quite senegal and downbeat test quite senegal downbeat. Cal and mark who should be a smooth process . Participate in prepare ourselves for this big unwind in this experiment that has never been done . And unwinding of the town seat of the Balance Sheet . We do have some humility, it hasnt been done before. At the same time, at the macro level in terms of balance, demand and supply for government bonds, we are confident theres enormous demand government bonds for safe assets from outside of the fed. I was since is it really shouldnt be a major problem for the market to absorb this withdrawal from the fed from the treasury market. We are not completely sure. It is important to note that the fed only controls one side of the equation. Very important will be what does the u. S. Treasury try to minimize the impact of the feds unwinding process . Does it follow some other guidance . We know very little about that so far. How do you try different government bonds across the yield curve . We dont have all the information yet. Mark up next, coalition conundrum. Will merkel choose what is best for her party or the economy . This is bloomberg. Mark you are watching bloomberg surveillance. Lets get the bloomberg first word news. Sebastian the u. S. Secretary of state says hes seeking a peaceful solution to end the Nuclear Standoff with north korea. Tillerson has warned hes prepared to use military force if necessary. President trump prepares to ask allies this week to confront the regimes threats. Mocked kim trump jongun as rocket man. Another hurricane is spinning toward the caribbean. Have picked up to 85 miles per hour. Hurricane warnings have been issued for several islands. The northeast u. S. Is preparing for rain and beach erosion. The u. K. Has lowered its threat from critical to severe after a second person was arrested in connection with fridays terror attack on a train. A man was detained in the inner city after a teenager was arrested. At least 30 people were injured bomb on a train in london. U. K. Secretaries have called for Boris Johnson to be fired. Outlinedpaper, johnson what he called a glorious vision for the u. K. Outside of the e. U. , prompting criticism that hes undermining theresa may. Agencyernational energy says a lack of new investment in Oil Production is stoking tighter supply and unstable prices. Conferencetold a capacity will fall even as demand growth is shrinking over the next five years. Brent crude saw its third consecutive weekly increase last week. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. Im Sebastian Salek and this is bloomberg. Mark three of the four most likely german governing coalitions in the upcoming election will probably produce similar economic results. That is according to a Bloomberg Survey of economists that found the best result would be if Angela Merkels christian Democrats Join forces with the free democrats. That ranks only third in combined voter support and would require merkel to pull out of the socalled grand coalition. Bloombergs european government reporter in berlin. What are the polls saying, alan . The polls have been remarkably stable throughout this election campaign. They essentially have an budged. They show that merkels party is about 14 points ahead of her main challenger, the social democrats, and theres a real battle for third place between the far right populists, this antiimmigration. They are up against the anticapitalist left party. Theres not really much between the other parties. Mark might any shock arise . If there is to be one, what could it be . People said that the media in general failed to identify the likelihood of a Trump Victory or of brexit because they didnt go out and listen to the people outside the capital. Weve been at all sorts of rallies for merkel and theres definitely a small, but very vocal minority who are really angry about her refugee policy. There could potentially be a bigger vote for the afd, but if that is the case, it is not showing up in the polls. Mark what are the scenarios for coalitions, given this wonderful which asksurvey which scenario is best for the economy that is one part of the question. The other parties, you might have the best scenario, but are they going to be voted in . Wonderful survey. What is the answer to that survey . Best for the electorate and best for the economy . Work with theonly numbers she has. If the current polls are accurate, she only has two possibilities, a rerun of her grand coalition with the social democrats a lot of people say that is not good for democracy, if they exclude other parties. Theres only that possibility or a threeway coalition of her bloc with the free democrats and the green party. With justred option her party and the free democrats, that is not possible according to the current polls. Mark thanks a lot, alan crawford. Busy week. Still with us, simon french, chief economist, isabelle Mateos Y Lago. Merkelled victory usher in a new era of reform of the e. U. , of the european integration that weve talked about for years . Simon there will be one person watching sundays results with heightened interest. It will be emmanuel macron. She gets to choose our coalition partners. If she continues with the grand coalition, i think that will be taken positively in france, taken positively by euro investors. A finance minister who can lead the kind of fiscal policy that has so far eluded reformers. The risk is that she pairs up with the greens and the free democrats party, and the free democrats would be antithe idea of fiscal mutual is asian mutualization. It is really necessary to make the cyclical uptick into a structural one. Mark to what extent does economic growth, and there is evidence of it, dampen the urgency for reform . Can it do that . That in might it do terms of impact on politicians . Conceivably. What you are hearing from france, from germany, but also some of the smaller countries, is, lets use this as a window of opportunity. Lets show that we are able to take bold reforms outside of a crisis context. On the issue of, are we at an inflection point, i would have a slightly different take. Because there is this proreform momentum, we are likely to get a new European Finance minister and a few institutional bits and pieces. The question is, will it be for real, or will it be for show . I think clearly Angela Merkel will have more room for compromise, for integration, if shes in a coalition with the spd, then she will have if shes in a coalition with the ftp. I think it is useful to remember that when the eurozone sovereign crisis hit, the spd was part of the coalition and the eurozone didnt blow up. Coalition,is in the it will be as a junior member, and ultimately it is going to be mrs. Merkels last term. Shes not going to be pushed around by some smaller party. Mark simon, how big is the window . Draghi has said, take advantage of this low rate environment, of negative rates, qe. Window forthis reform . Think depends whether you that reforms are best carried out in crisis periods or periods of relative prosperity. Wolfgang schaeuble is of the view that actually you do need the pressure of quite challenging circumstances to push through reforms, because people see the practicalities of not completing monetary union. In direct answer to your question, merkel probably gets a longer window then pretty much any politician in the world at the moment. That is the case for being able to push through these kind of reforms with a protracted honeymoon, which for someone of her tenure is almost unheard of. Mark join us this sunday as the Election Results flood in. We will bring you the outcome, what it means for the markets. A lack of investment leading to a rise in oil prices. This is bloomberg. Mark you are watching bloomberg surveillance. A lack of new investment in Oil Production is stoking a risk of tighter crude supply and unstable prices. That is according to the head of the markets and Industry Division at the iaea. Neil atkinson says demand is expected to slow, but the cushion of spare Production Capacity will shrink without further investment, potentially pushing up prices. Yousef gamal eldin is in dubai. What is the iea saying . Are we headed towards another era of volatile or higher prices . Yousef that is what it is shaping up to be. Comments from Neil Atkinson pointing out concerns about the lack of investment. This is a point that opec and nonopec, in their new attempt to rebalance global markets, have always been making. Theres not enough money going into making sure theres capacity for the futures. You could be looking at higher oil prices. Atkinson believes oil prices have bottomed out. He points to the u. S. Shale story and perhaps echoes the commentary weve been getting from a lot of key analysts, saying, we underestimated the resilience of u. S. Shale producers. Droppede u. S. Rig count the most since january over the ofkend, but it tells a story perhaps some of the supply and demand fundamentals beginning to shift. Mark we are hearing that saudi arabia is considering plans to raise prices for gasoline and jet fuel in november. This pushl part of towards this grand saudi arabia Restructuring Program . Yousef it definitely is. These are sensitive, ambitious reforms from the saudi government. It was always understood that they would leave the Energy Subsidies to the very end. Our understanding is they are going to move on gasoline and jet fuel. You look at the likes of octane 91 going up by 80 , the idea being that they want to bring those prices closer to International Parity and that is not necessarily going to come across well. The saudi economy has been looking at deflation this year, but this is a population that has endured quite a bit of reform. They are leaving some of the more sensitive elements to later on in the year. Definitely another bold step with longerterm implications perhaps for the saudi economic momentum when it comes to gdp. Mark thanks a lot. Yousef gamal eldin. Still with us, simon french, isabelle Mateos Y Lago, Global Investment strategist at blackrock. You are neutral commodities . Isabelle thats right. Mark how does oil fall into that . Isabelle on oil, the striking thing to me is how much it has decoupled from the broader commodities materials index. You have metals going through the roof. Oil has been underperforming. It has been the cause of this continuously delayed rebalancing between demand and supply. We are getting to a point where demand and supply are in greater balance. That should provide summary some support for oil prices. I think the dynamics of the u. S. Shale production is putting a bit of a ceiling there. Has the sector been a bit under loved . Probably. Mark simon, are we stuck in a range for oil . Simon we have been range bound for some time, but i think the momentum will be downwards for two reasons. The iea pointing to how resilient and how innovative u. S. Shale producers have been in response to lower oil prices. You cant lose sight of the fact producers, a lot of them, the breakeven cost isnt necessarily falling below the spot price. A love of it is tied into geopolitics. The aramco float in saudi arabia. Geopolitics in venezuela, libya, nigeria, all play into supply being much less sensitive to the price level than perhaps a lot of the models have forecast. Mark fascinating stuff. Isabelle, the backdrop for that increase in metals prices, partially a china story, partially a global synchronized economics story, does that backdrop remain in place . Isabelle we absolutely think so. There is a global synchronized expansion underway. We think it is more likely to continue for quite some time. Im talking years. Growing at a healthy clip. That is going to be supportive of the demand for metals. This demand backdrop isnt the only driver of this price performance. There have been a lot of rationalizations of supply, including in china. When we think about oil, the fact that theres been less investment is definitely a positive. Simon some of the metals that have benefited, the copper market, the lithium market, direct beneficiaries of the move towards electric cars, electric vehicles, and the degree to which geography after geography are setting a timeline now for ending the production of petrol and diesel driven automobiles, and the stockpiling of those crucial elements for that production is what has driven the decoupling of the oil and the broader metals market. Mark simon french, isabelle Mateos Y Lago, stay with us. This is bloomberg. Mark you are watching bloomberg surveillance. Lets get the Bloomberg Business flash. Sebastian snapchat has removed al jazeera from its platform in saudi arabia. Snape said it complies with local laws in the countrys where it operates. Accused qatarion of backing terrorism. Among the demands were a request to shut down al jazeera. Ryanair scrapped flights after admitting it messed up the planning of pilot holidays. It has started a program of cancellations to reduce the backlog required by irish regulators. The airline said the calculations wont have an impact on earnings in september and october. Fundounder of hedge Bridgewater Associates says he plans to share his management culture with the world. Ray dalio discussed the decision during an interview with bloomberg. Ray we are about to take algorithms and tools and give them to others. Out how to make that fit in a number of other companies, to just pass it along. I would love these tools to be used by anybody who cares to use the tools. Sebastian that is the Bloomberg Business flash. Mark Prime Minister theresa may visits her canadian counterpart, justin trudeau. Wednesday, we get that policy decision from the fed. Next day, theres a policy announcement from the boj. Lets get the final thoughts of simon french, chief economist, and isabelle Mateos Y Lago, grovel macro investment strategist. Simon, key event, fed . Simon you cant go away from the fed. One thing we didnt speak about earlier is, whether they will guide towards the pace at which they move from 10 billion towards the mediumterm target of 50 billion per month, and will we get any parameters on which markets can assess what data will be key . , what are you watching this week . Isabelle definitely the fed. Theresa mays speech will be important. If she puts on the table something that means there is a deal on the table to be made around brexit bill and transition, that will be very positive. Mark Boris Johnson ruffled a few feathers, many calling for his head. Is this just boris being boris, or is there something sinister here . Simon theres a group of what i would describe as clean brexiteers, whatever terminology you want, who have stayed quiet throughout the summer. The question was always going to be, were they going to wait until a vote came to parliament, to vote it down, and the u. K. Leaves with no deal, or do they go local before hand . It appears theyve opted for the second strategy. Mark you are overweight europe equities, japan, and e. M. What is the love for european equities . Isabelle we feel europe has very good growth momentum going forward. Politics have experienced a turnaround and have moved from being a clear headwind to something more supportive. How supportive, we dont know yet. Definitely no longer a headwind. And european firms are geared up to benefit from this Global Expansion that we are witnessing. In terms of flows and positioning, theres more flows to come in, because europe had lost a lot of investor interest last year. Only part of that has come back. If the euro keeps appreciating at the same pace we have seen this year, 6. 5 so far this year, that would be a headwind not so much for growth, but that would be a headwind in terms of earnings of european corporates. That has been part of the story in the last quarter as to why european stocks have been somewhat disappointing. Mark simon, does the euro keep appreciating . Simon i dont think it can breach materially above 1. 20. I think that becomes unhelpful over the mediumterm. Mario draghi and the ecb will look to talk down the euro. Mark thank you both. Simon french, isabelle Mateos Y Lago, global macro investment strategist at blackrock. Surveillance continues in the next hour. Francine and tom in new york today. They will be talking to stewart butterfield. This is bloomberg. Francine time to unwind. Economists see the fed in announcing the Balance Sheet run off this week. Draft which may allow majority stakes in ventures. And ray dalio says hes ready to give away some of the tricks of the trade that made her and water the World Largest hedge fund. This is bloomberg surveillance. Im Francine Lacqua with tom keene. We are getting some data. It is you and General Assembly week. Tom i saw turkey and south africa in Central Park South over the weekend. People are really getting together. Francine we have the president of ghana at my hotel. This is what im looking at for the eurozone. This is important because it is one thing mario draghi will be looking at. Bang in line with expectations. Month on month, 0. 3 . Year on year, 1. 5 . There will be a talk about pound hitting 1. 36. Lets get straight to the bloomberg first word news. Taylor the u. S. Says it wants a peaceful resolution to the Nuclear Standoff with north korea, but is willing to use force if necessary. Mcmaster said there are doubts whether economic sanctions will be enough. Mcmaster says that kim must relinquish his Nuclear Weapons because President Trump wont tolerate the threat. May call ahinzo abe snap general election. Holding an election would allow abe to capitalize on disarray among the opposition and growing support for the way hes handled the north korean crisis. The terror alert in the u. K. Has been lowered. British police are holding two suspects in connection with the explosion on a subway train. Neither suspect has been identified. At least 30 were injured in that attack. Lawmakers are calling for foreign secretary Boris Johnson to be fired. Johnson put himself back in the Brexit Debate with a newspaper article that was seen to undercut Prime Minister theresa may. Johnson argued that the u. K. Should not pay to have access to that you Single Market after brexit is. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. Tom thanks so much. Equities, bonds, currencies, commodities, risk on this morning. Futures up an additional six as well. Fixed income fairly quiet this morning. A little bit of that today. Euro. Oil elevated. That is american oil. 50 a barrel. 10. 23, shows the bull market over the last number of days. Yen, 111. 35. Gold week as well. Francine when you look at the bullish sentiment, seems to be filtering through the asian stocks and european stocks. , 1. 35. To show you pound look out for any comments from Boris Johnson. We have that big speech from theresa may later in the week. Dollar stronger. Safe havens slipping a touch. Tom lets do a chart. This will be a source of conversation. Really across all this week, with the fed meeting on wednesday, this is the fed funds target rate. Heres the time of volcker. Down we go. These are the three moments where we got more restrictive. I did this to show how rare a restrictive fed is. Against a longterm regression, weve only gotten restrictive before the financial crisis three times going back to 1980. This shows the percent change, which is a big deal for vicechairman fisher to try to look at the percent change of yields rather than just the Actual Movement of yields. Was that too mathy for monday . Francine i like it. Ray dalio says the role of Monetary Policy has been remarkable. Bridgewater was one of the few hedge funds to make money during the 2008 crisis. Delly of set down with Erik Schatzker and gave him a sentiment of policymakers. Policy,i take monetary i think they have done a remarkable job. We have had what i call a significant beautiful d eleveraging. Francine the comments, head of the tuesday policy meeting. Economists think officials will announce in october. Joining us now is tony. Fed, how do you view the machinations at the moment . Can we talk about the end is my for qe . Qe certainly is over. Qt is about to begin. That is quantitative tightening. It is illogical to think that quantitative easing will help markets, but quantitative tightening want hurt. It seems markets are taking quantitative tightening in stride. Janet yellen has said, like watching paint dry. We could imagine situations next year where yields start to move away from the lowend of the recent trading range as markets get nervous about something. Francine weve said that for such a long time. , what end of this is Interest Rates are anchored by is what we call the new neutral. The idea that policy rates will stay low for some time because of longterm Structural Forces such as demographics, low productivity. Those things will anchor Interest Rates, keep them from moving up meaningfully. Thenical factors now and will cause some volatility. Tom you are one of the leading experts on shortterm paper. Lets go back to the chart i showed. The fed funds target rate, 10 ive got to get the little new England Patriots 10 , 5 . If you extrapolate that volker trend, we are there. Are we close to restrictive given the new neutral . Is stanley fischers ultra accommodative almost over . Probably. What pimco views as the new neutral, and markets seem to agree, is around a 0 real rate. Ath the fed policy rate 1. 25, inflation not far from that, it looks like the fed is getting closer to what we would call it is simply more difficult for the fed to push Interest Rates high. Tom justin, i will get this over to you. Francine, this is from bob. Tony brings this up. The inflationadjusted fed funds target rate. We cant quite get back to that inflationadjusted when are we doing that. A major force is demographics. Let me rewind. The u. S. Growth rate historically has been 3 . It is 2 from the increase in productivity and 1 increase in the numbers of people. Think about that last portion. In the last five years, the labor force has grown at a 0. 5 pace. Why . Because america is aging. There simply arent as many human beings and during the labor force to buy and produce goods and services. This will be the case through 2029 when the last baby boomer turns. Tom i am not the last baby boomer. Francine let me show you a chart. It is a little busy, but i like this chart. Kind of converging. Around will push it out 2 . Where do yields go from here . Cycles, where two the fed pushed rates higher, 2004 to 2006, and 2000, the u. S. 10year didnt move much above where the markets thought the policy rate would end up. Markets think the policy rate will end up in the twos. It is quite possible for quantitative tightening that there will be episodes where yields move up more rapidly into the high twos, perhaps somewhere in 2018. 50 billion of securities per month that the markets will have to absorb. Tom with got to come back and talk about that. This is a real question. Smoothness to those moves. We will continue with tony. Wednesday, our big day. Not only our meetings in new york, but also fed day. Weve got a terrific lineup for you to give perspective and conversation. Gross,anderson, william the former vice chairman of the fed, and jeffrey rosenberg. Michael mckee at a press conference with chair yellen. This is bloomberg. Taylor this is bloomberg surveillance. Theres a report that giant defense contractor is near an agreement for more than 7. 5 billion. According to the wall street journal, an announcement make him as soon as today. Orbital makes advanced weapon and space systems. There could be a price war after sweeping european regulations take effect next year. According to executives, investment banks might be willing to sustain losses until smaller rivals give up. One executive said revenue could fall 40 . Grewe u. K. , house prices at the slowest pace in more than five years. Asking prices rose 1. 1 from a year ago. Fallen 3. 2 s have in the last year, and the most expensive barrows such as kensington and chelsea saw the biggest drop. That is your Bloomberg Business flash. Francine thank you so much. Lets talk about china. Chinas central bank is dropping a package of reforms that would give Foreign Investors greater access to the Financial Services industry. The peoples bank of china will hold an internal meeting to discuss its proposals. Bloombergs chief asia economics correspondent joins us from hong kong. How significant is this . What do we know about what they could open up to Foreign Investors . I guess we are waiting on details to be confirmed, but certainly the indications are that we are looking at restrictions by foreign Financial Institutions in china, restrictions on the caps in terms of limits they can own in chinese banks. If these changes are made, it is quite significant. Foreign institutions have been calling for greater Market Access into chinas burgeoning securities market. If it plays out, it could be something the banks would celebrate for sure. Francine why is it significant . Is it significant for the big investment banks . Jpmorgan entered a venture. Jamie dimon has said hes talking with regulators. Is it important because it gives us a flavor of how authorities want to move . Youve got to look at it in the bigger picture. Authorities are taking gradual steps in opening up their internal markets. Weve seen steps to allow foreign access. We are seeing steps to open up the bond market. It is worth remembering what the head of the central bank said only months ago. It is not a very good thing for local banks. He encourages foreign competition. Tom the history of this is a history of disappointment, to be polite, for western and foreign companies. Is it going to be a joint venture structure . Is it going to be jpmorgan going in by itself . How do you presume it will be structured this time around . Absolutely right. Western banks have had a hard time in china for many decades. Theres no guarantee whatever. Etails come out tomorrow it is a gradual opening up. Incremental steps, even if they are small, will likely be welcomed. Probe theop is the ip u. S. Has launched. This may be addressing those complaints. Tom thank you so much. Just brilliant. Shift over to someone in the trenches, that would be at Pacific Investment management company. How deep is the asian market . You really cant play in asia. When do big guys like you get to play in china . Chinas bond market is the thirdlargest in the world, but it is not liquid. This should change over time. Forremarkable thing is that 20, 30 years, 40 years you could say, it has been integrating itself into the World Economic system. Right now it is being integrated into the world financial system. 2015, in other words, foreign Central Banks globally will probably lift the amount of chinese currency they own from zero to probably 10 or more. Disturbances in 2015 and 2016 where the u. S. Stock market fell 10 . This showed the new power of china and the new global monetary order. Will be unwinding of the feds Balance Sheet have an impact . Overtime, it will probably have a stressful influence in asia more generally. There will be question marks about the ability of the central bank in the United States to keep Interest Rates low. This will have great influence on communications. Thaternanke, he said Monetary Policy is to present action, 98 communication. The next fed chair, if there is a new one in february, will have to communicate well to markets the feds plan to shrink its Balance Sheet. Tom one of the reps ive heard for years is theres almost too much communication. Which way do you go on this . Anchorkey will be to Market Expectations regarding future shortterm Interest Rates. Right now they are well anchored. Perhaps rates go higher than the two point something percent markets are pricing, well below historical norms. Perhaps the communication effort has gone too far. Markets recognize that there are longterm Secular Forces driving that. Tom ive got to get up our fed chart. Our tony chart, we can call it. You watch us on television to get your morning briefing across north america. One of the things to do is migrate to the automobile with the digital space. Bloomberg daybreak on when we are on. It is a good way to get a really important radio briefing. New york, boston, san francisco, washington, this is bloomberg. Tom bloomberg surveillance in new york. With us this week, Francine Lacqua. We had a global forum. You saw the broadcast last night. Erik schatzker in conversation with mr. Dalio. One of the great issues of hedge funds is how they manage internally and what they do after the big guys get done, and can you export those management principles to other platforms Erik Schatzker talks to ray dalio about the principles. Ray we are about to take algorithms and tools and give them to others. Out how to make that fit in a number of other companies, to just pass it along. To be used byools anybody who cares to use the tools. Are we talking about Big Companies . Ray Big Companies who are eager to use it. I dont want to mention their names, but Big Companies that are eager to use those tools. Give us a sense. It is a little difficult to talk about it in abstract terms. Are we talking about it in a ge kind of company . Ray we are talking about Silicon Valley type companies. Big Silicon Valley companies. Particularly in Silicon Valley notions more of that that theres a power in crowdsourcing, decisionmaking, and that it is meritocratic. There is a desire to have those things. And then to use tools, to pass them along, theres a lot of that kind of desire. Traditional organizations are having more challenge by that. Tom francine, this is just extraordinary, this ageold struggle, what do you do with a hedge fund in terms of management, and here is rate not only worried about bridgewater, but it is really an original idea. Francine i wonder whether principles work or it is how you interpret principles. Tony, what is your take . When you have principles, do you follow them day in and day out, or do you just use them as broad guidelines . The process is very important. Bill gross, the founder of pimco, adopted a meritocracy. We have a very flat structure at pimco where any voice can be heard. Last night i was combing through 250 pages of a book we call the three best ideas. 250 individuals submit quarterly. Every rank. Rom everyone has a voice. Tom this is great. Whoever thought of that is a winner. Coming up next, we speak to martha drew at Credit Suisse on the impact of finance. We speak to her about investment and philanthropy. This is bloomberg. Week. Busy our Global Business forum on wednesday. United nations with a meeting yesterday. The black limo traffic in midtown is always extraordinary. We say good morning to all of you worldwide. President trump will be in new york in the early week. Francine . Francine later on, i think david gura sitting down with the colombian president. They will touch on a couple of things, including copper and some of the drug cartels that the president has had to deal with. Credit suisse has named maurice advisingo head up companies. She will oversee the impact advisory and finance department. Great to have you on the program. You are smart, smart. Is this just a pr exercise would do you believe there is money involved . Absolutely not a pr exercise. Really thrilled to take on this role. We view it as absolutely strategic and a Growth Initiative within the bank. If you look at the space, literally all of our clients are very focused on how can they make an impact in the world with their investment dollars. This role that i will be heading up is harnessing the activities of the bank around that space. Francine how much money will there be . It is now worth 10 billion, if not more coming you think this could become 10 times bigger almost. Way more than that already today. There are different groups with different statistics, but one of the Industry Leaders is a group called gin, the Global Impact investing network. They represent a large number of investors in this space. By their calculations, there was negligible 10 billion only about five years ago dedicated to impact investing. Today, it is north of 100 billion. The expectation is that the space will grow at doubledigit rates long in the foreseeable future. Tom this is all the rage at davos four or five years ago. What did we learn from professor porter about capitalism doing good. To be direct, there were a few skeptics. You would have seen that the job of the body corporate was to focus on making profits and profits alone and the fiduciary responsibility was to shareholders in that respect and that if you were doing anything that was even remotely philanthropic in nature, that should be in a separate division. Onhink the world has moved over the past several years and it is widely acknowledged that the two should not be separate, they should be part of daytoday operations and a core part of strategy. Whether it is a fast attracting ,apital attracting capital there is a demand for those who provide capital to provide they are making an impact on the world. Tom francine and i were in paris for the climate meetings a year and a half ago. It was in the news this weekend with real ambiguity about with the trump administrations position will be on reversing the Climate Change. Does your investment affect the political debate of Climate Change . I think we like to think of ourselves as staying away from the politics, but focusing on the direction of capital to solve the worlds big challenges. When we talk about impact investing, the true definition is creating a measurable social or environmental change while generating a financial return. If, in the corporate world, we ,ocus on making a difference the beauty is that we help direct and raise capital and find its wayat can to projects. That is what this is all about and hopefully than the politicians realize we can make an impact and maybe policy will follow. Francine where do you think the money is coming from . A region, certain investors, a certain type looking for Sustainable Impact . Sure, i would have to say it really touches every segment of where we find capital. For example, being the Large Business we are at Credit Suisse , we are constantly hearing from High Net Worth clients that they would like to direct their moneys good big change and making an impact. Lots of headlines with large wealthy individuals come the gates foundation, the buffet pledge. It is not just limited to the Worlds Largest billionaires. We are hearing from clients that they want to do good with their money. Equally, you think about the money inherited by the next generation, they care deeply about making an impact and we want to be their partner of choice in that respect. The Institutional Investor space , we are hearing it from institutions, that those that invest in the fidelitys are saying, i want to know that my money is being directed to making an impact and then, finally, we are hearing this from private equity clients, many of them raising individual funds to ensure that funds are directed to the space. It really touches every aspect of what we do in the Capital Markets. Francine thank you so much. Lets get to the bloomberg first word news. Taylor storm watchers are now tracking two hurricanes on the caribbean. Hurricane maria is threatening coulds and hurricane jose graze the northeastern u. S. The biggest threat major not to be big waves and beach erosion. In st. Louis, there was a third night of protests following the shooting acquittal of a white former Police Officer. A new report is bullish about the political economy. The center for economics and Business Research has updated its forecast. The group says that manufacturing has picked up and the worst of the Consumer Spending squeeze is over in the u. K. Economy. Im taylor riggs. This is bloomberg. Francine thank you so much. Theresa may prepares her revised approach to barrett brexit. Foreign secretary Boris Johnson put out an oped arguing that the country should not pay for access to the Single Market. We should be in this mode of cooperation, we need to do this, it is clear, the british people have spoken, the u. K. Is going to leave the European Union, but lets agree to do as little harm as possible in this process. This serves the interest of all citizens in the u. K. And the European Union better than anything else. Francine joining us from london is charles lichfield, the Eurasia Group associate. Boris johnson put out an opinion piece in the telegraph laying out his personal vision for brexit. Is he challenging for theresa that she he concerned water down any type of strong brexit . He is testing opinion in his party and the country more likely. I think he is disappointed with the role he has had in government. This is him showing people that he is still there. He will probably remain foreign secretary at least for the foreseeable future. Francine can she fire him . She code2 wanted to, but the concern would be the support she has managed to gather since the embarrassing resort results in june. Many mps would see this as a design in moving toward a softer brexit. Francine im confused. Do we really think that theresa may is going for a softer brexit and this would be dictated to her by some pretty weak Election Results that she had in june . So Boris Johnson rallying the , what isebrexiteers it mean for her strategy going on . Policy isernments still hard brexit officially. We expect in her speech in florence on friday some signs that the government is ready to compromise on transition. The cabinet has accepted the principle of a transition. The easiest thing to do, the most reassuring for business would simply to reproduce the status quote as much as possible. Something the foreign secretary finds difficult because he was the person most central and making these promises. Exiting anyequire sort of transition earlier. Tom we talked to , letsexchange animals talk to an International Relations guy. What does it mean that the sterling has crawled back . Isnt that a screaming triumph for Prime Minister may . Im not quite sure it is much lower than it was before the referendum. What has happened is that it has increased very quickly and i think that is due to signs from the bank of england that they are not going to keep this loose Monetary Policy for as long as they thought. Moment, i think markets are playing wait and see on the longterm economic outlook. Tom right, but what does it for the politician . Sterling is going to go to parity. I guess i could say it has not happened. Is that good for Prime Minister may . May has otherter problems to worry about. I suppose it is doing better than the doom mongers have been predicting. Sterling has happened to come up. The government is moving toward a more reasonable, predictable strategy. Faces a lot of problems within her own party. There are more to come. We cant say she is out of the woods yet. Francine tom come on saturday, there was London Fashion week over the weekend. We caught up with the new burberry ceo. There are mixed events looking at brexit because they have a benefit, there are benefits from the weaker pound, which means it was a lot more foreign buying. Thatid he is concerned they have so many Foreign Workers and they could have difficulty accessing the says. Tom that is an applied example of what we are going to see in brexit. Where is burberry going to be in 24 months or 60 months . Burberry is not moving to frankfurt, germany, are they . We are hoping to get some sort of deal to minimize disruption. The worry and manufactured goods has been just managing to get over the initial hurdle. I dont think there is much concern about tariffs being imposed or Something Like that. I think it is much more concerning when it comes to services. I think that is where the european summit in a fight a weak spot for the u. K. They dont want to deprive themselves with access to london, but they see it as an opportunity. Francine thank you so much. Coming up later this hour, softbank values a tech startup at 5 billion. This is bloomberg. Tom good morning, everyone. Bloomberg surveillance. Equities, bonds, commodities. Lets get started on our fed coverage on wednesday. I have not put this up since the last fed meeting. Go andget this out on tv social. A big leg up in the middle. Then we are just grinding up. Why are we so reluctant to move to higher Interest Rates . We in the markets dont think we will raise rates nearly as much. Only one hike between now and the end of next year. To ork it is more likely three. The reason why does grinding is because of this restraint view. What is the economic distinction of the pimco view versus the one and done view of december . It is similar in terms of the economy. Is going on . T why do we have the vigilantes so far from institutional giants like pimco . Markets think that there is theorylips curve, the developed in 1958 that the two relationship between growth and inflation. That we are lower than expected. Markets think that while growth might be stronger than growth potential, would normally produces inflation, that it isnt these days. When you look at the case of japan, there is a low unemployment rate, but no inflation. The bank of japan is likely to keep Interest Rates near zero. Francine we are either becoming more like japan or our economies have changed so much that we should be ok with inflation at 1. 6 . Does it have to be 2 . It does not have to be and the markets think we probably wont, which is the reason for the twoyear yield staying low. We do think that inflation will pick up somewhat over the next year and maybe move toward 2 . There is a phillips curve somewhere out there. It is probably flat. Which is to say that it probably breaks. Francine tony, thank you so much. If you are a bloomberg viewer and you have a bloomberg terminal and we sincerely hope you do, you can watch us on tv. On the screen, you can see the the videoneath screen. You can ask questions of tom and i. This is bloomberg. Francine this is bloomberg surveillance. Francine and tom from new york this week. Values the world based chat operator at 5 billion. It is blanketing the Venture Capital market and tech sector with the money. Ceo joins us from london. Are you going to ipo at some point . At some point, yes. It is going to be quite a while for us. Francine do you want to get it to Critical Mass or is it just not the right environment . Know, the environment is actually great. We are still relatively early. The we have grown fairly large. We are growing as quickly as we large we can. Significantly, we announced the launch of slack in german, french, spanish the thats why im in london. With projects like that, we have very little ability to predict how fast we are growing. Tom i love that you have a european to her. I expect tshirts to be put out with the concert venues. From it will be like heart long ago and far away since you are from vancouver. Guys in dark suits and bowties look at an extrapolation and say, what kind of dumb accounting is this . I dont buy it for a minute. I love the question. We are a little under four years in market. We have 50,000 customers around the world. At this point, we have been english language only. Tom within this is the ability to raise revenue and within your thing that you are actually building revenue. What is the quality of that revenue stream . Is it amazon quality . Is it ebay quality . Or is it a pieinthesky . A not exactly sure how to take the comparison, but one of the great things about slack is that revenue is recovering over the 3. 5 years. We have had 15 cumulative turn a month. Im not going to say that it is the best in the industry, but its got to be pretty close if it is not the best and we are building on that in a pretty rapid pace. Francine how much are you expanding in london and how is hiring going . Are you impacted by brexit . I dont think that we will be affected by brexit in particular. London is our sales headquarters for all of europe. Inhink we will be opening berlin sometime next year and potentially paris after that. Offon is the launching point. Do you have a metric for a hard figure you are looking at aiming . It is more like when growth becomes easier to predict. We are trying to grow as aggressively as we can. I would love to have another year over 100 . As it comes down to more normal growth rates, i think it will be a much easier business. We have been trying to run the business as if we are a Public Company for a couple years now. That means a lot of operational and internal controls. Tom are the schools giving you a different student out of the United Kingdom than the United States . Know, they are pretty similar. We have been hiring out of similar organizations that have back run enterprise sales. We greatly appreciate it. Coming up to get you started on the fed week, much more going on , we will do that, a really interesting week in new york city as well with the u. N. Meeting, President Trump scheduled to meet with leadership from israel and france today, as well. It is new york. What you see are black limos lined up three miles deep. Atncine tom the dow 22,200. Futures ever higher. Dock. At is leaving the what will you buy for the next breakout . Francine lacqua read every word on the plane this from Boris Johnson. I call it fake news. ,resident trump takes an emmy it was extraordinary, he wheels in, the place exploded. The keen family exploded. Omg, there she is she was a total class act. For those of you on radio, you are looking at the former press secretary of the United States of america wheeling in on Lauren Michaels technological invention. She was wheeling down on 50 eight st. It was controversial. ,eople in the twittersphere the president did not comment, but did they really want to do that with mr. Spicer . Francine welcome to new york. Thank you, tom. Tom it is really something to see in midtown. The president in town for at least two days. Meeting with leadership from israel and france. Lets get your monday first word news. Taylor the u. S. Says they want a nuclear want a peaceful resolution to the Nuclear Standoff with north korea. H. R. Mcmaster says there are doubts whether they will be economic sanctions will be enough to deal with the threat. May call a snap general election next month. Holding an election would allow him to capitalize on disarray among the opposition and grow in support for the way he has crisis. The north korean the terror alert has been lowered from severe to critical in the u. K. Twoish police are holding suspects in the london attack. Lawmakers are calling for foreign secretary Boris Johnson to be fired. He put himself back into the Brexit Debate was a newspaper article that seems to undercut Prime Minister theresa may. He argued that the u. K. Should not pay to have access to the Single Market after brexit. That counters and idea being floated by theresa mays government. Global news 24 hours per day in more than 120 countries, im taylor riggs, this is bloomberg. Tom thanks so much. Data real quick. A risk on feel. Futures up 6. Dow futures up another 59 points. Oil, 50 per barrel. Distractions,e not enough said about a continued bull market with yen weaker. Gold weaker, as well. Francine oil is actually climbing. Dollar is stronger. Overall, it seems that the bullish sentiment in wall street with sharesthrough rallying across the board. Tom lets look at the fed as we get to wednesday. Here is the fed funds target rate. This is a log chart. It shows percentage change of the fed funds target rate. Here are the moments of restrictive. 1, 2, 3. Down we go in the financial crisis with a little bit of recovery, but nowhere near those levels of a restrictive fed that we see. Francine lets talk about market principles. Ray dalio says the role of Monetary Policy since the financial crisis has been remarkable. Bridgewater was one of the few hedge funds to make money during the crisis. , iif i take Monetary Policy think that they have done a remarkable job, that we have had what i would call a significant beautiful deleveraging. Francine the comments, head of the today policy meeting. To officials are expected roll that out in the next two years. What do you look at from the fed about when they hike rates . Jan i want to see that the market is fully priced to hike. I think that is the priority for the fed. They have two issues that put them in a quandary compared to a normal business cycle. We have a lot of debt, we have no productivity. We can only cut three times if they make a mistake and that is probably not enough to get us out of recession if they make a policy mistake. The Downside Risks are very serious. Francine where would the policy risk come from . Jan i think it is much more likely that they are going to hike too quickly. Are facingnk they strong inflationary pressures and i dont think growth is strong. Ofhink a lot of the oompf Capital Markets is going to dissipate. Tom im going to show a chart. We are going to show it twice in an hour. That is what you do with an important chart. This is a beyond elegant trend chartres trend chart. How can the dollar be overpriced if im showing a chart like this . Jan welcome, the dollar rose and 2015. N 2010 emerging markets only covered about 8 from that decline. The dollar has been incredibly bullish. Tom people love to hear the holistic view that you have. The e. M. View is always, should i buy international . Or do i buy u. S. Domestic or u. K. Domestic . Jan you should buy international right now. What we are just starting is the unwinding of qe. Qe has had an enormous impact on Global Financial markets. It has been good for the dollar, u. S. Stocks, european bonds, and bad for everything in em. You are going to see these trends reversed. You are going to see u. S. Bonds outperform european bonds and you are going to see emerging markets outperform the qe markets. Francine there seems to be such a bullish demand for European Assets at the moment. Do you look at u. S. Trade weighted dollar or do you look at it as a currency pair . Jan when i try to identify value opportunities in the fxbased, i look at the individual currencies versus the u. S. Dollar. Francine let me bring you up to my chart. This is the european surprise. What this chart shows you is that there is a lot more betting on european earnings. Do you mean this is wrong . Jan investors are asking themselves, where my going to see the biggest earnings. This is a little subtle. Earnings are down. We go back up the income statement, you get to revenue priced in units. What is your revenue expectation that generates better earnings . Is it all both rising . Jan i think it is more the latter. It is difficult to underestimate just how incredibly important for growth risk willing capital is. That has been responding to particular views about the United States and europe. That meant that a lot of risk willing capital moved into the United States. Tom i love that phrase. Jan as the risk willing capital comes in, you will soon more investment, revenues, stronger earnings. Tom i love that phrase. Im going to steal that from you. Jan dehn phrase. Risk willing capital. Are we going to see rising investment . Jan i think we will see that. When we get through the german elections, we have a bit of rationality in the center of european politics. I think that is all it takes together with cheap valuation for investors to feel bullish. I dont think we should get too excited about this. Europe still has deep problems and i still think there are better places to invest. Tom im thrilled you are with us today. Parked out there in midtown like everyone else. [laughter] tom coming up, forget about the traffic. The fed will decide. Scarlet fu will lead our coverage. The fed decides. Washington, Jeff Rosenberg blackrock will be with us from new york. Im looking forward to that chair yellen press conference. Taylor this is bloomberg surveillance. There could be a price war in stock trading execution costs. After sweeping european regulations take effect next year. Big investment banks might be willing to sustain losses until smaller rivals give out. One executive said trading revenue could fall 40 . In the u. K. , home prices grew at the slowest pace in five years this month. Asking prices rose 1. 1 from a year ago. A slump in london has affected the overall market. London prices have fallen 3. 2 . The most expensive london borough saw the biggest drop. Of the economic Music Magazine Rolling Stone may sell the publication. Stone was cofounded 50 years ago. In recent years, it has been steadily losing readers and advertising. Tom taylor riggs, thanks so much. There are always 4, 5, and six ways to go with kevin cirilli. Washington. Migrates to manhattan. Lets get to the u. N. Speech. Does the president really care about the moment . All of his campaigning says it is the one place i really dont want to be. Kevin i was speaking with a source over the weekend who said the president is going to have to walk a political tightrope of essentially echoing what he said on the campaign trail, which is very critical of the united nations, but also trying to rally support on north korea. I think you are going to see criticism of the united nations, but also trying to bolster a coalition to do now to north korea, who is going to be sitting in the front row. Kevin, there was a set of distractions this weekend for the president starting with mr. Baldwins comments at the emmys and also mr. Spicer being wheeled them for a moment at the emmys. Laugh. Ll ha ha, laugh underneath it is percolating stories. Give us an update on what is actually going on at the white house as regards a special investigator. Kevin on capitol hill this week, the hearings are going to continue. The president s personal from his Trump Organization days is set to testify on thursday before the Committee Investigating this. That, there have been some reports that the capitol hill investigations are on a different page. Yes, you are right. Tuesday and thursday of this week, some hearings of the Senate Intelligence committee are going to be underway with top testimony. We got a report that donald trump jr. Will testify publicly. Some public testimonies are about to get underway this week. ,rancine back to north korea President Trump will meet the , but will south korea he meet with the chinese president or the russian president . Kevin with russia, it is unknown, but with chinese diplomats, we shall see. He will be meeting with African Leaders on wednesday. There is a busy, busy schedule. My reporting, ive been telling you that this white house has not been as active, as having a concrete itinerary, putting it mildly, as other administrations. This administration has been fluid with its itinerary. What i will be watching personally is the dynamic between Rex Tillerson and u. N. Ambassador nikki haley. Tom i would agree with that. [laughter] tom mr. Some really mr. Kevin cirilli sounding as diplomatic as mr. Colbert last night. [laughter] kevin thank you. Tom jan dehn with us considering the linkage with politics. I look at what he is talking about here, you have to remove yourself every day from the political battle, how do you do it . Jan i think it is helpful to remove yourself from the political ballet. There can be a shortterm impact on asset prices. The shrillary to noise that surrounds certain political headlines can be an excellent buying opportunity. In general, i think the trick is to ask how much does this translate into fundamental deterioration . You have an immediate buying opportunity to the extent that it doesnt. Francine we have some breaking news. This is a defense contractor. For 9. 2 billion a orbital atk. This as to the air face and defense portfolio of Northrop Grumman. On top ofbillion is the substantial deal we saw. If im bowing or airbus, im saying to myself, what am i going to do, talk to one vendor . Francine this is basically more competition for boeing. It would broaden the portfolio of Northrop Grummans aerospace and defense portfolio. Is making to be stronger negotiation. Tom this is bigger than a 9 billion deal. It has some real weight to it in terms of where the industry goes. Francine coming up later, david gura sits down for a conversation with the president of colombia. Cartels andout drug about some of the commodities. Look for that 11 30 a. M. This is bloomberg. Tom very good. Bloomberg surveillance. Francine lacqua and tom keene. Good that you are with us today, as well. We are talking Global Economics and strategy. Jonathan krinsky could care less. Value versus growth. It is a huge debate right now institutionally. Is it a debate of optimism that i want to guess the right thing . Or is it a debate of im trying to avoid trying to lose money . I think it is the former because they are both going on, right . Yearssue coming into the was we saw yields try to push up , we saw the trump trade, small caps, that was benefiting value. But since the last couple months, we have seen that reverse and yields have broken down and that has favored the growth names. They are both still doing ok. Value was going down. It is that value is doing better. Tom all of a sudden, you have these jump conditions, whether it is Northrop Grumman and orbital tunnel will there be a merger frenzy that makes the charts do strange things . We think the industrials are set to break out as a group. The industrials act much better on an equal weighted basis because ge is the biggest component in the cap weighted industrial index. If you look at equal weight industrial, it is very robust. Forink that is more fuel that under the surface strength of industrials. Francine im going to ask you a simple and difficult question. Still work . Ls it things there are so many correlations broken partly because of all the cheap cash out there, is it more difficult for the trends now than before . Trends are a function of fundamental underpinnings. That will never change. There are always trends in the market. To your question about correlations come you have to recognize which ones are working and which is not . Francine what is working . I think there are a couple of things. One, the dollar. And have the dollar is impacted on the markets. That theve this idea dollar has to be correlated to the market one way or the other. Thats not true. There have been grateful markets where the stocks were rising with great bull markets where the stocks were rising with a strong dollar in the 1990s. You have to recognize what are not. Francine we talk a lot about algorithms on the markets. Does that make Technical Analysis more or less useful . Jan i think it makes it less useful. I think the problem we are getting into is that asset prices are getting so far removed from fundamentals that a lot of the old relationships that have played out before are not really present in the markets right now. The overwhelming influence on where asset prices has gone has not been fundamentals. It has been Central Banks. We did the apple extravaganza last week. Are the stocks reemerging . I think they are. Facebook and netflix have been leadership stocks. Amazon and google are now reemerging. There is really a core group that continue to lead. As long as Interest Rates dont spike, i think youre going to see growth rates continue to work. With us. Dehn jonathan krinsky, thank you so much, as well. Bloomberg businessweek. This has been a huge success. Every week, we do two issues. Equifaxon equity act. There is the second one. Getting an american visa is easier than you think. Our cover story written by Francine Lacqua. No time spent at jfk this is bloomberg. Pictures ofese are our beloved london. When i talk to brexit, there may be some kind of showdown between theresa may and Boris Johnson, both in new york this week. This comes after Boris Johnson wrote an opinion piece laying brexit, sevenn days before theresa may is supposed to do the same. We just heard from a spokesperson who said theresa may has confidence in johnson. I wonder what it is like behind the scenes. We have talked a lot about whether theresa may can actually fire for foreign secretary or if that would come back to bite her. Tom there is only one solution. Lithgow. Goe he looks very lithgowian. Who am i to say . Taylor some breaking news. It acquisition in the defense contracting industry. Tothrop grumman has agreed buy orbital atk. Makes advanced weapons and space systems. You have Hurricane Maria threatening islands already battered by hurricane irma. Meanwhile, hurricane jose good hit the northeastern u. S. , but the biggest threat major not to be beach erosion and big waves. There is a third data protests in st. Louis after the acquittal former Police Officer in the death of a black man. A new report is bullish on the economy. It says the british economy will year. Grow 1. 6 this the group says that manufacturing has picked up and the worst of the Consumer Spending squeeze is over. For the first time, an Online Network has won the top honor in american television. Hulus the handmaids tale took home the emmy for best drama. It was originally launched for people to launch reruns online. Day,l news 24 hours per im taylor riggs. This is bloomberg. Tom thanks so much. With this lost in translation . Francine a little bit. I just saw the video of sean spicer wheeling in his lectern. That was quite good. Tom that was quite good. There is a lot of other stuff going on. Sometimes it is bigger than the oscars, the emmys. Ms. Moss accepting a welldeserved emmy. Erik schatzker spoke with ray dalio over the weekend. On the larger perspective. Of course, you have to ask ray dalio on the president. Isthe most important thing to make sure we understand what the countrys principles are that bind us together rather than those that divide us. To decisionmaking to try to come up with the best collective decisions. O bring the country together i think the period that we are 1937,inds me very much of if i was to take an analogous period of time. At that time, it was after the 19291932, thes, equivalent of 20082009. They printed a lot of money, asset prices went up, Interest Rates went to zero, and we had a large wealth gap, which created populism. Analogous. The Central Bank Begins to tighten Monetary Policy. And then we had a populism and we had a fall and the stock market. We are once again at the precipice . Well, yes, we cannot have tightening of Monetary Policy that is material. We have a very large wealth gap. Topry large gap that the 0. 2 of the populations wealth equals the bottom 90 of the nations wealth. It is not just wealth. Theres a polarity. This is a time where we have both of those things. You cant have an economic , socially andse politically, we could not stand an economic downturn. It is a threat to our system, right . It is in many ways analogous that those tensions, that conflict, i think it is in many ways analogous. That is fearful to me. When you ask what i would recommend the president of the United States to do is to try to deal with conflict well, to bring people together, to not make one side in a battle with the other side and to have ways to get at the best decisions, that is what i would recommend the president do. Tom the hope and audacity of ray dalio speaking on the great philosophical moment. Yearems to be that time of for hedge fund managers. To go philosophical. In the trenches with president his smalling with business administration, she knows a Building Contractor when she sees one. Im going to cut to the chase. Is the most important thing for the immigration debate that we have no warm bodies to rebuild houston and rebuild various and sundry parts of florida along the caribbean . It is certainly important that houston in florida get back on their feet. One of the most important things as people and labor, but also money to help rebuild. The second response. We spend a lot of time on the first responding. Tom i like that idea. Right now, the second responders are in. I was on the ground for every tornado and hurricane, sba had 2000 people down there making sure they had a little bit of money to rebuild. Am i like this idea of little bit of money. The granularity of that idea. What i see on tv are the trucks heading down as wellintentioned first responder. The third responder is somebody with a hammer in their hand who compounded nail. Where is that going to come from . I hope it comes from local contractors and Small Business owners. One of the things that nashville did in the last flood that accelerated the cycle is they bought local. If you have a whole set of Big Companies ready to come in and help, that is fine, but what you really need to do is spend money with the local people. Then you get to the virtuous cycle. When you get off of the right foot in recovery, the economy comes back. If you never open the gas station, how are the homeowners going to come back and get back in their house . There is no sandwich to buy. Tom lets go to a british phd who im sure is an expert on hurricane dynamics. What about u. S. Gdp off of hurricanes . There is this perverse effect after a natural disaster. Stuff needs to get rebuilt and gdp goes up because it does not capture the stock. More disasters, better growth. That privatee is companies have not really been willing to invest a lot. The Public Sector has not delivered a lot of infrastructure investment. Tom be careful. I think he is correct. Jan you have to ask yourself, where is the marginal return higher . Building the infrastructure of again as a complement to private or creatingtment deeper inequalities . I think that is where the crux is. Francine talk to me about the trump administration. We seem to have more bipartisan approaches. Will it change the dynamics . I think it is critical for the dynamics. I think a lot of the trump are people that i dealt with, the Small Business owner, they want things to get done. One of the things that happened when trump reached out his you suddenly have this breaking of barriers and this idea that maybe we will have a lot of deals. That is all to the positive. You really need some activity in infrastructure investment. There is no reason we cant do it. Tax reform is a tough thing, but there is nothing a Small Business likes more than a tax break. If i were trump right now, i would do the Small Business jobs bill of 2017. There is a lot of bipartisan support for a number of things if he can get a bunch of deals going and get done with the democrats, i think he is going to get a lot of popular support. Francine you believe democrats are ready to support this president for the things that matter, which is dealmaking . I think the whole country wants to come together and there is momentum for that and there are certain fringes and ideologues who dont want to, but in the center, where a lot of the economy is, people want things to get done in washington. I want to go back to the Reuben Gordon family of chicago. Rolls. Eaned on tootsie this iconic thing from the 1930s is part of the american fabric. President trump screams about make America Great again. Somethingdo it as authentic to america as the tootsie roll culture . This is why i care about Small Businesses. We make them right here in america, they are part of the american dream, started by an immigrant, built in this country. This is the kind of thing we can do. We have to make sure that immigrants can come here. Sure it is like that. Tom im just waiting for a case to come in the mail. They have the rubin family and the Gordon Family at wrigley field. Thank you so much for being with us. The former Small Business Administration Director for president obama. Course, we are here on bloomberg television. Francine and myself. Coming up later, you can migrate over to bloomberg radio. Stay with us. This is bloomberg. Francine this is bloomberg surveillance. From new york this week, tom and francine in new york. Boris johnson put out an opinion piece in a challenge to theresa mays authority. She says she still has confident in confidence in johnson. Sterling rounded off its biggest weekly gain against the dollar in months. Simon kennedy joins us. Are we going to going are we going to see a johnson versus m ay showdown . I dont think so. This was not a fire a bullet offense. Offense. Le it is definitely a shot across the bow. It provides a push from the right of the party, a push from the onetime grassroots favorite and shows that Boris Johnson has not gone away. There was talk over the summer about where Boris Johnson had been on brexit. Obviously 4000 words later, he is back on the scene and trying to influence the Prime Minister and running the risk of accusations he is undermining her. Francine there is a pull coming out or that came out, a secret poll that emerged that he was unpopular with voters, which is why he did not play a big role in the election in june. This is one of the revelations in a forthcoming house. Led betting the tim reports that an advisor to theresa may who left after the election, that he had told people that the data showed from polls that Boris Johnson not very popular in the country and should be kept back. A shot across his bow, perhaps, from the upcoming book. Francine you look at sterling levels, how much does sterling volatility goes up, comes down again, how much does it have to do is machinations and how much does it have to do with mark carney speaking in washington later today . I think it is a bit of both. Last week, it was all about the bank of england. Political currency has been driven by what theresa may has said. More recently, it has been about the bank of england. About theresais may, what she says, whether she is focusing on the transition, whether she is going to make sounds to help us move toward trade talks in october. That is really important for the economic outlook. Tom if you want to jump in here if you are think you are wiser on this, an uproar about the president advising the United Kingdom about what to do about terrorism. How does that play in london . It is yet another political curveball from the u. S. President. To be perfectly honest, the focus this week is really on brexit. Simon may have more on this. From our side, we are focusing in on what theresa may is going to say about the transition. There are obviously political volatility concerns, but brexit is the key focus. Tom we move on month to the brexit path. Where are we exactly . Are we in a boring state . Do we think a lot is going to happen . Or is now important for where we are a year or two or three years from now . Brexit is never boring, tom. We are entering a period that is going to be extremely interesting. We start with theresa mays speech on friday. Very much the message from the eu to the Prime Ministers is that she needs to reboot her strategy. We did not hear her much over the summer in the wake of the election that stricter from the parliamentary majority. A lot of people in her cabinet came out and started staking out their positions. She is under pressure not just from her own party, but also from the eu to clarify a few issues. Perhaps with the longerterm brexit will look like, if she does not deliver on those issues , then the bets will be lay down again that we are not going to get those trade talks beginning in october, as they once hoped for. Francine thank you so much, simon. In the meantime, we had a couple of companies, probably the biggest Luxury Company of the u. K. , talking about brexit. We went to the fashion show on saturday night. It was London Fashion week. Tom we did. Francine we. The royal we. This is what the burberry ceo had to say. To tellit is too early the impact of brexit, but a weaker pound helps with sales. If you look at his challenges, a lot of people are foreigners. Tom it cuts both ways, doesnt it . These are quintessentially english brands. This is a huge deal. It is mostly about people, isnt it . Francine it is. A lot of highend clothes from burberry are made in the u. K. We will have plenty more from burberry. We will get back to jan dehn from ashmore, as well. Tom we have tv. You are not going to be able to get out in traffic in new york today, so you might as well look at tv with the lovely Francine Lacqua. Come over here, click on the chart. A hedge funds chart. That will make your monday. This is bloomberg. Francine this is bloomberg surveillance. In new york this week, francine and tom for the week. Coming up is bloomberg daybreak. David, good morning to you. What do you have on the show today . More importantly, im happy to see you in new york. And we aren krueger talking about the economy. He has a new and compelling report out that says that a lot of the problem with Labor Participation in the United States today is abusive opioids. He says he can prove it. He is going to be on surveillance with you afterward. Tom this is the classic alan krueger. We are really looking forward to that. How about a single best chart . We are going to take a twist and look at u. S. Dollar. We are going to do it with jan dehn. This is a beyondelegant, teach it in college trend chart. It really shapes up we have great equity markets. Thai market up 19 . It is pretty good. It comes on the back of an enormous amount of outflows. They only have access to 20 of global finance. They are financeconstrained. One the dollar goes down and money returns to american markets, that relieves these finance constraints and enables companies to finance investments in spending. That has a very profound growth effect. If you look at the growth , they are extremely closely correlated. On current trajectories, everybody is forecasting emerging Market Growth to accelerate faster than developed Market Growth. That bodes badly for the dollar. Chance ofthere is no some kind of temper tantrum on the back of the fed unwinding . Jan absolutely. Dont underestimate the hurt. Herd. Once it starts galloping in a particular direction. I would not be surprised to see profit taking in the short dollar positions because a lot of people have made a lot of money on this move. Then we are back to reality again starting next year. Then i think the move continues. Ultimately, emerging market currencies rally about 20 . Tom weve got to have you back to talk about that. It is too important. Jan dehn will continue with us on radio. We will get him back here again. Lets go to the foreignexchange report. A vanilla report to get the monday started. Weaker yen. It is an International New york. We welcome Francine Lacqua. Because she is here, they have all attended across the haze of midtown manhattan. Sees as far as the eye can with the uns General Assembly. The president moderately tying up traffic today. Worldwide, 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. Every Branch Running like headquarters. 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. Jonathan World Leaders to send new york for the yuan General Assembly. You add General Assembly u. N. General assembly. Untilxt fight wont come december. He is ready to give away his management secrets. From new york city, good morning. I am jonathan ferro. Alongside david westin, alix steel off today. 500,d high on the s p 2500. Futures firmer, they are up five points. Market, eurodollar a little stronger. Giltyields stronger. David