Transcripts For BLOOMBERG Bloomberg Surveillance 20171004

Independence and we are live for the tory party conference. We also have an allstar guest lined up, john fraher. Ellon we speak to jim mal on his new book. We are live in moscow, where john fraher will leave a Panel Discussion with Vladimir Putin. In the meantime, we have a packed data check. The dollar is slipping. Global stocks seem to be a little bit mixed. What all to do with investors are trying to figure out, who the next fed chair will be. We understand the president has a shortlist of candidates, but they all have very different policy agendas. You have some hawks, you have some doves and they are trying to figure out the most likely will get it. I am also looking at spain. Stocks are resuming their decline after the king criticized the catalonian separatists for unaccountable disloyalty. And if you look at spain, the nations bond yields are rising. In the meantime, we are getting breaking news out of the eurozone. Pmi is rising a touch more than expected. Predicted a rise were pmi services, 55. 6. This is for the month of september. They actually rose 55. 8. Well get plenty more data throughout the day. Lets get now to the bloomberg first word news with Sebastian Salek. Sebastian donald trump suggested the Government Debt accumulated by bankrupt puerto rico would have to be wiped clean. These comments came after a visit to the island, where people were seen without power and Drinking Water. Comments by theresa mays government are already estimating the reconstruction costs will be antias 106 2 billion. Theresa mays government are worried they will crash out of the eu without a trade deal. Time s stoking fears that will run ou t. David davis says he is still aiming for a good deal, but warned the country must be prepared. The u. K. s trade secretary says the eu and britain have made some progress on World Organization quotas after brexit. We spoke to the conservative Party Congress in manchester. The countrys constitutional crisis was weighed in on by spains king. Rajoytervention comes as is fighting to maintain control after 2. 3 million catalonian residents voted for independence. Irans oil minister has insisted that opec and nonopec members are working well with the agreement. Totalthink we have compliance. Of course, some of the member thetries and some of , compliance is not there. Sebastian global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im Sebastian Salek and this is bloomberg. Francine thank you. President trumps advisers gave him a short list of candidates to become the next fed chair. Alongside current you janet yellen and gary cohn, trump is believed to be considering mr. Powell. And now, gundlach has his own idea about who will be the fed chair. I think it will be neel kashkari, it was not a traditionally trained phd economist, but he happens to be the most easy money guy today. That is why i think he might win. Francine joining us now is alberto gallo. Great to have you on the program. When you look at the fed possibilities, i guess you have to put yourself inside the mind of donald trump and figure out whether he wants somebody loyal to him and that will most likely be kevin warsh. Or whether he actually wants a dove. What can we figure out in all of this . Alberto i think probably both. Candidates have been critical of the trump administration. View toomes down in our warsh or powell. The first is a bit more hawkish, could be candidates that would work in tandem with the administration. We are probably not going to have a Federal Reserve that acts against what the administration is doing, which means a very low turnover rate. Already it is at the lowest ever. Francine let me bring you over to my wirp function. Looking at treasuries. What i am concerned about is if you look at the probability of a hike this has a significantly been repriced in the last couple of weeks, and yet, you look at the bond prices and treasury yields and there has not been that much of a difference on how they expect the fed to make a difference. If you are the market and are expecting normalization, are you certain this will happen . Why dont the bond markets believe the fed is there to start normalizing and continue normalizing . Is, why the real issue are market so relaxed, especially in the long end of the curve . Maybe because they expect a few hikes. But they dont expect acceleration. They dont expect the terminal rate to go up. A very gradual normalization. We see a lot of complacency at the long end of the treasury market and a lot of carry trade that depends on the dollar. Emergingmarket currencies continue to be very well followed by investors. Francine what does this mean for bubbles . Alberto it means they are still floating in the air getting bigger. Our job is to distinguish w hich assets are overvalued, but still investable. Within the overvalued world, they are some assets that are dangerous for becoming bubbles. Francine which . U. S. Highyield, where spreads are at record lows, but companies are doing very exuberant things, like buying back stock that issuing dividends. Andike buying back stocks issuing dividends. All these things depend on Interest Rates staying lower and stable. Tit could be that we remain in a low Interest Rate environment for a long time. Some is a risk some that there is also a risk that some inflation comes back or that treasuries will rise and th is carry trade will be this rapid. Francine at this point in the economic cycle, does it work on inflation, or on gdp. Lets say there was a tax cut for 20 . Alberto it works on gdp, because it benefits the 0. 1 . We know that part of the population is not spending the money they get. The trickledown effect is a hoax created to perpetuate the idea of the american dream. You could get to the top of the pyramid and be happy. But the reality is, the more wealth accumulated in the 0. 1 of the population, the less gets redistributed because it some point, you become a harder. You become a horder. Francine when does it get repriced . Does there need to be a second hike, maybe early next year, for them to say, this low rate environment will not stay here forever . Alberto it could price a little bit more. What we are worried about, for the carry trades and the long end, it depends on Corporate Tax reform visavis a tax cut or fiscal stimulus. Will the economy be able to breach that 2. 5 growth, or are we in a goldilocks environment, where you have 2. 5 growth . For investors, it is very difficult because growth is good. Weve got a very nice recovery, but at the same time, most assets are overvalued and activity is pushed lower by Central Banks. Theres a few bubbles as well, so investors have limited opportunities. Francine alberto gallo, thank you. Stay with surveillance. Paris, where we speak exclusively to the chairman of bnp paribas. Also coming up, politicians and Business Leaders gather in moscow for Russian Energy week. President putin will be speaking during a discussion moderated by bloombergs Senior Executive editor, john fraher. This is bloomberg. Felipe viking criticized catalonian separatists for unacceptable loyalty. Looking for example, at the 10 year spread between bunds and spanish bonds, that gap is definitely widening. As we were saying, the spanish king weighed in, calling what the separatists are doing unacceptable disloyalty. He vowed to keep the country together. The catalan Regional Government has broken the democratic principles of every rule of law and have undermined the coexistence of society. The authorities have rejected this their irresponsible behavior, they are threatening the economic and social stability of catalonia and spain itself. Beenine bloomberg has covering the story with maria tadeo. What does this mean for the Prime Minister . Hes looking for allies. Maria i mean, this was just crucial for rajoy. The king stepping in is unusual. He likes to stay out of politics, but yesterday, he was crystal clear. He said, the Catalonian Administration has gone completely rogue. Its time to take action and that means national unity. For rajoy, who has come under a lot of pressure, it paves the way for the rest of the Opposition Party to back him up if he needs to take cover measures. The king stepping in and saying, this is not about rajoy or politics, it is a matter of state. A little breaking, we expect the wealonian government, expect the press conference to happen by midday here. We will bring you any breaking news we get out of that. Francine thank you so much, maria tadeo. Still with us, alberto gallo. Im looking at the spreads. If you look at the ibex, numerous performers are the spanish banks. The spread between the spanish 10 year and the german tenyear is widening. How ugly can this get . Alberto we need to understand how much is bolstering, versus real options. Catalonia is the richest region in spain, but real independence encounters a lot of hurdles. One, catalonia would not be in the eu, and they would have to pay part of the spanish debt, its portion. You are talking about a region that wants more economy. Were not sure whether there will be a declaration of independence. Then, obviously, there is the hard option from the spanish government, which could be triggering article 155, the suspension of autonomy, which has never been done before, with the potential for a lot more noise politically. A lot of investors and markets tend to focus on politics, but the reality is, economics are going really well, if you look at todays pmis in spain. They are still above target. We continue to see strong growth. This is not yet a breakup scenario. Francine what is going on in the markets . Im trying to figure out, there seems to be complacency when it comes to european Political Risk after the election of emmanuel macron. And then we had a small slap in the face for merkels party. Italy is next. Do we need to be much more careful about the unpredictability of european politics . Alberto idling so. Thinkis always i dont so. There is always a tail risk in europe. Theres always a home bias and a tail risk when it comes to the eurozone. The bigger the tail risk, the cap year i am because we have been taking the other side. Francine as long as they dont play out, right . Is it kind of like short volatility and short negativity that you like . Alberto that is not always the case because, if you look at afd, they won 13. 5 in germany. The extremist party, no agenda, but they are not going to be in the government. Ok, i agree with you. Theres a bad scenario that could happen, which is a le penne scenario that europe would break up. There, your to get have a lot of bad things that need to happen. The probability of catalonia getting ugly is now overstated by the market. Francine a lot of the indicators are showing that italy is on a better path and yet, you have the northern league, and then you have the unknown party. Alberto this year we have a 1. 6 to 1. 8 growth. We have nonperforming loans, which were the bottleneck to the banking system, finally declining. They went down 10 in one month, in august. You see a lot of demand. Politics have been stable. The reform pace over the next two years. Thats what i worry about. I think they will be a central Left Coalition and a central right, and a mix in the government, which will result in some reforms. My where is these reforms will not be enough in three or four years time. Francine bloodstock a little bit about the lets talk a little bit about the u. K. Concerns are growing over the potential brexit deal. Ministers are worrying the country could crash out of the eu as the two sides blame each other for the slow progress of the talks. The trade secretary says the eu and britain have made some progress in splitting World Organization quotas after brexit. As we leave the eu, we have to agree on methods of dividing up the quota britain should take. We have agreed on methodologies. That is a step forward. It is also a sign that we can make progress when both sides choose to do so. Francine is it more likely or less likely now that we crash . And seems once again, it is the conservative Party Infighting that is dominating headlines, and why the investors choose to focus on the brexit negotiations. Alberto the eu is about to make more offers to the u. K. These are contingent on freedom of employment for eu citizens. The issue is within the tory party there are two wings, a hardliner wing and a moderate wing, which are arguing about these issues. I think the hurdle to get a deal here is exactly within the conservatives, which have not been clear on what they want to citizens, and that is one of the hurdles, plus other hurdles like ireland and borders and so on. I think unfortunately, the party is not aligned, even though theres been some retracement by force johnson. By Boris Johnson. There is a lot of speculation that the Prime Minister might leave. Until these issues are clear, the eu might not feel they have a negotiating party to negotiate with. Thats the frustration. The best case is things get longer than expected, especially because the German Coalition government has not been formed. The worst case is there is a breakdown and we do not see this priced into the sterlingpound valuations. We dont see this priced by the bank of england. Francine is the only way to hrough the pound, or do you also look at gilts . Alberto we can look at a number of things. The pound had a strong moment in the last few weeks. In gilts, we think the bank of england is being a bit too optimistic. Its communicating to the market more than a hike. On the other hand, that affects the shortterm. In the long term, more fiscal spending will need to be done in the u. K. , both by conservatives, or by labour if they win. There will be a spending explosion in that case. Finally, consumers, consumer equities and Consumer Companies are going to suffer. Francine so, do you need to start pricing in the possibility of Jeremy Corbyn as Prime Minister . That would reshape economics in the u. K. , and make your job more interesting. Alberto i think you do. The u. K. Is priced when markets as stable. But there is a chance if we had elections today that Jeremy Corbyn would win. That means potentially more spending, higher taxes. It means more spending, further losses in the Credit Rating of the country. It probably means some people would be happier, the people who have been left on the sidelines. It probably means he would have more investment in education. It will cause an economic shock to the country. Shock is the economic it investment being pulled up to the, point where there is a recession . Alberto no, i think it is about spending and inflation and public debt, where gdp would go to about 100 . Country hit 105 in a where private debt is already pretty high. When you are talking about spain, it is going to be lower than the u. K. Public debt in t he scenario where Jeremy Corbyn wins. Francine what happens if there is a leadership challenge and Boris Johnson becomes the Prime Minister . Is that a shock to investors . Alberto i think it would increase volatility and what we have seen with the hard brexiteers, and particularly some elements of that party is there is a gap between reality and the policies they want to achieve and the numbers that they have. So, it would potentially continue to push forward the d ream of a good Economic Situation while consumers get hurt. It would delay the inevitable but at some point, the inevitable comes next year, when the deadline for negotiation hits, which is october. I dont think it is a good thing, it could just delay bad news. Francine alberto gallo, thank you so much for joining us. Are live in paris, where Jean Lemierre joins us exclusively to talk about risk in europe and Monetary Policy driving future growth. We talk a little bit about that ecb normalization. Later on, we speak to jim mellon. Then we speak to Stanley Fischer and of course, the panel with putin. It is a packed wednesday here on bloomberg surveillance. This is bloomberg. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. Francine good morning, this is bloomberg surveillance. I am Francine Lacqua. Donald trump suggested that the government accumulated by bankrupt puerto rico would need to be wiped clean to recover from the devastation from hurricane maria. This is after a visit to the island where they have been without power and in many cases Drinking Water since the storm struck on september 20. Some in the government estimating reconstruction costs as high as 60 billion. The British Government is growing concern it could crash out of the European Union without a trade deal. According to officials the blocks refusal to discuss a trade fact is stoking fears time will run out. Stilldavis said he is aiming for a good deal but warned the country must be prepared if negotiations fail. Insisted thatter opec and nonopec members complying with their oil output agreement. He spoke with bloomberg at the Russian Energy weak 2017 in moscow. We think we have no difficulty for total compliance. Some of the member countries and other countries committed to the agreement, their compliance is not well. The opec and nonopec countries is very well. We will bring you more from russia. Vladimir putin will speak during a final Panel Discussion. Dont miss that conversation at 11 00 a. M. London time. Global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. This is bloomberg. Francine thank you so much. We understand there is a little bit of breaking news, the Royal Air Force in the u. K. Has confirmed that it escorted an aircraft to an airport. There has been talk, we have to be very careful, about a flight trying to get you and we will try to get you the very latest. According to some of the u. K. For us, all sites grounded and the rhine their flight has been escorted by two Royal Air Force fighter jets. Nothing to worry about but we will keep you posted for breaking news. We had a little bit of data out of the u. K. Brexit negotiations are ongoing. The services pmi for september rising to 53. 6, better than estimated. Onto banking and the bnp paribas future explaining how solutions to the worlds problems driving business in the future. Starting in paris before heading to other countries, the debate hundreds of cfos and decisionmakers from around the world. Joining us for an exquisite conversation is the bnp paribas chairman, Jean Lemierre. You are live from this Sustainable Future forum and what are you trying to achieve . A privatepublic partnership or so that ceos and decision are aware of the challenges around sustainability . Us,lemierre i think all of or most of us, share the same abuse, that sustainability is a key challenge and we have to be committed and invest and to work hard. We share the same views, even if some policy makers may take a different approach. We need to go more into the concrete dimensions of the debate. What to do, how to do it, what to do it for . There is only one way to move forward, to have good discussions, exchange views, this is what we have organized. A forum where people meet and exchange views. It is not a Public Relations exercise, we mean business. Francine when you said you mean business, do you worry that, because of the withdrawal from the paris climate agreement from the u. S. , businesses need to do more . Mr. Lemierre this is not what we see to be we know the decision by the american leadership, but clients have different views. Investors have different views. It takes effort for sustainability. I would prefer everybody to be around the table and to lead the process the same way. Im a business point of view, i see a strong commitment to do well. This is what we speak about. Francine what is your take on the Banking Sector overall in europe right now . Sustainability and we could talk about Monetary Policy and regulation. Do you believe european banks are disadvantage compared to u. S. Banks . Mr. Lemierre no. No. European banks have done a lot of the last over the last 10 years, improved a lot from increased their capital base. Many banks have difficulties. We see the beginning of the ls. Tment of these np italy, the size of these has decreased in the Banking Sector, which is good. We see restructuring in the Banking Sector. We see a real move to make european banks stronger. We do not see too much cross quarter consolidation, even if it is wished by many, but we see market share consolidation. There is a restructuring of the whole market. The Banking Industry in europe. European banks are strong and face competition. , docine on consolidation you believe there is appetite from regulators to see consolidation . Domestic consolidation or crossborder consolidation . Mr. Lemierre in europe, as in many regions, many people think there are too many banks. As a full, not in a specific given country. Consolidation. Ed there is market share consolidation. We see it in many business lines. We begin to see more consolidation at a domestic level, a National Level in europe. Which is normal. It is a normal process to start like this and put people together. Shall we see crossborder consolidation in a second step . The future will tell. Being, time consolidation will be at a domestic level. Francine what kind of consolidation . We see activity on the Asset Management, what does it mean for big banks such as bnp paribas . Mr. Lemierre you have a lot of theories on this. Big is better than small. Yes, we see some kind of consolidation. At the same time, at bnp paribas , we Pay Attention to the quality of the clients, the network we serve, and we do believe that the strongest Asset Management is a key asset for a banklike dust bank like like bnp paribas serving our clients. We see changes and we understand them and are comfortable with the changes. We have a very strong position. Francine when you look at the catalonia event over the last couple of days, it seems european banks are taking a hit, especially spanish ones. Do you worry that Political Risk is not at the end . There is a new Political Risk in europe that will once again hit banks, or do you believe european banks are over the worst . Shouldierre look, we try to avoid the whole story again. You know, clarity has been brought since the beginning broad since the beginning of beer by voters, especially in the eurozone beginning of the year by voters, especially in the eurozone. Committed to reforms. There are discussions, this is where we see what we see in spain today and happens the normal democratic life. There is a debate in catalonia and madrid. Spain. To be fixed by they have to move forward and find a solution for themselves in the european framework. I think it will have no impact on the Banking Industry. Spanish banks are strong and have gone through a serious restructuring, including the banks in catalonia. They have used eu funds to do it and it shows solidarity. I am sure it will have no impact. Francine when you look at the strength of banks around europe, the french ones seem to be the strongest. What part would or should bnp paribas play in this potential crossborder merger . Given your many Years Experience of policy in these kinds of things, would you be in favor of such crossborder merger . Mr. Lemierre well, i shall not comment rumors. My reaction is absolutely no comment on this type of rumor. Once i have said this, it is clear that the eurozone will integrate more and more. We see a lot of willingness to move forward on more integration. Has aow that bnp paribas Growth Strategy based on the few points. One of them, which is key, the german market. We are investing in germany. We are serving more clients in germany and we are very positive about this. Once more, you see market share consolidation. It does happen. It does not mean crossborder consolidation of banks themselves. Francine what does brexit mean for bnp paribas . Mr. Lemierre brexit is not good news. It does create a lot of challenges. We do not have the answer yet. We do not know what will happen. We quietly wait for the decisions. They are going to be made by negotiators and made by the u. K. And for the eurozone by the commission and the ecb and the bank of france. Will it be the same as before . I do not know, i do not know the decisions. The most likely is it will not be as it was before. It cannot be purely business as usual. It is difficult for me to tell what will happen. We need to be ready and prepared. We need to consider the assumptions. We are a eurozone based bank, and eubased bank. The challenges are smaller for us than for others. We know how to serve the clients, whatever happens. This is the key question for us how to serve clients . We know how to do it and has many ways to achieve this. We wait for the decisions. We know we have a strong base in paris. Paris is a good place to be. And to operate. Options are open for us and clients can be confident on the fact that we know how to serve them. Francine i know you have to get back to the forum. One final question, when you look at the regulations coming january, do you view them as winners or losers or see an impact on trading and therefore revenue of all banks . Mr. Lemierre well, we do not know what the decisions are going to be on regulation. I simply make two points, european economies often are in different ways and other economies, especially the u. S. Economy, is it good or bad, i shall not tell you. , growth isow that picking up in the eurozone and it is crucial that banks have the capacity and will have the. Apacity to finance the economy that is key and i hope decisions will be moderate and will not have a significant impact. On the question, regulation about books, it is clear there is a global competition. We see questions raised in the. S. About the new regulations we have not seen the final decisions. At least there are questions. We know there are questions and switzerland the same way. We hope that the European Union will follow the same path and make sure there is a level Playing Field. That is a key point. It is crucial for europe to have banks which can compete in global competition and bring services to the corporate sector on a level Playing Field base. Yes, you are right, these decisions will be important. I hope my messages will be well understood. Francine they will be very well understood. Thank you for joining us and good luck in the forum. That was the chairman of bnp paribas. Runway of thethe airport is open and operating normally. They say flights were held for a brief moment after an aircraft divergent what is now operating normally. Next, wek to up speak with an exclusive interview. Later we speak with the fed vice chairman Stanley Fischer before his departure from the role. This is bloomberg. Bloomberghis is surveillance. I am Francine Lacqua. He is one of the most recognized names with british investors. Some say jim mellon predicted the credit crunch. Now, the founder and chairman of he has written another book on old age and sites and how it can extend human life. He joins us for an exclusive interview. Great to have you. A fun book. Do not know if it is fun or the end of the world. What is the biggest risk investors and Central Banks are facing at the moment . Mr. Mellon an economic terms . Not tightening fast enough and we will end up with more inflation than currently thought possible. Economic recoveries are a bit fragile and they could be should be tapering much faster than they are currently. My view is that come although we do not see it yet, inflation is insidious and will rear its ugly head in a significant way in the next couple of years. I am long gold and silver. Francine not a danger we will be like japan . We have a demographic problem . Mr. Mellon not a problem. The book is about the science of longevity and, not just the extension of human life but the improvement in healthy lifespans so that people, rather than die with horrible deathbed scenes over a long. Of time will literally just drop dead at 110, and the next 2030 years. It is happening now come although there has been a hiatus and Life Expectancy improvement in the last couple of years, it is very temporary and there are techniques which will extend 0 in thefe to 110, 12 very near future and policymakers need to take account. Francine a huge application on pension funds. In japan, you have to pay for an aging population. Your demographics change. I do not know how you have a younger workforce. It changes the way the markets are functioning. Mr. Mellon true. At the same time this is happening, we have automation which will in some way replace the demographic impact in the developed world. Although the developing world is catching up in terms of Life Expectancy. Pensions, people retiring at 65 is a fantasy, they will have to retire at 80, 85, 90 and the Pension Fund System has to be reordered. The Life Insurance business is toast in the next 20 years. The reinsurance of Life Insurance is exciting and interesting and we are looking at that closely. There are all sorts of implications, education will be a continual, people will have multiple careers and the old type of careers like lawyers and accountants and doctors, highly valued, will be replaced by a new career we highly value, social care and human to human empathetic situations. We are in a world of turmoil a great opportunity. Francine you talk about scientists and processes that can help going through this huge transformation and societal change. What is the number one thing we should look out for . Mr. Mellon drugs you can take today, aspirin, others which will add to your life considerably. You can do that today. Gene editing and tissue reorganization reorientation will be the way life will go from 110 to 120. 150 or be on. There is no doubt or beyond. There is no doubt, visiting opinion leaders, the first person to be alive to be 150 is among us and it could be anyone. We are in a world of transformation. Not so extraordinary. In 1900, the life inspecting thats expectancy of this country is was 41 and today it is 80. It is not extraordinary in the context of history. And we wake up the morning, rather than in 24 hours, we will have 36 hours. We have to rethink our lifes trajectory. We think family life and working life, we rethink what we do with our leisure time. There are exciting investments that come out of that. Francine such as, biotech . Mr. Mellon among the recognized once, novartis, it has recognized this theme. Interesting,gfk is a good company. I company in the gene editing field is another one i would look at. Most are private. My focus is looking for private companies we can invest in, which ultimately will go public. Already, a lot of money going into this area. Francine do you invest when they are small enough and you get a percentage of the company . For everyone that becomes the next big Generic Company that gets bought out, you have 30 that failed. Mr. Mellon this is like mining with a high rate of failure. To improve your chance of success is by having superior knowledge and that is why we spend time researching this. We are hoping three out of 10 succeed. Our own investments, we are making 15 investments in a variety of companies in this area. Francine why are people not talking about this more . You are a famous name, but otherwise people do not talk about it in the mainstream. Peoplelon it is the thinking of old age as associated with dribbling away in a nursing home and being sick with one of the five key diseases of aging. This is all changing but most people have it in the back of their minds and they do not want to think about mortality and cannot envision a long life. It is coming. Francine does is come before a tour for cancer . A cure for cancer . Mr. Mellon it will be cured and 10 years. This is another great thing. The biggest killer of people on the planet, still cardiovascular disease, going down 2 to 4 per year. We live in a golden age and had to be optimistic about its potential. Francine do you worry about because of a lack of funding, government spending, because of the way there is so much pressure and returning dividends instead of investing, that some of this research will be lost . Mr. Mellon certainly. We need to accelerate research put into this area. It is happening. Already i can see billions of dollars flowing from the smart money in america and to Companies Involved in this area. No doubt more will flow. When people realize they can be live a long life, the money will be a flood. Francine thank you, interesting conversation. Jim mellon in investing in the age of longevity. Coming up, politicians and Business Leaders gather in moscow for energy weak 2017. Vladimir putin was big during a Panel Discussion moderated by our executive. We also have a conversation with the fed vice chairman, Stanley Fischer, before his departure from the role today at 11 00 11 30 a. M. In london and 6 30 a. M. In new york. We have news overall. This is what the markets are doing. The markets are looking at the dollar slipping and the spanish stocks and bonds slumping. The market on a tear but they will have to figure out who will be the next fed chair. We have to watch that. The iceland centralbank cutting its sevenday return deposit rate. I do not know if we have a currency check to see what is the icelandic krone doing but the deposit rate of 4. 25 . I think that was a surprise. We will get back to that. Tom keene will be in washington, d. C. And surveillance continues. This is bloomberg. Francine the fed short list. President trumps team gave him a selection of names. From the chair to the throne, spain. The kings speech preaches unacceptable disloyalty from catalonian separatists. And no deal fears. The u. K. Government is worried britain could crash out of the eu without a trade deal. The Prime Minister theresa may speaks in over one hour. This is bloomberg surveillance and im Francine Lacqua in london. Tom keene is in new york witha timely interview coming up. Tom hes not going to talk about neel kashkari. Ehs not going to talk about kevin warsh. But we will have a very wonderful conversation with a retiring Stanley Fischer. The key thing is the view forward on the political dynamics. The good luck comment on Hill Kashkari was something. Francine it was something. We will get back to the fed with your outstanding interview coming up. In the meantime, lets get to the bloomberg first word news. Reporter the girlfriend of the shooter in the Las Vegas Massacre has returned to the u. S. She arrived in los angeles last night and was met by federal agents. Shes been in the philippines. Authorities have called her a person of interest. There are pictures showing the inside of stephen Paddocks Hotel room. He meticulously planned his attack, including setting up small cameras outside the room, so he could watch security approach. President trump is suggesting that puerto ricos government that it will need to be wiped out to help the island recover from hurricane damage. D, you cannt sai say goodbye to that. Committeesal defense are responding to a growing threat from north korea. They have agreed to shift 400 million from other accounts into Missile Defense programs. The top beneficiaries are likely to be boeing and raytheon. Iran is sounding upbeat between the agreement between opec and nonopec members. Irans oil minister spoke to bloomberg in moscow. Totalthink we will have compliance. Some of the member countries and the countries committed, compliance is not a threat. Oil prices have risen recently, but they are still about half the level of three years ago. The production deal expires in march and so ar, there has been no agreement on an extension. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Bloomberg. Tom greatly appreciate that. Lets look at equities, bonds, currencies and commodities. Equity markets are at record highs. Features come in with curve flattening slightly. No noise this morning. When you look at the idea that mr. Putin will join us on oil, i guess you have to quote oil this morning. Francine yes, which is why we both quoted oil, tom. Sometimes we think alike. This is why i am looking at the dollar falling. Investors are still trying to digest the list of candidates that are in the running for the leadership of the Federal Reserve. Im also looking at spanish securities, which are down. We have a lot of concern about the prices in catalonia. I am looking at the banks under pressure in catalonia. I am looking at the spread between spanish and german tenyear yields. Tom i am mentioning the mixed ordinary guests i am mentioning some extraordinary guests on the bloomberg. But first, to the immediate news, which in economics, is fed news. We speak with Richard Jeffrey. Richard, let me begin with you. I guess, taking any central bank had is a big deal. If this a political decision in the United States, or is it more about economics and Monetary Policy . Richard well, it is not either or, is it . I think its both. It has profound implications for the Economic Policy and Global Economy. The u. S. Leads in economic terms. Now, the key question is, whoever is chosen, will they change the current dictated course of Monetary Policy . Or will we see a continuation of the gentle uptrend in Interest Rates . And of course, the partial reversal of quantitative easing . The outcome of this, everyone, even President Trump, requires market stability. Is the outcome that we move towards a more rules based Central Trading . Taylor is not selected, do we have a more john taylor Federal Reserve . Anything could happen, but we do not think this is the most likely outcome. The fed is laying down a broad path the next president can follow, pretty much the same way that the path was laid out for janet yellen a few years back. For the longer term, the candidate that seems to be at the forefront there are differences amongst them. Is none of them particularly arguing for a different framework altogether. At least in terms of the ones that you guys and generally, the media is pushing for, the favorites, we dont see that as something that changes the framework for the fed. Mr. Cine lets look at gundlach. He was asked who he thought the next Federal Reserve chair would be. I think it will be neel kashkari, it was not a traditionally trained phd economist, but he happens to be the most easy money guide in the Federal Reserve system today. Francine my confusion is you dont know whether President Trump wants somebody that is loyal and kevin warsh is more on the hawker side, but there is andnk between his father President Trump or if President Trump wants somebody more dovish. Richard we dont know and President Trump is unpredictable. I think the previous question was quite interesting. Will we get back to a more rules based policymaking . And i desperately hope not because it is rulesbased Monetary Policy that took us into the financial crisis and the global recession. I hope we do not see a return to that. Tom richard, let me bring up a chart. Anthony, bring this up in new york. This is a chart of the fed funds target rate, going back to the 1970s. If we look at this, richard, we come down to a massive zero bound. Are we off the zero bound now, or are we still there . Richard we are fractionally above, arent we . And what is interesting is the period of very low Interest Rates is associated with a period of substandard growth and extremely low productivity. I think the Central Banks have a big question to ask. That either their period of quantitative easing and low and quantitative Monetary Policy is associated, or not cause a legaily linked ws period. I personally think that maintaining exceptionally low Interest Rates, forcing down bond yields has taken a lot of challenge out of the economic system. That is one of the reasons whey we are seeing very low productivity growth. I think as the challenge comes back in, with Interest Rates and bond yields rising, then we will start to see the challenge coming back into corporates to grow profits faster and to embark on productivity enhancing Capital Investment and that will be positive news. Francine where do you see the dollar going from here, and do you think inflation will come back almost in full force . Let me start from here. You guys ask the hardest questions, always. Despite then side, discussions and the analysis, has been reasonably stable over the last few years. We are now undershooting what is a longterm rate of 1. 6 to 1. 7 , the cpc, and we could end up converging there at the beginning of next year. Inflation will remain low, but not as low as it is at the moment. Now with respect to the dollar, i would say we are painting two different stories. In the short term the market needs to reprice the fed probabilities and we have been on the dovish side. Market and him prices very little from the fed. That could help the dollar against the yen, for instance, were policies will be remaining stable. In the longterm, the euro is cheaper against teh dollar. Francine we will talk about some of these currency pairings more in depth. With richardck jeffrey and themos fiotakis. Coming up, politicians and Business Leaders gather in moscow for Russian Energy week. In amir putin will speak Panel Discussion moderated by bloombergs Senior Executive editor john fraher. I am looking forward to hearing some of the questions and answers. This is bloomberg. Francine this is bloomberg surveillance. Lets get to the Bloomberg Business flash. Tesco will saints first dividend in three years. The first half profits beat estimates. They are try to offset the impacts of that by squeezing suppliers and cutting costs elsewhere. The yahoo hack four years ago was worse than reported. The Company Acquired by verizon says the Security Breach exposed all 3 billion of its users at the time. Yahoo says the information did not include passwords, payment data or bank accounts. That is the Bloomberg Business flash. Francine now, lets get to the u. K. The premise to will plead with her conservative party to shape up its infighting. This comes after theresa mays domestic policies were overshadowed at the annual tory party conference. Boris johnson gave a pretty good speech yesterday. The Prime Minister will give her speech in over one hour. Joining us from manchester is anna edwards. Anna the delegates, just a streaming in behind me to get a seat to listen to theresa may. Im going to get the business perspective on what we will he or later. Caroline joins me in manchester. Great to have you. We have just seen everybody going in to listen to theresa may. Price caps, we hear that will be talked about today. Your initial response on the Energy Price Caps . We have to see what the Prime Minister will say, but we just had a speech from the chancellor that was putting Free Enterprise and markets at the center of the tory strategy, which is great. We recognize that the markets need good intervention. The question is whether the Energy Price Caps is the right way of doing it, or if it makes things first. Vulnerable customers must be protected in the energy market. Is this going to be effective . We think it might move things in the wrong direction. Anna we will listen to the details, on how they want to change the direction. Does it really matter to you if it is two years, or three years or two and 3 4 years . The primerence speech minister made really moved things on. The transition now feels like core tory policy. Thats good news. We think it should be timelimited. The idea of simply postponing the uncertainty is not what we need in the economy. The idea of a time limit, the exact length of that, i think that will depend on how we get to the shape of the final deal. Anna so, chancellor hammond has been calling on businesses over the last 24 hours to help him persuade the members of the cabinet that might not be convinced of the need of transition. What is business prepared to do . Is business prepared to say, we will spend . We do think investment will be unlocked as a result of the transition being pinned down because we are seeing a postponement that clarity around the transition will help. We will see more investment dont igoing in. It has to be agreed with the European Union before it is a deal. That is why we think urgency needs to be highlighted. We need the transition to be agreed by the end of the year to open up trade talks and the shape of the future deal during the first three months of next year. Francine are you any closer to understanding what kind of trade deal we will get by the end of the Brexit Process . The transition to well, where . Ebate. S is the big db we know there is a norway operation off the shelves and a candida free trade deal off the shelves. Neither of them are what the u. K. Wants. Neither are what the European Union wants. I think we are not talking about thatthat deal looks like, maintains as much as what we have now. The European Union cares about that as well. The Prime Minister said, we agree. The sooner we get to that conversation, the better. Anna what do you make of david davis this week . The possibility of no deal . I think we have to be absolutely clear and i think everybody is. No deal is a very bad idea for our economy. Does practically, the i abilito put customers regulations in place in time. I think the fact is, no deal is deeply unattractive. Our firms are beginning to think of their contingency plans because there is the reality of the ticking clock. But, lets be absolutely clear. That is plan z. Plan a is to get the shape of the trade deal during the first three months of next year. Francine carolyn fairbairn, joining us there from the confederation of british industry. Tom really interesting. Greatly appreciate that. I always learn something when we are doing domestic politics in the United Kingdom. We will continue with Richard Jeffrey. Interesting markets again with equities out front. Is it because of the fed . Maybe that will be a theme we touch on. The vice chairman retires october 13. Stanley fischer will look back over his career, and also forward to the next fed. Stay with us. This is bloomberg. Tom good morning, everyone. Bloomberg surveillance from our news bureau in washington and Francine Lacqua. We will hear from Vladimir Putin in moscow. Lets look at a chart, francine, on gold. I know you want to have a conversation here with Richard Jeffrey. The big boom, up over 1600. And down we go. We are range bound. Really, we have gone nowhere from 2016. You wonder about gold over the next two to three years. Francine this brings back conversations over gold, whether it is one of the best havens, when you look at inflation and everything in between, whether it is being replaced. Of course, we are awaiting speeches by Federal Reserve officials and the u. S. Payroll data on friday. We are back with Richard Jeffrey and themos fiotakis. We were looking at a great chart by tom keene, bringing it way back. Themos, is it being treated like a currency . Is it a haven or is it being replaced by something . Themos there is a common underlying driver with the dollar and gold. In level of real rates major economies, particularly in the u. S. Gold tends to decline whenever you tend to repress Interest Rates in the u. S. Recently we have seen a move up in Interest Rates in the u. S. , which has brought gold down. Whether you have rising inflation, the compression a real rates, or another recession that compresses real rates, that means that gold might have an upside, which means gold could work as a hedge. Richard i think gold is an interesting asset. If you look at the recent past, a lot of people would think gold should be stronger. The fact that it hasnt is telling us something about views of the Global Economy. The Global Economy has gained a little bit of momentum this year. And i think that is a negative influence on gold. The inherent problem with gold is it is impossible to find a fundamental price for it because it does not have a yield. We know there is finite supp ly, but we do not know how finite. So, the dynamics are difficult to understand within the gold market. Francine thank you, Richard Jeffrey and themos fiotakis. Coming up, politicians and Business Leaders gather in moscow for Russian Energy week. We are moderating a panel, john fraher, moderating a panel with the president of russia, Vladimir Putin. This is bloomberg. Tom we welcome all of you worldwide. Bloomberg surveillance. In washingtonos and london, Francine Lacqua is always Holding Court in london. We have esteemed guests with the president leaving early this morning for las vegas. Heres emma chandra. Emma President Trump flies to las vegas today. He will meet with First Responders and survivors of the worst shooting in modern u. S. History. Authorities have now released photos from inside the shooters hotel room. In the images, and number of assault rifles are visible. The woman described as pat explorer from arrived in los angeles from the philippines where she was met by federal agents. President trump is suggesting that puerto ricos Government Debt will need to be wiped out to help the island recover from hurricane damage. The president spoke to fox news. President trump we are going to work something out. We looked at their home debt structure. They a lot of money to your friends on wall street and that needs to be wiped out. You can say goodbye to that. I dont know if its Goldman Sachs or whoever it is, but you can wave goodbye to that. Borrowedrto rico has 74 billion and declared bankruptcy earlier this year. Two Royal Air Force jets scramble to support a ryanair flight. Authorities received whats now being called a suspected hoax security alert. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, im emma chandra. This is bloomberg. Francine the eu cracking down once again. We understand in the last couple seconds that the eu has said amazon has to pay around 250 Million Euros in taxes. Basically, amazon has been ordered to repay to 50 Million Euros plus interest after the European Commission basically said that luxembourg illegally flashed the Companies Tax bill. This happens with ireland and apple. The figure was much more impressive because ireland said pay eurosanded apple back. Dou unfairly treating an giving advantages to companies. Tom to me this is one of the most baffling themes for america, not so much for amazon oregon and sang stock. Theres almost a sense of b wildermuth in america over the not antibusiness but just the fine centric nature of various european authorities. Thats something extremely forward to american business. In United States of america, you have states that have no taxes. We try to track where companies base themselves. Nevada would be considered a tax eu, theut whereas the to avoidns have this the risk to the bottom. A tough few days for Prime Minister theresa may. She has faced calls for unity from the European Union commissioner and did not have support from Boris Johnson. After criticism from conservatives in manchester, johnson does say he support theresa may. Joining us now is the author of a book called clean brexit. O still with us is our previous guests. What is the mood like in the conservative party right now . There are days where they are out and the others are chugging along . The mood of these political event could change significantly. I think with the tories are looking for is clear leadership. They had some of that yesterday from the foreign secretary. The mood is not great, but a lot depends on today speech. Expecte what do you the tone of that speech to be . And what about Boris Johnson speech that rallied the conservative party . Gerard it was primarily focused on domestic issues. I think that was necessary given the mood of the conservatives in manchester. In terms of the Prime Minister, i think there are two issues in particular. One is what she will be doing on the domestic economy to try to kickstart the domestic economy in areas such as housing, which is a big issue across the country. The second issue is whether she can provide further clarity regarding brexit. In regards to the speech the Prime Minister gave weeks ago, there has to be greater clarity of the and destination outside the single market. Thats what people are expecting. Tom thats right where i wanted to go. You have been one of the leaders on this idea. As an american, i would say the reef remission of the British Empire. Bring us a chart. We showed this to mervyn king a while back. This is trade weighted sterling with a fall down. We are right back down to where we were with sterling weakness back to 1992. The red circle over on the left and we will put it out on twitter for Bloomberg Radio. Risk of a weaker pound sterling and is that good for you to get new British Empire in trade . Gerard i dont think its about a British Empire. Its about the ukip positioning itself in the changing Global Economy. The European Union needs to do that as well. The pound was heavily overvalued last year. Even the International Monetary fund prior to the referendum result set it was overvalued around 15 . Things in itsany favor, but it does have a 20 problem, which you used to be well used to. The current account deficits has been far too high. I think a weaker pound was necessary and has been turned down for some time. In terms of where the pound is now, i think its a pretty competitive levels. I was in china last week and the chinese are credibly up the about the longerterm potential for the cap you can u. K. They see it as an incredibly attractive proposition. They can always move. I would suggest the pound is pretty competitive at present levels. Tom are the tories forgetting the people of United Kingdom . Francine has been great about moving forward a chart of negative real wage growth. That can only go on for so long, can it . Gerard this is not unique to the u. K. Because of the weaker pound and spiking inflation that has lasted longer than other countries, we go back from june of last year to spring of this year. U. K. And the euro area also saw a tick up in the inflation. I would expect inflation to be picking this quarter. The real wage picture should start to improve next year. It is a key issue. Is myen normalization favorite phrase, which is basically people are told things cant get any better. I think it characterized where we used to be a few years ago. In recent years, what characterizes as the problems facing wage pressures in western europe and in the states as well as the u. K. Real wage growth will pick up here and the surprise might be Consumer Spending in the u. K. The next calendar year. Francine you probably know Boris Johnson better than anyone. Gerard im not sure about that. Francine do you think he would be a good Prime Minister and you think he will end up as Prime Minister of the country . Gerard force johnson was a fantastic mayor of london. Theres no reason to think even not be able to do the job if he was ever offered that new job. Francine is there any danger because what seems to be from outsiders and investors as political infighting within the conservative party that you actually give away the job to labour . A lot of people feel like they have been let down by the tories. Gerard theres a whole host of issues and those questions. Part of the challenges the country has an unnecessary election earlier this year and the result has been the minority government. Therefore what we need to seek is some clear leadership coming out from manchester. That again comes back to the Prime Ministers speech today. The markets want to see some clarity on aspects of the brexit policy. The country needs to get three things right. Is about the domestic economic and positioningo ourselves globally and our future relationship with the eu. I believe the u. K. Has a strong hand to play in terms of eu negotiations. Theres lots of technical issues at the moment that need to be sorted and everyone is in agreement on those sort of issues. If that happens, we might have a more positive tone later this calendar year. Tom gerard, you have a great student of global economics. You and i shared beverages of our choice at the global bank over the years. Is the central bank the arena for Governor Carney and chair yellen is it in the textbooks or are we just lying blind . Gerard we are not flying blind. After the financial crisis, i would say the Central Bank Policy was characterized are the three ss. It was sizable, synchronized, and successful. I think we have a new set. They need to decide how to raise rates and shorten the balance sheet. Its about the scale. Its also about the idea that they must not shocked the markets. The central bank is not anything new, but they have not been doing this for a decade, so the need to decide how to sequence their tightening and they need to actually basically work out over the next week or so. I think the ecb and the bank of japan are in a very different space to the bank of england and to the americans. Theyrext week because meeting next week in washington at the imf meetings. Francine how do you view all this, richard . As an investor, lets say youre a foreign investor and you look at brexit negotiations and the tory party and the speeches and backstabbing, but not backstabbing because theyre on the same page. Do you follow the boe or follow this blowbyblow . Richard we try to take into account not only economic risk but Political Risk. In terms of politics, you have a twofold problem of yo and the u. K. You have each party trying to create for itself a new identity. Its not just the major parties but the parties below as well. It is being demanded by the electorate at the moment that a new identity is created. Jeremy corbyn has latched onto that. Brexit, any government would have a major problem because brexit is the issue of the day. Its a very divisive issue. Its an issue that encourages enormous amounts of hyperbole within the press as we hear today. It encourages grandstanding from politicians. But if that, there is very little certainty and information coming through. I think any government would find this almost impossible to handle. It just so happens that the conservative government that is at the helm at the moment. Francine what do you make of europe . When you look at currency crosses, do you do dollar pound or euro pound . Themos eurosterling is the anchor across. When you look at table, 75 of the volatility in cable zero sterling is euro basically. The pound may do better against the dollar because it normalized the value, but as said before, the twin deficits is an issue thats very keen or close to currencies. Under certain scenarios, the next few years would benefit from a weaker pound against the euro. Tom thank you so much. Greatly appreciated. Advisoryons, a former to secretary Boris Johnson. We will be back with Richard Jeffrey and themos as well. Dont forget on your Television Start to the morning. We thank you for watching bloomberg surveillance. The forget on Bloomberg Radio dont forget Bloomberg Radio. Withtarted correctly bloomberg daybreak. From washington and london, this is bloomberg. Francine this is bloomberg surveillance. Im Francine Lacqua in london and tom keene in washington, d. C. Stanley fischer coming up in 45 minutes from the. Now. Lets go to catalonia. Spains king says the separatists unacceptable disloyalty has no place in the democratic state. And an address, he vowed to keep the country together. Has fallen as a fallout from the catalonia referendum as it continues to reverberate around the market. But to back to Richard Jeffrey and themos. You. E start off with we saw a blip on the euro on the back of that referendum. Now im looking at the spanish spread between bonds and germany bonds. You can see that widening a touch. Of what needs to move on the back end . Themos we are entering a next three to six months where politics may become once again the issue. We will be focusing on the italian election at the end of the year and the beginning of next. The main issue with spain is that although it touches spain at a point where the countrys Credit Rating has been improving, so that creates a big market impact. At the same time, it does have an impact on the budget and domestic politics, but not in immediate one. At the same time, the catalonia situation is not one where referendum goes one way or another thats going to create any kind of situation thats immediately enforceable or actionable from a legal perspective. In that sense, the euro is correcting from having a little bit of a shortening in the near term. The political issues are be resurfacing, which are not completely disappearing. This is not something thats a trigger for more fundamental and deeper applications. Francine the implication i would imagine is investors discount any kind of Political Risk in europe post the election of macron. We have the german elections and we have catalonia and a big italian election coming up. Richard the politics of europe is intricate and very interesting at the moment. I think what is happened with the euro so far this year is that at the beginning of the year after almost the first half of the year, attention was grabbed by the fact that the eurozone economy itself was picking up a little bit of momentum. That provided some real fundamental support for the currency. Think some of the particle developments have refocused attention on the deepseated economic and political issues that still reside within the eurozone. These are going to take a long time to resolve. That has created a little bit more uncertainty around the currency and clearly has undermined it. Tom is eurosclerosis dead . I dont buy it for a minute. Are we beyond that stereotype of eurosclerosis . Richard i dont know if eurosclerosis is the right term, but i think what you can see in the growth statistics for the eurozone is the combining of those countries, which are sub optimal currency area, but combining them into a single currency area that has had a growth cost, which has become evident over the last 5070 years. I think that will persist to be o honest and be there in the longer term. The fact that growth has picked up a little bit in the eurozone at the moment, i dont think it should be used as a distraction from that longerterm issue. That comes back to what it was saying earlier. That is still very big political and Economic Issues with which the European Union has to resolve. I think those are going to intensify over the coming 510 years and not diminish. Tom it makes for a very interesting 2018. We will continue on this good briefing on a huge news flow this morning, including the president going to las vegas at about the 8 00 a. M. Hour in new york. Hour,forget in the next my conversation with vice chairman of the Federal Reserve system, Stanley Fischer. We will look back to a storied career and far more importantly and look forward to the changing of the guard at the Federal Reserve. Could there be a new chairman . Emma this is bloomberg surveillance. Im emma chandra. Lets get to the bloomberg flash. S the opinion and has stepped up its crackdown on the American Companies getting a tax break. Amazon is expected to pay to her 50 Million Euros back to luxembourg. Luxembourg denies any special treatment. The eu also rebuked ireland for failing to collect a 50 billion tax bill from apple. Irelands government just said that the eu apple decision is disappointing. Thats the Bloomberg Business flash. Tom thank you so much. Really one of the great calls 12 months ago was about ubs. Couragehe idea of the of a strong pound sterling. With that is a weak dollar. That was a huge surprise of the summer. And us is Richard Jeffrey themos. Heres the bloomberg dollar index and this is actually very good math. I would say this is almost math that Stanley Fischer would approve of and it shows that weak dollar from february on down. Can you switch to a strong dollar policy and a strong dollar bet . Right here and right now, technically for the next three to six months theres a little bit of strength to be done for the dollar and things like the yen where the policy is constant, mostly because growth is quite strong manchester the u. S. Globally. Financial conditions are very easy. These things tend to weigh a lot more on the opinions of how policymakers time and sequence their normalization rather than shortterm supply of rising inflation. In that sense, the front end of the u. S. Is not accurately reflecting what is likely to happen with the fed. As the market we prices, the dollar may strengthen for three to six months. Further out i would note that the market within start reading the read across. If the fed moves in this growth environment, the ecb has space. Other Central Banks around the world have space and so on and so forth. Richard i think i would agree with that. We would see limited Dollar Strength ahead and i think sterling may also be reasonably well supported, but thats for a much determined by a lot of political rumor and innuendo. I think the fundamental support coming through from the euro for better Growth Numbers is pretty much discounted by markets. Francine thank you so much, s,chard jeffrey and themo cohead of fx and rates. Coming up, politicians and Business Leaders gather in moscow for Russian Energy weak. Vladimir putin will be speaking on a Panel Discussion, moderated by a very own john fraher. That conversation with Stanley Fischer coming up. Who knew that phones would start doing everything . Entertaining us, getting us back on track, and finding us dates. Phones really have changed. So why hasnt the way we pay for them . Introducing xfinity mobile. You only pay for data and can easily switch between pay per gig and unlimited. No one else lets you do that. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit or go to xfinitymobile. Com. This wednesday the president will visit las vegas. He will confront a considered terror within america. He will confront and consider americas Cultural Divide on guns. Are in moscow, Vladimir Putin will speak on oil. With have a conversation vice chairman Stanley Fischer and the furniture of the fed future of the fed. Good morning everyone. We are live from washington in our news bureau here. Rancine lacqua in london a fisher interview is always industry and the more so now as we look towards a new chairman. Francine it will be awkward if you keep asking him who he will pick, but i look for to the conversation as well, tom. Well get the best out of him. Of course, Vladimir Putin in that panel with our very own. That will start in about 15 or 20 minutes. We have dynamics with saudi arabia showing up in russia and now putin showing up as a kingmaker in the middle east. Tom our president will travel to las vegas. With our first world first news, emma chandra. Danley was met by federal agents. She had been in the philippines. Meanwhile, there are pictures showing the inside of stephen haddix hotel room. Rifle was clearly visible. Set up small cameras outside the room so he could watch security approach. Trump is suggesting that puerto ricos Government Debt will need to be wiped out to help the island recover from hurricane damage. After visiting the island, the that the told fox news government owned lots of money owned lots of money and you can say goodbye to that. Congressional committees are responding to the growing threat from north korea. Theyve agreed to shift more than 400 million from accounts to other programs. Upbeat abouting the agreement between a pack and nonopec countries. Meet think we will not have total compliance. Of course some of the member countries and others countries conference isur not well. Hopefully the complaints israel. Recentlys have risen but still at about half the level of three years ago. So far they see no need for an extension. This is bloomberg. Emma, thank you so much. Pepsicola the tone of the epic equity markets. The record highs we see back on earnings, interview ford pepsi in the view forward, pepsi boosting their forecast. Morning, equities reach what record high. Forcehe pause, and a francine, with mr. Putin speaking on oil, 50. 12 on american oil. I also want to look at all for that varies in. I think overall student are right. The dollars and three catalyst for the market. Analysts seem to be waiting who the leadership of the fed will falter. Were spreads between german and spanish yield widening. Very good. Our chief washington correspondent is kevin cirilli. Hes had a varied set of things to speak of. Think youd be speaking of a baseball field across the river. He didnt think you be speaking of a countrywestern concert. These are the surprises of any administration. Am i right that this is the first big test for President Trump . Yes. Off President Trump takes later this morning to head to las vegas, he will be meeting with First Responders as well as Police Officials and some of the victims were in the hospitals. Without question, this is the the past 48 hours with puerto rico and now las vegas, has now become a defining moment of his presidency. Responds to it is really going to encapsulate the first year. You, you look back at lbj and the cacophony of vents in 1968, every white house has is the white house doing with his wide set of events . Thehere was a moment when resident spoke to his chief of , and hes been keeping a low profile but hes doing it a great job. General john kelly has received to coming inredit and reorganizing this in a way that Paul Manafort and Reince Priebus were unable to. Does the president have an informed or cogent belief on gun control and on the gun debate . Is it out there . You are in the trenches of the campaign. The ever cogent structure to his ageless american debate . When citizen trump was a near city, his position on gun control is much more moderate cases toch in some the left of some democrats. Once the campaign started, when he was running the primaries, when he was attacked from the right by certain present your mary confidence candidates, he pivoted to have rhetoric in line with the nra. If you read between the lines hours 24four hours, there is some talk that one of the weapons that mightve been used by this killer in las vegas, that could potentially be bad. Senatorlipside of that, Mitch Mcconnell has at its way to really talk about the control. Francine you probably know the thinking of President Trump more than anyone in the newsroom at this moment. Give me a sense of how he will affect the new fed president if it doesnt go to janet yellen 10 janet yellen. Does he want loyalty or the best person for the job . First for the first portion on personality, you to look at who is selected in the past. Mnuchin,look at steve he is a political outsider be some who is much more measured. Gary cohn would also fit the bill. Iseone who is sick who accepted by the financial community. Much more in are line with the establishment of the financial world. All the lists, all the names of seem to sitst, all in that line of thinking. You so much. Nk our chief washington correspondent. When youor the look at some the spreads we see , what is the biggest unknown . How the fred fed sees inflation . Janet yellen is willing to push ahead with those rate hikes. Even with inflation below the target, she talked about it being a mistry recently. Shes willing to push ahead. The big question is who will replace her if she is replaced. Trump plans to make a decision in the next couple of weeks. Is a lot of familiar names on that list. Francine we forget that said policy often underpins what the rest of world does including the central bank of europe. This is simon this is the biggest job in Monetary Policy. Janet yellen is a familiar figure, but so is gary cohn. Kevin walsh wouldve worst with them during the financial crisis. All those people are generally viewed as being having a global knowledge. There is a recognition for those candidates that they are the central bank for the world to some extent. Simon, congratulations on your new duties. My deepest sympathies. Much time in washington listening to people argue about discretion and rulesbased policy. With all the uproar of the trump administration, is the fallback here for everyone and economics to go to more of a rulesbased strategy . Simon you have to take two points on that. One, the traditional republican position has been for a more rulebased approach to central banking. You that most in john taylor. Treasury official who created taylor rule. Others has spoken on the cannabis about the need to be moral space. Kevin earlier talked about citizen trump. Citizen trump is a property magnet. They tend to like low Interest Rates. The rulebased economist turnout higher Interest Rates. That may go against the economic view of President Trump. Housemoving to the white hes been a bit more positive about janet yellen. Shewhy she still no still on the list. President trump might want lower Interest Rates if you looking for that tax cut. In that regard, kevin walsh looks a little hawkish. Janet yellen, we know where shes going. Jerome powell has voted with her. A debate about what donald trump wants from his fed chair. They are independent, and if he thinks someone may be dovish, that may when the day for them. Janet yellen could be used again. Thanksanks francine so much. Simon kennedy stays with us. Politicians and Business Leaders are gathering in moscow today for Russian Energy weak 2017. You can see live pictures of that gathering. Vladimir putin will be speaking during the discussion. Its moderated by our very own Senior Executive editor. Packed of 202 threaded Business Owners and ceos. Well look at that next. Vladimir putin. You dont get the comes in everyday. This is bloomberg. In this hour, a conversation with Stanley Fischer, the vice chairman of the Federal Reserve for tires this month. There is a discussion on the future of his Federal Reserve. We look forward to that. In 15 or 20 minutes, i would call it. Francine . Francine the catalan president has said that his government would act of the end of the week or the beginning of next week and trigger a 48 hour counts down to a unilateral declaration of independence. Spain says their impotence has no place in a state. Maria has been following this is the beginning. Give us the state of play. Will investors be worried about the consequences of unilateral secession . Real escalation over the past hour and it looks like the ministration is willing to take this to the and. The king came out and said on National Television that that administration had gone full rogue. Its time to get united, this is not just politics, its the state of the nation at state. The catalan president is going to address the people at 9 p. M. Today. Expect, know what to but think he will give a sequence of events. This would enact a new republic within 48 hours. If they meet monday, that means they want to take this the final end, no matter what that means. Francine what does the final end mean . Caps on he is deathly the richest region in spain, but they say they wants the eu to intermediate because they want to stay within the eurozone but separate from state spain. How does that work . Maria how does that is the key point. Domestically, they have no support. This is not about the government, its about the state of the country. That was the message. Eu, our trading this is a domestic affair. They dont want to interfere. The Catalan Government is pulling this the very end what that means. Do the people of spain listen to the royalty . What is their tone, what is that residents . As a personal anecdote, i was at the madrid airport when the king addressed nation and everybody went dead silent. Everyone was watching it very everyone was paying attention. It was of moment we are all waiting. He had gone silent. Everyone in the country wanted to know what the king is going to do next. You cannot even imagine. Does the public in spain think of this king . He is better approval that his father had. I messed for unity always goes down well with spaniards. What were seeing now is that in catalonia, it didnt go down well. Thank you so much. When you look at catalonia and some of the risk premium in out there is it that Political Risk could be there at a time . Simon we all remember brexit. It keeps cropping up. Catalonia is another shot across thinkw over those who europe is a riskless area. The economy has continued to power through. What will come from the catalonia experience, but the euro area economy is on track for its best performance a decade. Populismear ago with youd think it would shape the economy like in the u. S. And u. K. , but is not been the case. Thatent monday looking in issue and why wasnt the case. Not just the likes of angela merkel. A minimum emmanuel macron, obviously. There is some signs that despite Political Risks, the economy has continued to do pretty well. Simon kennedyne will be stay with us. Coming up, russian business week. Speak moderated by our very own Senior Executive. Theyll be talking about the middle east, oil, and everything in between. That is the conversation in next half an hour. Its a packed bloomberg surveillance. This is bloomberg. Francine this is the time of Russian Energy weak. Our executive editor will moderate a very interesting panel with Vladimir Putin. The panel will be on oil but this is on much more than that. Its looking at unprecedented acquire gas into russia. Its one of the first time to seeing russia paying playing a more Important Role in the middle east. Kings tripad of the to russia. I strongly agree with you that the uncertainties in saudi arabia with the role families the back story here. That is it will be fascinating. Theres a lot of uncertainty here it, isnt there. Yes, there is a lot of uncertainty. Theres an arctic pop line pipeline that i assume will be focus of some of the top talks. With a conversation coming up as well with the vice chairman of the Federal Reserve system. Stanley fischer retiring here in less than 10 days. Front and center with vice chairman fisher will be a transition to a new fed. The all important regional president. Stanley fischer, all of that coming up in moments. Really looking for to that. Stay with us. Worldwide in london, in washington, this is bloomberg. This is bloomberg surveillance with tom and francine from washington dc and london today. But a lot of the focus will be on russia. It will be over in moscow where john fraher is getting ready in the core doors of Russian Energy weak to lead a panel which includes the president of russia, Vladimir Putin. The relationship between saudi arabia and russia, it has also do with oil. This bromance, as some people have called it, have led to cooperation in oil, gas, electricity. Tom we will have much from moscow in a bit. Relatively quiet markets here. The equity markets, up up we go. Flattening with oil at 50. 19 a barrel. Those surging equity markets this morning. On bloombergu all television and Bloomberg Radio to a conversation with Stanley Fischer. His announces retirement from the Federal Reserve on october 15. Thank you so much for joining us. Stanley thanks to you. Tom i want to bring up a chart. Like to do that with any one of your stature. Made ina chart that you your thesis at m. I. T. I dont know at this chart is. Its from your original the cyst of the xyz space of contingent commodities. Whatever that chart is, its in , is the economics of today in that textbook or the pieces of 19 to 29 . Stanley the basic economics doesnt change that much. The understanding of what the fundamental forces in the macroeconomy are hasnt changed that much. What those forces are have changed a lot of at the time and are operating in a much more globally integrated, not fully integrated, economy. Chartt recall doing that tom maybe mrs. Fisher did a chart for your fuse ago. Ago. Few years stanley i wouldnt be surprised. Tom what time of economics to people need to do . Does need to be a more malleable economics . Yes. Ey its not as it was used to be. You have to take more forces and more changes into account with us being close to a globally integrated economy. Our Michael Mckee talking about you teaching at m. I. T. So many as students. How would you teach them today . Different than you talked bernanke and draghi . Stanley theres a saying that science proceeds progress funeral by funeral. I think id be teaching the same things in the next generation would have more advanced things than i had. Me diving economics today. He spoke you spoke to the economics of new york a bit ago. You talked about altra accommodative. Ultraaccomadative. Are you happy that the pace that we are on to get back to normal fed . Stanley i brought up that the real Interest Rate became positive, that we expected to happen sometime in mid2018. The pace is ok. Its not terrific. This is a very complex issue which is related to the decline amongductivity growth other things. Its related also to decisions that the government would make. Roseeal Interest Rate quite a bit windows expected thered be a big fiscal stimulus afterwards when expectation of the stimulus was reduced. Expectation is an important word across all of Stanley Fischer economics. Good morning to professor lucas of chicago and you taught at chicago years ago. Home expecting too much in our guesstimates of inflation . Do we have too much of a belief that we will have a higher inflation . I still believe we will inflation. Igher there are basic mechanisms and the basic mechanism here is where unemployment is declining on the time, wages will start going up at some stage. In the experience many of us have, including myself, you have to wait a long time, usually longer than you expected to wait for something to happen, but then if its a very basic force, namely an increase in employment, increase in wages, it will show up. ,nce it shows up, we will say oh yeah, thats what we expected. About spoke to our team what to speak to you about, and are so much uncertainty about of the federal the reserve system. The joke is, low rate janet, with respect to the chair. We have low rate donald, a president that is wired for the comfort of low rates. Is that mistake . There are reasons to want a low rate when growth has been so small an investment is smaller than expected for quite some time. Low rates are to encourage investments. They are to encourage growth. They have been less successful in that than we expected. But they have been very successful in encouraging employment. Recovery isthis that it did not generate longterm massive unemployment. Are basically back to something close to full employment. Tom i would ask your mentor who should be the next felt fed chair. I want asts that with you. Its critical to have a new chairman. Explain how the new chair will be different from what we have seen . This is a choice, clearly, of the president and the ministration. That decision is up to them. There are candidates whose names are in the newspaper. You dont how important they are. Its really not appropriate for me to get into deciding whos going to be the next chairman. Tom i would suggest thats probably true. The basic idea here, if we have the term or we have in america and Economic Uncertainty in our theories, what that might greatest towards a more rulebased system and a way from discretion over the coming years . Stanley i think it traction of a rulebased system is ray large. I think in practice, you may find yourself having to define all the time when its appropriate to the virtual the rule. Because the rules do not anticipate the many strange canthat can and does and do happen in economy. A row is notnes in a huge surprise but it happened and changes policy. There are many other things that will change policy. I think rules are a good guideline to the basic after taking, where youre trying to go, but i wouldnt run monetary rules on the basis of where you strictly go down, look at this equation, say that said, and lets get rid of the central bank. Your examplee years ago was maynard keynes of 1936. Do we need a chair like chair keynes ari red keynes, or we have some candidates you probably havent read keynes. It and they should read they should read today. Tom could we have a new set up with someone like william minute william mentor william miller. A noneconomic chair, so speak. When we need that expertise is german. I found in my terms, that having the basic economic theory, theoretical knowledge, and experience, increases your selfconfidence about what youre doing. Is it essential . I doubt it. Theyre very smart people who could figure this out many ways. Is it helpful . Ray much so. Very much so. Its again chair yellen or anyone, what is the between people like you in a four standard deviation shock or set of shocks than a normal day in the eccles building . Stanley the differences if theres something you want to do or should you let the markets take care of it. If you decide to leave it to the markets are to wait a week see what it really means, those are thing that depends a great deal on the sprints you have, on your understanding of how the markets work, and that you get over the years. To take a simple example, the additional reaction of people is that if something bad happens, you close the market. Thats terrible. Your speech the other day on the history of the bank of england, you talked about never say never event. What kind of chairman do we need to be steeled and ready for never say never events . Stanley cresud we need someone who has the possibility of minds to see that he or she needs to take a different route at a particular moment in time or over the next year or two. The capacitys also to lead a very large, very complex committee, the open market committee, to agree with his or her thoughts. It seems like you just described john taylor but it wont put you in a trap of talking about professor taylor. The worry is that we have glide past it. We passed the stability as we move forward and then we have the shocks and john conditions. The you have confidence of the two strategies can be done over smooth glide paths that can be controlled by the institutional forces we have or do we need to be steeled for john conditions to come . We always need to be steeled for the possibly need to change course drastically. In october 2008, the fed change course drastically. That was obviously the thing to do. You have to watch and wait and hope you can stay on the smooth , but never believe yourself that you can stay on those passed forever. You cant. Do we get another edition of doraville fisher stars . I dont know at this stage. Tom thank you so much. Stanley fischer. He is the vice chairman of the Federal Reserve system. We think Bloomberg Television and Bloomberg Radio for being with us this morning. Francine. Francine an interesting interview. Looking at how dr. Fisher looks at the path Going Forward for inflation. In the meantime, Vladimir Putin is speaking at the Russian Energy weak state energy is an important part of the Global Economy and that the asiapacific region will drive energy command. Demand. Lets listen in. Need and guarantee access to electricity energy. However, there are many other trends of setting the Movement Towards Global Energy partnership. Itsrring not to used by certain parties for unfair competition for serving their own interests and their own energy forces. The negative impact of such steps is obvious for the whole Worlds Energy sector and economy. Consumersvere blow to and those countries who welcome in such action most attractive investment opportunities. The most dangerous thing is the technology will cap technological gap. Only three companies revisit developed countries. We need the Free Movement of energy forces into their energy production. We need to develop energy enforcementre and technology. We need all interested partners of principles of equality and mutual benefit. The agreement between russia and some other countries of opec has ensured the oval oil markets rebalancing. I have opened up new opportunities to implement promising approaches and technological innovation. In confident will be united creating a sustainable and fair energy future. All participants of Russian Energy weak will work into an interesting discussion. Thank you for your attention. [applause] that is the russian president Vladimir Putin, about to sit down. The panel be focused on energy, moderated by our executive director. Mr. Putin saying that sanctions used by some countries are to promote their own projects. This is a directed at the u. S. And what theyve been doing. He says energy is important and an important part of the Global Economy. Tom . That. Ave plenty more on that is our john fraher answering asking the first couple of questions. Join him on the panel will be other energy players. When you look at the inflation conundrum, how much of this is driven by the price of all . I was reading in my textbooks and stunning economics, if the price of oil is down is that we ask is on a lot taking months. About theo we know damage that hydrocortisone do the economy . A lot of banks preferred to look through the oil price because its been so volatile and is done so simon traditionally. Francine hold that thought. Lets go to the panel. I mention this in slowly different words. I said that it creates an opportunity to invest in the Global Energy industry because ofsee the recovery investment process into Energy Prices stabilizes. Are trying to reach an agreement about these joint actions, there was a surplus in the market. Production was greater than consumption. The reserves were near a critical margin, and it all lead to a dramatic reduction of prices for Energy Resources and for oil the first place. Upon a able to agree joint action plan. We are able to reduce in rushing and practically all the countries are centered his commitments. They were held for the government to reduce spread thousand barrels a day and thats what we did. We are completely compliant with this kind of commitments. As you correctly noted, later on, we agreed about extending for another nine months until march 2018. Think,etly happening, i everybody is interested, not only the oil produces but also the consumers. Why . Oiluse when the price for threshold,the lower investment stops flowing. That sooner or later there will come a day when the Global Energy in the Global Economy will invariably be confronted by a very dramatic of i expected shortage Energy Resources and the price will rebound skyhigh. Nobody is interested in that. Everyone is it is in the market being stable. Over able to do is get with opec, i believe, for the benefit of the whole Global Economy. With regard to extend or not the depend on where ministration will be in the global market. I am not religious at were going to act upon the realities that are available to us in march a 2018. Favor of a you be in them to be on march. I think this is possible. Unit is quite well. It is very important to in such acaution public forum and phone statement. There are many countries it didnt join us. They are quite positive what we did to reduce our production. Livia, i heard, Public Statement is considering the possibility of having olivia producers join our efforts. Everybody is aware of this and understands the need for such joint efforts. We will have to look again at the way the Global Energy mix looks like in march 2018. We maintain contacts with our key partners, with opec in general, with the main producer nations and so. I think will have the honor and the pleasure to receive the king of saudi arabia and russia. Maintaining this constant dialogue. The rallies. In march 18, i do not rule out that we may extend these agreements. One less question on this. Course, this room, of like stability. Everyone in markets like stability. If you were to continue the production cuts could you see that last until the end of next year . We dont know yet whether we going to extend or not. The question is being asked wn regard to extend it. Once we decide whether to extend or not extend that as we will decide on the time frame. Overall, as a minimum, towards the end of 2018. You voice said that russia would never join opec. As a success of this agreement change her mind on that . Is something you think about again . Hasnt changed my as i see it as analysts note, even the fact of us not being inside opec enables us to effectively coordinate our. Oint work to bind us is silly we believe is unnecessary. Work withontinue to the opec countries and the major producers. A voluntary, but on a mutually beneficial basis. When we agree about who, and how much, and it what degree of time , thats a difficult process. It wasnt a simple job. We are ready to meet each other halfway we did that. Our partners acted the same token for the interest of stabilize the Global Energy market. We do of a positive experience and thats were going to rely upon. Let me turn to you. The oil market does look healthy right now. Prices have rallied. Do you feel right now that the just be extended . The deal should be extended . Let me start by thanking the russian authorities under the able leadership of president Vladimir Putin for putting. Ogether this premier event its a timely situation were in today. Thank you for inviting opec to participate. We just listen to a comprehensive address by president putin and i thank them for the apt answers in the very pointed questions. I would like to year this toortunity on behalf of opec really tell the president and for the role they played in the runup to this historic decision that we reached last year. The encouragement of cooperation that we agreed on, that they just referred to, was very and they work that went into it was very strenuous, very to theging, but thanks teams, the present of the others, we all rallied together despite the fact that russia is not a bona fide member of opec. They took a leadership role in the insurance they would have this consensus, not only within opec but between opec and nonopec, to bring stability to the market. Stability. About stability that had eluded the all marketing last three years. We can all see the consequences of the investment that the president is referred to. We all have shared responsibility whether opec are russia to ensure the security of our future supplies. We are reliable and dependable suppliers of oil to the world consuming markets, that only now but for the seeable future. Visionto reiterate the of the operation and also stayed here that all the dispute in countries have been abiding and implementing their own obligations. For the first time in history, we are a joint effort where performers this obligation has been extremely well, very high. Ussia has played its part its implemented over 100 of its obligation, vertically last two months. The fundamental decide whether we will be able to continue this room and in the market. Since 2014of balance and it was the collective thation of russia and opec we had to balance equation by addressing this label. Market, down, break the and we are on course. On january, we have a top draw down of nearly 170 million barrels. Action taking place both onshore and offshore. Im confident under this platform that we are created will be partners, we able to restores ability to this industry. How quickly do you think youll be able to get that point . Allstar that is our panel over in russia. Vladimir putin as well as the Center General off opec. Deal with russia, it was very rare. Anything with saudi arabia and russia be put together. He believes the deal should last at least until the end of 2018 if it is extended. The same if is extended that depends on market conditions. This is quite surprising, actually. Absolutely. Yesterdayreat story about the importance of the region to russia. Working in their mutual interests, both the oil market and their economies Going Forward. Francine Simon Kennedy there. Thank you so much. Eye overp an everything thats happening in moscow. Saying if they decide to extend it. The deal is both good for consumers and producers. This is bloomberg. Jonathan the president advisers says they have delivered the list of final fed chair candidates. That puertots ricos debt will need to be wiped out after the damage and puerto rico, and spains king accusing the cap salon catalan state