Transcripts For BLOOMBERG Bloomberg Surveillance 20170922 :

we have great guests to talk about your markets by your politics and the economy. but first things first, let's quickly check on what the data is telling us. if you look across assets, it is very clear that stocks are down the touch. they actually recouped some of hatir losses -- under news t north korea is ratcheting up its threats against the u.s. the yen stay put. i'm uncertain about how to trade yen. it would be one of the countries in the line of fire, if something were to happen in the korean peninsula. treasuries retreating. the dollar falling for the most in two weeks, on the back of north korea. wti. we just spoke to nine a jury in oil -- the nigerian oil minister. plenty more on that. it would also get manufacturing figures out of the eurozone. better than expected. said, geopolitical risks weighing on the market. kim jong-un has threatened u.s. with the highest countermeasure in history. the foreign minister includes that -- says that could include testing a hydrogen bomb in the pacific after president trump threatened to totally destroy north korea and ordered new sanctions on individual companies and banks doing business with pyongyang. oil is heading for a third weekly gain as opec meets today in vienna. the russian oil minister says it is too early to talk about prolonging the deal. japan is said to have sent october 22 as the date for a snap general election. local leaders reported that prime minister shinzo out they will confirm the election day at a news conference on monday. the world's wealthiest woman has died. l'oreal had a fortune of $42.5 billion. her death will fuel speculation about nestle's 23% stake in l'oreal. they have a shareholder agreement that limits either side from raising the stakes until six months after the death of bettencourt. facebook has pledged a political overhaul of political advertising. than 3000 facebook ads linked to russia have been studied by special counsel robert mueller. will continue our own investigation into what happened on facebook in this election. we may find more, and if we do, we will continue to work with the government on it. foreign actors, including additional russian groups and other former soviet states as well as organizations like the campaign to further our own understanding of how they use all of our tools. nejra: global news 24 hours a day powered by more than 2700 journalists and analysts in 120 countries. this is bloomberg. francine: thank you so much pride theresa may will try to revisit her brexit plan by calling for a period of transition. in a landmark speech in florence, the prime minister is expected to propose a time limited phase to give certainteed to businesses pitch is hoping it will kickstartthe stalled brexit negotiations. anna edwards is in florence fo r us. first of all, what do we know about boris johnson. is he there, and does he now support the prime minister? anna: things have changed since the beginning of this week when journalists were followed him all around new york. the cabinet does seem to be on the same page, at least a little bit more than they were at the start of the. -- the week. she is going to be asking for this transition deal. it can be seen as a victory for both sides of the cabinet. on the one hand, boris johnson gets the deal limited to two years. is something many businesses have talked about being necessary. we'll see boris johnson in the room. there have been reports of born johnson and philip hammond will all be here in an attempt by the u.k. government to show some unanimity, to show they can be on the same page as theresa may delivers this speech later on in florence. francine: what do we know about divorce bill? senior speaking to members of the commission in new york on wednesday, and they said negotiations can restart if we have an agreement on the u.k. side to pay the divorce bill. are we expecting theresa may to say anything on that? anna: it will be interested to see if we get any numbers. we are expecting her to talk money. 20 billion is we anticipate, euros to bridge the budget gap to pay for the transition. that is not to say going through the divorce bill line by line pitch might not get into those specific today. maybe the tone of the speech will be more wanting to draw people's attention to this beautiful city surrounded by art, the long relationship established between britain and this parturists that of italy that predates the foundation of the european union. rather than getting down to the nitty-gritty of the money, but that is what europe wants to hear and talking about concrete proposals and clear commitment. michel barnier said that any attempt to circumnavigate the process will not be successful. they need to deal with the divorce bill in northern ireland and they need to make progress on e.u. citizens rights. we could get some progress on that today, before they can move on to trade talks. and that is where theresa may wants to go. will she deliver enough to enable that? francine: i'm so intrigued. why florence and why a church? anna: well, the exact location has been kept incredibly secret, but we know a little bit about where it is looking to place -- to take place. surrounded by michelangelo and botticelli. one of the images she hopes will be left. this is a part of italy that is british psyche. she'll talk about the city which was a big trading city. renaissance city. that is the image of brexit britain she wants to initiate. whether the journalism community goes along with that image, we will see. francine: they need to be a little bit more happy underneath the blue skies. meanwhile, the pound hit its highest point against the dollar since brexit. up 5% as mark carney signal a rate hike could be coming in the next couple months. let's bring in the chief executive officer at goldman sachs. andrew, always a pleasure to speak to. a lot of our time is preoccupied by figuring out exactly what brexit means for the boe. what is it mean in terms of accent classes -- asset classes? andrew: some certainty around the transition period. in our business, our clients are looking for that certainty. i think something that gives more certainty, i think, does encourage investment and, of course helps growth. but the bank of england has been the big event, the veryc clear signaling they will raise interest rates in november. love the chart on sterling, bounce against the euro and the dollar in anticipation of that rate hike that is not fully priced in. i think the question really know theround 2018 and whether increase in inflation and the cramping of real incomes causes a slowdown relatively quickly or small, gradual for 2018. and hence, the question, how many more next year? francine: we tried to ask mervyn king about it when he was on set on wednesday. and giving cautious governor carney and giving governor carney in advice, but is this a reversal of the -- in august in the wake of brexit? andrew: it is a recognition that inflation is at the top of mind. the top of their band. it is likely we go about that. there is an acknowledgment they need to do something. they can afford to do a hike and waiting see whether the slowdown happens in 2018 or whether they need to do more hikes. the market is saying at least one more hike. we think that is probably right. and the questions will all be around what is happening on consumption and investment will play a part. which is why markets are focused on the speech by theresa may. francine: figure out whether we have a transition agreement or not. are you looking at euro-pound? andrew: we tend to look at currencies -- what is the impact on the economy more broadly. euro-sterling is important. half of the uk's trade goes across the channel. but across the board, we've seen a sterling bounce, which again, goes to some sense that on a relative value basis, sterling is starting to look more attractive. the u.k. economy looks relatively strong. versus its big competitors. francine: i'm trying to show you a chart. inflation versus wages. do you expect it to get much worse? the problem with inflation is the boe -- . related to pound weakness the right chart to look at. if you look at those being relatively static, and at the same time, you have got inflation going up which means real incomes have gone down. and this is the question we are grappling with, many in the market are in the bank of england him selves, is how much is that squeeze on real income in tech spending to 2018? in a way retail sales have been softened but they have held up reasonably well. the question is, any impact in 2018? francine: are you constructed -- more cautious. we've in tendency to think that's this has a delay of impact. it takes a while for people to feel the strain in their pockets. so, we're more cautious around u.k. growth in the latter part of next year. francine: thank you so much. andrew wilson stays with us. we will talk more about central banks. we'll focus on the fed and the emerging economies. let's get to bloomberg business flash. nejra: boeing has landed a second dreamliner this week. 879's.s to buy 40 the deal would be worth $11 billion before customer discounts. boeing -- saystely, the region's airlines will raise revenues by 9%. hewlett-packard is planning to cut 10% of its staff, or 5000 workers. the reductions are expected to start before the end of the. the year. the cuts are likely to affect workers in the u.s. including managers. they did not immediately respond to requests for comment. -- says his country may need to step up its role in cocoa production. >> we have to find a way and be able to connect the raw material to the finished product. because that is where the value is. and so far, we have been either out of negligence on our part, or difficulties of mobilizing the finance and the technology, we've not been able to do it. nejra: and that's the bloomberg business flash. francine: kim jong-un has threatened the u.s. with the highest level of hardline countermeasure in history. his foreign minister suggesting that could include testing hydrogen bomb in the pacific. after president trump vowed to totally destroy north korea if it provokes the u.s. and its allies and ordered new sanctions on individual companies and banks doing business with py ongyan. let's get the latest with our asia correspondent. how this could ratchet up. what exactly do we know about what the sanctions will do? >> good morning. it is another example of how key economic sanctions are what is happening with north korea. wants toe it clear he ratchet up the pressure on north korea through targeting individuals and the companies and the banks. sending a signal getting very serious about it. they want to ensure the folow of hard currency has slowed down to a minimum and that trade continues to squeeze north korea. so, it is a little bit more of the same. the u.n. has been in agreeing on sanctions in recent weeks, but an example that president trump is determined to push down this route of economic sanctions in the hopes to reach a breakthrough. francine: will china's banks implement them and has china weighed in on this at all? enda: it is a big question about how effective these economic sanctions are. there are two angles.w ill china implement them rigidly? there is a view that they will to inexpensive i spoke to an economist this morning, they said they would go along with them but at the same time china has already made it clear they don't want to do anything that would threaten the regime. they don't want to destabilize it. the feeling that it will be so affected. on the other side of the ledger, north korea has a well-established illicit channel for skirting sanctions. and fuelfunnel money in an out. there is a feeling that sanctions will have an impact but that may not create a breakthrough some people are hoping for. francine: d think people will be on tenterhooks for the next couple of days -- do you think? we're expecting something in the next 72 hours. it's well, i think difficult to put a time frame on it but when you listen to the security analysts, all indications are this will continue for's for some time. the threat of lodges continue to hover over the korean peninsula. we've seen next significant ramping up of the language are you mentioned the hydrogen bomb threat from north korea. we are continuing to head into new territory with this resolution but there is a view that for now the economic sanctions remain central to resolving it if, indeed, a resolution will be reached. francine: enda, great work there. our chief asia economics correspondents. emerging-market stocks are on a tear heading for the best year since 2009. money managers -- are betting that developing nation shares and bonds will continue to appreciate in the years ahead as they catch up for more than a half a decade of underperforming u.s. assets. andrew wilson is with us. first of all, simple but complicated question. what is the haven trade right now? a something were to go wrong north korea, markets priced incorrectly, and what you trade? andrew: it is a tough one. u.s. treasury bonds of the most expensive asset class within the fixed income world, and yet, historically, if there is something more serious going on in north korea, that would be th e safe haven asset. people would rush into treasuries. but if you could extract or separate out from north korea, u.s. treasuries does look very expensive. if you look at the risk premium on the range of fixed income asset classes most of them are in the lower quartile. over the last 15 years. it's really very expensive. treasuries are the most expensive of them. but there is no doubt that in a situation where tensions rise, people would flood into the treasury market. the yen -- francine: i don't know what to do with the yen. andrew: historically it has been a safe haven. you have got to wonder if it would be the safe haven assets if you had heightened tensions taking place in the pacific. francine: what do you think is our supply at the moment? people actually discount something ugly happening in the korean peninsula or because markets do not know how to trade it? andrew: they do not a how to trade it, how to value it. there is a lot of potential outcomes. the worst-case scenario is still a very low probability. i think markets are much more focused on what is happening in the economics. and to some extent, 2017 may turn out to be a transition year. at the start of the year, we were talking about stagnation and worried about the lack of inflation. it's remarkable a year later we have got inflation, bank of canada raising rates. so, suddenly, things have changed. much more focused on synchronized global growth, central banks back in place. quantitative exit. as central banks unwind their q.e. francine: on inflation, do we have inflation or don't we cap inflation? people are saying that it is getting better. the level of employment not only in the u.s. but in europe should be a lot higher if you look at the phillips curve. are we waiting for china to start exporting some of that inflation? andrew: each country is a little different. in the u.k., we have inflation. for different reasons. but we have inflation here. we don't think we have inflation in europe. the appreciation of the euro is fed through inter -- pushing inflation rates down in europe next year. we think inflation is falling next year. the u.s. is the biggest conundrum because as you point out we have a very strong labor market, below the fed's view, yet we have not seen inflation rates pick up. the last couple of numbers we had a little bit of bounce, but those numbers were very disappointing. the labor market we think is the key. it is strong. it is going to take time for those wage increases to come through. we still think inflation in the u.s. is likely to move higher over the course of the next six months. that's what the fed is focused on. they are forward-looking and they will have to increase -- to anticipate that increase. francine: there is a debate on whether inflation is too backward looking. what's your best bet? is it equities? do we see the rally in the u.s. market being picked up by emerging markets? andrew: on a relative basis, equities look better than fixed income. within the fixed income world, we would still side with emerging-market debt. i referred to that risk premium before. emerging-market debt looks to be about fair value. years,e last 15 emerging markets are close to fair value. everything else is expensive. e.m. is likely to outperform. there is growth there. they are complex and we are seeing central banks there having to cut rates. so, we're getting some boon from lower official rates. it's a contrast to what is going on in the developed world. francine: are those expenses or are they distorted? this is the chart i were showing yesterday. the 10-year treasury term premium compared to the spread -- andrew: it is hard to know. we have had these huge amounts of central bank buying that distorted prices. that is why we are much more cautious on the bond market because we are moving compared to where central banks are exiting. we have seen central bank purchases fall. last year, it was about2 trillion of bonds. this year, it will be 1.5 trillion. next year, 2018, if you look at the quantitative exit program, we think that number could be as low as half a trillion. recapne: andrew, just to what we know about central banks and as you were pointing out, this is what the federal reserve told us. farley announcing the start date for the unwinding of the $.5 trillion balance sheet -- the $4.5 trillion balance sheet. aanwhile, the ecb is trotting host of officials as investors look for clues about the future of the central banks q.e. plants. the concern when you look at central banks, we have been talking about normalization for such a long time. is the market really ready? how do you really know? andrew: what you can look at is what is priced in. thedn'don't think in the u.s. market has discounted this, despite the fed giving clear guidance they are likely to move in december, we've only got 50% of the rate hike fully price in. francine: why?> markets do not believe the fed? andrew: they want to see inflation. but it could be one of those situations where we get a couple thetrong pirints and market can reprice quickly. i think you are right. not doing that part because inflation has kept ratcheting down. inflation holds the key. if we see inflation rates move higher, there is a significant repricing that is going to take place. francine: are we right in focusing so much on the inflation? you could argue because of uber and facebook, the sharing economy is pricing things down which is why we are not seeing that 2% inflation. andrew: you do have to differentiate between growth and the inflation market. the big job is to ensure those inflation expectations do not get out of control. they want to balance that. that is their job. they have a balance mandate. they want to see growth coming through. they need to put the brakes on but they do not want to put them on to quickly. equally, they do not want to keep their foot off the brakes. they're walking a balancing act. that is why you see a split vote in the fomc, because it is hard to judge what is the balance between those two things. in our view, inflation is going to be picking up. interestingly from the fed meeting this week, they did not change -- at 4.6. we are sitting at 4.3% unemployment. the labor market is really tight. they did not much down there long-term inflation. 25 basis points. i think there is a degree of optimism that is not shared by the markets. francine: is market pricing in a possible new fed governor that is going to be much more dovish than janet yellen? andrew: i don't think so. there is a number of open spots. it's a political appointment. there are range of contenders. not a lot changes. the fed is well-p managed -- well- managed. and whoever is likely to come in to come into chair the fed and it could still be janet yellen. there may be no change at all. it is likely to have sort of the same or similar policies. i don't think that is going to see a dramatic change of direction from the fed. francine: what is your take on euro? when does it become too high from mario draghi? andrew: it's ironic we are seeing such a tightening of financial conditions across europe and it is happening via the exchange rate. again, they are walking a balancing act between, ok, we want to talk about stepping back from q.e. if we do so too quickly maybe we get a euro appreciation and that will make it more difficult to unwind. again, like the fed they are walking a tightrope here. for us, one of the interesting trades really is the relative value. we just put out a research piece on relative value. if you look at financial conditions in the u.s., they are easing. and you've got financial conditions in europe tighten. as a relative value, that is a great way to make some money. francine: i want to show you this chart but we will come back to it. the u.s. trade weight. up next, merkel is expected to sunday,o victory on but without an outright majority, who will run germany alongside her? what does it mean for her commitment fo immigration and the environmentr? this is bloomberg. ♪ francine: you are watching bloomberg "surveillance." now let's get straight to the first word news. kim jong-un has threatened the u.s. with the highest level of hardline countermeasure in history. the foreign minister suggesting that could include testing hydrogen bomb in the pacific ocean. after president trump trended to totally destroyed north korea as it provoked the u.s. or allies and ordered new sanctions on individuals, companies and banks doing business with pyongyang. led committee meets indiana today. the russian energy minister said it is too early to talk about prolonging the deal past march by the algerian minister said that the matter would be discussed. japan is said to have set october 22 as the date for a snap general election, according to three people with direct knowledge of the ruling coalition plans. local media has reported that prime minister shinzo abe will confirm the election date at a news conference on. monday facebook has pledged overhaul of its advertising and give congress all the evidence it has on the campaign's use by russia to spread discord in the u.s. more than 3000 facebook ads have already been stuck by robert mueller -- been studied by robert mueller. l continue our own investigation into what happened on facebook in this election. we may find more. if we do, we will continue to work with the government on it. we're looking to foreign actors, including additional russian groups and other former soviet states, as well as organizations like the campaigns to further our own understanding of how they used all of our tools. nejra: global news 24 hours a day powered by more than 2700 journalists and analysts in 120 countries. this is bloomberg. francine: now, we're just two days away from the german election were angela merkel is predicted to win big. the only question is how big? polling suggests a small droplet ion support. the final survey put merkel's bloc within a whisker of reprising her 2009-2013 coalition. joining us now is alan crawford, the european government editor. dramadoesn't have the the french election had. angela merkel is the beacon, the person the represents germany while talking with russian, on brexit, but the face to the u.s. allan: absolutely. will be very closely watched in washington and moscow and in london. the outcomes, which ever way it goes, the german leader will help determine what happens in terms of ongoing sanctions against russia, trade relations with the u.s., and president donald trump, and not least germany will be influential in the european union reaction to theresa may's attempts at negotiating a brexit deal. it's big. francine: yeah, alan, what is her weak spot? how worried is she about the alternative for deutschland, the far right? alan: well, the asd has been picking up in the polls in the final stretch of this election. the far left anti-capitalist left party -- so, that's definitely, it's upsetting merkel somewhat. theme repeatedly on the campaign trail and she has been -- to keep the center of the political setting strong. without directly saying, do not vote for the asd. she's hinting very strongly she does not want the electorate to split to the periphery and more polarization pressure once a strong center in germany. francine: what are her coalition options? the moment, the polls are very clear that she only has two. either a continuation of the grand coalition with the current partner, the social democrats, which is also her main route, opponent in the selection. wayn untested three coalition with the greens and the free democrats. inhough it is being tried one of the german states. so, we know that merkel would prefer stability. so, it would suggest that she would prefer to the continuation of the current line up, but it obviously depends on the result. francine: thank you so much. alan crawford overseeing all of our german coverage and the election is on sunday. we welcome the chief executive officer for ema. i don't know what this means for euro bonds and integration but it feels like the market is largely discounted it. on the coalition she forms. andrew: she is likely to form a coalition. although it is still a relatively large proportion of the voters that are -- francine: undecided. german elections have not surprised us historically but i think people will focus on that coalition. i think. continuation iswhat is price and what is expected . given angela merkel's promise a role the world, the markets are taking a great tool of comfort from that. further e.eu integration, someoe more experiencedu at the table, negotiating on brexit. all of those things would be likelying and the most outcome at some of alternative parties are doing well. it is somewhat at the expense of the other parties. so, i'm not sure you want to read too much into that. it looks likely angela merkel will retain power, highly likely, and that coalition and negotiation which could drag on for a little bit longer. in 2013, it took three months to form a government. so, that would be something to focus on. who is the coalition? integrationike e.u. and like immigration, those are going to be some of the touch points or difficulties in this coalition discussion. francine: what is your take on european reform? european growth is on a good tr end, and it seems to be solid but we still have record high unemployed. they - they dealt with banks but you do not know what comes next. are we too optimistic when it comes to europe in the short-term? andrew: the growth story has surprised this year in a positive way. growth in europe is not that different to the u.s. doing pretty is well. of course, we were very concerned about political develop its. and ael macron came in lot of those fears resided -- re ceded. the status quo is retained pretty touched on italy. we do have to have italian elections by may of next year. we think markets may be a little bit complacent around the political risk on italy. in the short-term, we do not select any surprises to come out of sunday. over the next six months, we are more concerned around me complacency around italy and the potential there for some political disruption. francine: especially at a time when the ecb is starting to alighn the balance sheet. what does mario draghi do? does he wait until the italian elections? andrew: the signal they are likely to start their program into 2018 probably on a more gradual basis, and of course, as you said, they always have the ability to do more or do less. so, i think if you saw a selloff and peripheral spreads driven by italy, you may well see the on hold program be put in order to reassure markets that the ecb is still there. ultimately, we will have the shortage issue. we do not think that apply so much for 2018. yes, more 2019 issue, but the ecb will be very focused on what happens to peripheral spreads. in a tighten policy, and it is not clear they want to do that. francine: do you like european equities? andrew: on a relative basis. it is all about the relative value. valuation, european equities, we think are better than the u.s. certainly from a bond perspective, we think european bonds look better than u.s. bonds but i come back to my comments earlier only because u.s. treasuries are so expensive. francine: great to have you on the program. andrew wilson at goldman sachs. may gets ready for her landmark brexit speech. will the u.k. prime minister keeping e.u. happy without losing the support of her own ministers? this is bloomberg. ♪ francine: welcome to our weekly brexit show. let's get around above all of the news brexit news. nejra: the week started with u.k. lawmakers calling for boris johnson to be fired after he put himself back into the brexit debate. in an article, johnson outlined what he called a glorious vision for the u.k. outside the e.u. that inspired criticism. an e.u. not to be named told spliterg the bloc isn't over brexit and trust michel barnier. the european union will take all the time it did on talks over the uk's exit. two surveys showed confidence among small firms and employs has fallen to the lowest level since the aftermath of the brexit vote. a report by the recruitment and employment confederation found that firms are concerned about filling vacancies in the future. global news 24 hours a day powered by 2700 journalists and analysts in 120 countries. this is bloomberg. francine: now, europe's attention will be fixed on floors this afternoon as theresa may delivers her landmark speech on brexit. the u.k. prime ministers hoping it will push for the stalled brexit talks before negotiations meeting again next week. while she's expected to call for givensition period to businesses time to adjust to the change. joining us is the former chairman of the consumer he's one ofpany -- the largest owners of the labour party. that is quite a rarity. do you think that will change? do you know many high profile labour donors in your position? >> i do watch what is going on in the house of commons. in the vote on the withdrawal bill which took place last week, 24 labour mp's didn't vote for the labour party or the labour whip or abstained or weren't there. that does suggest there is quite a lot of people that are inches about the labour party being so gung ho about staying in the single market. francine: jeremy corbyn was, did very well in the last elections. should theresa may consult him on how to go forward in negotiations or she should ignore him? labour party has been a bit negative about what is going on. very critical of the government. but i think the labour party throw itsetter to weight behind the government and there would be some areas where there are differences of view on social matters and employment legislation and so on, but common, t here are interest across the spectrum having a good deal. the more the labour party firms up with that, helping the government where it can, the better. francine: we spoke to toni blair, he said there is a 30% chance of brexit not happening. do think that is wishful thinking? >> that's very unlikely. if you look at the population results -- the poll results and recentu see is 70% in a poll of people just accept the result of the referendum wieth whether they agree with that or not. the trouble is the more people hanker after a second referendum th singleng in markete, it weakens the negotiating position, and makes it likely we'll end up with a worse deal. francine: and the clock is ticking. what with the best deal look like? >> the deal is likely to frame itself to have a two-year bridgetional period to some of this gap over the divorce payment by the u.k. going on paying into the e.u. funds which will reduce the gap, and hopefully, that will give a bit more time to get a pro-trade will finish upnd maybe three years from now rather than one year, outside the e.u. but on really good terms, but a free trade deal. francine: you would not want to try to stay in the single market. >> it is difficult to do this. on e.u. is so keen maintaining the free movement of labor, people. to try to get them to bend the rules and change the single market, i do not think it is a practical negotiating strategy. we are far better to accept the fact that the e.u. was to go on as it is and then to negotiate the free trade deal which is meshed into that without causing big problems. francine: the e.u. has been very clear -- if we start negotiating of the trade once you pay the divorce bill. should theresa may say, i am ready to pay in this is how much we will pay. >> it's very difficult. i must say agreeing to have the, divorce settlement discussions in advance of the trade discussionsi i think has made these negotiations much more difficult. it will be difficult for britain to agree or put forward anything like a final figure in advance of knowing what the trade deal is going to be. francine: right. but then you can be stuck. if the e.u., says these are the terms on the u.k. says we want to -- you could come in 18 months from now without a deal and crash out. >> that was always a risk of running that negotiations with that kind of sequence. very likely at the end of the day, certain accommodation will be reached. there is a risk we will crash out and we've got to be prepared for that. francine: what happens if we crash out, what happens to the economy? >> i don't think it would be such a bad outcome if we did finish up the wto terms. the average tariff is 2.5%. not a really big deal. the problem is we need to be prepared for that, which is having enough customs -- in place, all the. requirements for having a different customs procedure, which you need it's different from free movement, having a free trade deal. we need to be prepared for that. it's not the best outcome but that is what we wear -- where we need to be prepared to be. francine: do you think the government is prepared for it? is it very difficult for me outside to see what they are doing right and what they are doing wrong? they had enormous criticism for not being ready. gu you guys were always the best prepared. it had the best negotiating team. >> government has been a bit slow getting off the mark. it's been accelerating recently. but going back to what preparations had to be made for any crash out deal, essentially the most important thing of all is to have customs procedures in place that will work for that, but you need the same customs procedures for a free trade deal as you do for a wto deal. so, these are really essential requirement for any sort of exit eventually from the european union. if we have an extra two years, that will make it easier. francine: what is the one thing you think theresa may should focus on right now? do we know what kind of economy the government wants post brexit ? >> it is very clear the government wants to have an outgoing economy. we want free trade deals all over the world, we want britain to support the international laws. we do not want to go in for protectionism. francine: more exports? >> i certainly think we should do that. the economy needs to be rebalanced and that what. i think brexit may help it francine: we'll talk more about that and his company. how do you figure out what the rules will be in two years and prepare for that? this is bloomberg. ♪ francine: welcome to our weekly brexit show live from bloomberg's headquarters in london. theresa may's speech is expected to give certainty to u.k. businesses pay it, to surveys brexitonfidence by small employers has fallen to its lowest level since the votge. worriedsaid they were about issues such as rising labor costs, taxation and vacancies in the future. the found and chairman of jml is still with us. if you are a small company or a it ismpany, but imagine more difficult if you are smaller, how do you deal with brexit? what are the plans he need to make in the worst-case scenario? mr. mills: i think we are getting in some very conflicting signals. the report is now said that business confidence is falling, but the economy is still growing. other reports say that people are taking the issue in their stride. and i think on the whole people who do that are right. we had loads and loads over the last year or two of warnings about down turns. at jml, we're pushing ahead with investment and along the assumption that one way or another things will work themselves out with brexit. francine: do you have a european base? fromills: our sales come overseas and we had problems with the cost of goods going up, we then the for an earnings have got is worth more in pounds and they were before. so one balances out the other. francine: has you had to go back and look at your supply chain? mr. mills: not really. we have got some pressure on the supply chain to accept the weaker pound. they need to sharpen up on their prices. that goes on all the time. by and large, it has not made a big difference to us. francine: do you speak to the government? how do you find out about the thinking so you are better prepared for any kind of, i don't know if it's a shock or any turns. mr. mills: you have to watch and read the papers and try to pick up what's going on. a lot of the guidance we have from the authorities has not been very good. you are well aware of the downturn that was forecast last year when the referendum took place. it did not happen. the economy is continuing to grow -- quite slowly but it is still on the up. francine: are you worried about attracting talent? visas? mr. mills: i think what will happen is we will have a migration, and immigration system that is going to be pretty liberal in terms of providing work permits to people who got skills. problem around immigration tends to come from people with low wage, people who want to work hard but are completing the bottom end of the market. theink -- that's where restrictions are going to be if there are any. francine: that was john mills, the founder and chairman of jml. in the the meantime, we were watching that speech from theresa may. bloomberg "surveillance" continues. tom keene will be joining me. we will be talking private equity. we are joined by blackstone's johnson didn't ski. we will talk about brexit. this is what your asset classes are doing. are gaining because investors are little bit anxious about north korea ratcheting up as its threat against the u.s. euro rallying as strong manufacturing data came in. before german voters, ahead of the election on sunday. treasury yields retreating. the dollar falling the most in two weeks. that is your data check. this is bloomberg. ♪ ♪ francine: may's good moment, she plans to reboot her brexit strategy. can she break the deadlock? the ante as it hints at a hydrogen bomb test in the ocean. slogging it out for the , determining the outcome of the german government. good morning. this is "bloomberg surveillance." i am francine lacqua in london with tom keene in new york. we are two days ahead of the german election good a lot of the focus is on -- election. a lot of focus is on the election. speech, most important when do we see it? in like three or four hours? francine: it is exactly four hours from now. giving this speech is where galileo was first accused of heresy 400 years ago. taylor: north korea is striking back at president trump's threats to destroy it. suggests the country could test a oxygen bottle in the pacific president trump has ordered new sanctions on people and companies doing business with north korea. as you are mentioning in britain today, theresa may will announce a new brexit plan. she will announce a plan for businesses to have time to discuss. afterl last two years brexit takes effect in 2019. talks between u.k. in the eu have been deadlocked. mariarto rico, hurricane has hurt the chances of a speedy resolution to their financial crisis. the entire island is lost power. the total bill for damages could hit $30 billion. this is four months after puerto rico sought protection from creditors in the u.s.'s biggest municipal consultancy ever. -- consultancy ever. -- in solvency ever. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. tom: thanks so much. churn in the market. we have seen that today's from the fed meeting. -- two days from the fed meeting. stronger.'s a little stronger dollar off of the fed meeting. oil, a modest slip. i am seeing great articles quiet all media about the september, which explains that vix under ten. weaker dollar. francine, i guess you will talk about brent crude. francine: it is like you read my mind. there is that important opec meeting. we just spoke to the nigerian ministers. investors reaching for safe havens, including gold and yen. the problem with yen is it is traditionally a haven, but japan is involved with the korean parents of attention. -- peninsula tension. chart.is is a great this is in the zeitgeist of this week. goinga stunning chart into october. this is the spread of the yield curve. -- gadlfly. cap fly ofe is the financial crisis 2007, recession of 2000 and 2001. steepness of real the yield curve, and we come back to where we were in 2007. to show my hand, it is a flatter yield curve out the curve. not in the two's, but in the five's. francine: i have just changed my terminal to show you trade weighted basis. i hear investors coming in saying forget currency parents, you want to see the underlying strength or weakness. this is my eu trade weighted. mario draghi is delivering a keynote in dublin, june day with students.- q&a with he says we are not there on inflation. this is significant because he had mentioned the strength in euro. they're are looking to unwind the balance sheet. part of that may be because they do not have enough german bonds to buy. he is expecting inflation to pick up. joining us for the hour is john studzinski of last on. -- blackstone. are central banks right to start normalizing? john: i don't think we should spend too much time talking about inflation. less timethspend document economies. economies are doing well -- less time talking about economies. economies are doing well. about theking more geopolitical recession rather than economic reces sion. francine: you say inflation is a tier three problem. is it because markets are confident? john: i think markets are robust at the moment for all the reasons we know of the laissez-faire trump administration. markets are robust because of the relatively stable global economic situation. people don't know how to understand the impact of geopolitical risk. the are confident that leadership of the world, while of, verbally sort confrontational, it will probably still handle this with a significant amount of diplomacy. francine: are we changing the way we do diplomacy? your "matt percent when it comes to doing business. has donald trump and other politicians changed the way countries speak to each other? john: i think donald trump has handled the korean situation very well so far. people might be discombobulated with his vocabulary, but his terminology is drawing a line in the sand when it comes to the united states's perspective when it comes to north korea. this is not an issue between north and south korea. this is an issue between the united states and north korea. china is trying to remain on the sideline spirit tom: -- sidelines. tom: good morning. i look at where we are in our diplomacy. is it it permits of change -- a permanence of change in our diplomacy? change or permanent is it cyclical? john: you have to say there is a socialnt change because media and the broader success of media, namely people like you coverageine and 24/7 changes the nature of coverage because your constant onlogue in constant debate point counterpoint. it is particularly rich with this u.s. president. also allowsthat, it for a lot of public debate in discourse before you get to a point where real decisions are made and real tactics are actually implemented. it may well be a better format and framework for people exploring options before they actually sit down. for example, president trump's use of the word rocket man, while everyone found that to be like a cartoon character, to a certain extent that confirms the fact of what north korea is trying to accomplish, that they want to be seen as a nuclear power, and that term confirms that. tom: we had an exceptionally important interview yesterday with the investor of germany am a former investor to the united states, are we done with the world were to order? order?d war ii is it over? john: i did not hear the interview. i apologize. i don't know what was said. i think you have to go back to fundamental values of society, which will allow certain types of elements of diplomacy to continue. i don't think the north american order has changed in terms of fundamental values and even those. -- and ethos. how it goes about it is going to stand on short-term balances of power and long-term values. tom: let's leave it there for now. we have too many other themes to talk about, including the important speech of the prime minister in florence. john studzinski of blackstone. in the next hour, a wonderful our to catch up with ellen zentner on the path forward for growth in america. stay with us. this is bloomberg. ♪ ♪ taylor: this is "bloomberg surveillance." i am taylor riggs. job cuts are on the way at hewlett-packard enterprise according to people familiar with the matter. they will eliminate about 10% of their staff, at least 5000 workers. effortsrt of the ceo's to reduce costs in face of tougher confirmation -- competition. is reducing the list price of the 747. of cosmeticsres maker l'oreal rose the most in seven years. there is speculation that the death of the company's largest shareholder could clear out the company for a buyback or take over. her passing may make sale of the company more likely. francine: thank you so much. now onto theresa may and florence, trying to reboot her brexit plan today, calling for a time of transition after the u.k. leaves the eu. she is expected to propose time-limited phase for giving businesses certainty before the looming split. the offer is estimated around 2 billion euros. -- 20 billion euros. what does the eu want to know? they just want to talk money. >> they want to talk money. they want enough progress on the free priority issues, northern ireland, the movement of citizens, to enable them to move forward. the eu is talking about concrete proposals and clear commitments. theresa may is expected to talk about a request for transition and some money available for the transition. will she talk about other money? that is the crux of it. francine: how much credibility as the prime minister lost because of that opinion piece by boris johnson? >> boris johnson, the foreign secretary, writing his own personal vision of brexit, seen by some as an open attempt to take over leadership of the party and seen by others by a chance to get his opinion forward. what will be such an achievement will be if we see boris johnson, philip hammond, theresa may, and david davis on here under the tuscan sunshine speaking on one page around brexit. a week ago that might have seemed unlikely. if that all happens today, then that will be some kind of show of being on the same page, which is something the u.k. government has not been able to say for a while. who iscannot tell sweating the most. who has got the most skin in the game in florence today? it is interesting because if you are on either side of the split, the boris johnson side that wants to his, and the philip hammond side, either side could claim victory if she comes out and says she wants a two-year transition period. transition is something philip hammond argued for, and limiting the time to just two years is something boris johnson would be more comfortable with. she has to walk that i wrote. francine: thank you so much. you will be in florence throughout the day for us. still what this is john studzinski. we are getting conflicting views on what their negotiating. does the u.k. need to cite we going to pay the money so we can start really negotiating? john: i think the u.k. needs to slow walk this process. i know they have been slow walking it de facto anyway, but a lot is going to happen in europe in the next three to six months. you will have a resolution of the german election on sunday, a new coalition in germany. hasre seeing macron who the external mary series of events taking place in france, in which he has a majority and no opposition, and he is doing what he wanted to do in terms of his election campaign. you're going to have an emergence of a new europe over the next three to nine months. in the context of that, the u.k. needs to understand the new vision of europe as it continues to formulate its thinking on brexit. francine: let's get to our morning must-read. this comes from bloomberg view. he says there is no doubt that johnson and trump shares some common ground. they were both born in the u.s. ttempts to bash europe. the opportunity seems right for a closer transatlantic alliance. wrong? john: in what context? francine: do you see the emergence of a hard brexit, if the u.k. leaves the customs union, the single market, can they get that much closer to the u.s.? u.k. is not trying to get closer to the u.s. the u.k. is trying to reestablish its identity. i don't necessarily think the relationship with brexit is going to change the relationship with the united states whatsoever. we have to separate personality politics, which is what you are talking about here with trump and boris johnson, who are very entertaining is now these come from the reality of the long-term fundamental relationships that exist between america and the u.k. and germany and france. francine: thank you so much. john studzinski of blackstone stays with us for the hour. coming up, prime minister theresa may's speech in florence. this is bloomberg. ♪ ♪ good morning. "bloomberg surveillance." london. lacqua back in she is a trooper. she is in with john studzinski, vice-chairman of blackstone. we are honored to have him here with us for this important speech out of florence by theresa may. to italyr attachment and florence. believerch today, and i the prime minister will not be in santa maria novella, but an adjacent building, tell the global audience the symbolism of this building to florence and the renaissance. john: this church, i am not an italian historian or architectural historian, but this church is probably the most focal point in terms of music, literature, dante is buried there, and a series of major paintings in one large -- paint ings. although it is not a basilica, it is a large church. you have an extraordinary cross-section of florentine art and history that really goes not just through the renaissance but catalogs what happens until the end of the 19th century. rebound, dos on the you agree italy is doing better and there can be a new renaissance? europe fore lived in 30 years. i have always found in italy that the italians -- i knew in 2008 italy would never hit the wall. the italians, as francine knows because she is italian, are always clever and creative in finding solutions. there is always something they keep in their back pocket. there is always some piece of information they use to solve a problem. you are saying that right now. you will certainly continue to see that in the northwestern part of the country. francine: john is right. think of it like a football team, they just pull it out last minute, and you're not sure how. john studzinski of lack stone stays with us. pick up the latest issue of bloomberg business week. we focus on mark zuckerberg. this is bloomberg. ♪ so we need tablets installed... with the menu app ready to roll. in 12 weeks. yeah. ♪ ♪ the world of fast food is being changed by faster networks. ♪ ♪ data, applications, customer experience. ♪ ♪ which is why comcast business delivers consistent network performance and speed across all your locations. fast connections everywhere. that's how you outmaneuver. ♪ tom: "bloomberg surveillance." from new york and london, thrilled you are with us this friday. john studzinski is with us. ellen zentner of morgan stanley will join us in the next hour. here is taylor riggs. taylor: president trump has imposed more sanctions on north korea over its nuclear weapons program. kim jong-un has responded with new threats. he has warned he will take the highest level of countermeasures includery, which could testing a hydrogen bomb in the pacific ocean. afterhan half the deaths an earthquake in mexico city. there are no missing children at the collapsed school where they have been searching for a missing girl. russia has issued an unusually blunt warning to the u.s., the kremlin saying it will retaliate against americans firing in syria. russian special forces are fighting alongside the syrian.s president trump is heaping praise on the turkish president. after the two met in new york, the president said he gets high marks for the job he is doing. that comes months after his bodyguards assaulted protesters in washington, d.c. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. francine: thank you. as angela merkel and martin schulz slug it out for the polls suggest merkel is placed to win a fourth term. there are a number of possible coalition outcomes. joining us is the deputy director of the german office of the marshall fund. and syllabus is john studzinski up blackstone. thank you for joining us. will you look at why this election matters? angela merkel is probably the linchpin when it comes to european politics. she deals with brexit and is the voice on immigration and russia and the u.s.. >> yes. this election is not very suspenseful. it seems very likely angela merkel should likely get a fourth term as chancellor of germany. the question after the election is it depends on what kind of coalition she bills. because the political system is so fragmented in germany, there is not a lot of maneuvering for her. francine: what is for weak spot -- her weak spot? is it the far right party? how will she deal with them? >> that is correct. bloc has beenve warned to know allow a -- never right party togh emerge. this is the first time. theyi am going to assume did not see the immigration debate that angela merkel is living right now. tell us about this phrase you have, immigration integration. how is that playing in the german press? >> yes. this is the hottest issue on the campaign trail. y isirony is nobod talking about it. all the mainstream parties were in agreement that germany should open the doors to immigrants in 2015. this has given rise to the far right party francine mentioned. i think angela merkel is going to have to come to terms with this decision she made, which she thinks will be for the good of germany. if she does it, she will have to focus a lot of resources on on boarding the immigrants to germany. tom: how will that affect turnout in that the number one issue is not being spoken of, yet the people are aware of it? will that do for turnout this weekend? -- what iwll do for turnout this weekend? >> a lot of people are undecided. a quarter of people are still undecided. people may not turn out, or their may be a high turnout for the far right party, which is turned into a protest party is of the governing coalition of the two major parties. people do not feel like they have an alternative. francine: our guest john also has a question for you. john: if someone acquires more than 5% of the vote in the election on sunday, they are allowed to be seated. i have read a number of different polls suggesting the afd could get as much as 10% to 15% of the vote. what is your view on how this will evolve from and what will the impact be on any coalition that is formed? and what role will they play in terms of policy going forward? correct,d, you are they are predicted to get double digits, past the 5% threshold. all the mainstream parties have said they will not form a coalition government with the afd. they will be present. they will get public financing. they will be able to get infrastructure with offices. they are already present in 13 state legislatures in germany. they will now be present on the national level. i believe they will be a force to reckon with in the german political landscape. what is crucial is they could be the strongest opposition party in the london stock if there is a repeat of a grant coalition. budenstag, ifan there is a repeat of the grand coalition. francine: if angela merkel wins, it seems there will not be that much change in terms of composition. there are a number of challenges, i know they are smaller, but germany needs to focus on areas such as rock band and education. -- broadband and education. doing a what her focus will be? -- do we know what her focus will be? >> there will either be a repeat of the grand coalition or a three-way coalition with the conservative bloc. there could be opportunities for real change and visionary leadership. angela merkel may have to think about doing things for her country like investing in infrastructure and education. what does angela merkel want with the european union? we have an important speech in florence, italy, today. what does the chancellor want for prime minister may in florence this friday? >> i think the germans are in a delicate position. they don't want to be seen as the dictator of europe, dictating eu policy. they want to do this jointly with partners. they are embedded in the european union. they want to see a revival of the franco-german alliance. they want an amicable split. they want to lessen the pain as much as possible. they will want a smooth transition if the brits are adamant about brexit. tom: wonderful to have you with us on this important friday. we will continue with john studzinski of blackstone in our london studios in a bit. on bloomberg television, "bloomberg surveillance," in the meantime your morning briefing for what happened overnight, bloomberg daybreak coast-to-coast. stay with us. this is bloomberg. ♪ ♪ tom: john flattery moving at light speed. general electric restructuring, day after day announcing they are shrinking down their airline fleet. solutionsdustrial division, a modest transaction, the old electrification division of ge. they had been very busy with hurricane disaster relief as well. they migrate industrial solutions, their smaller but older heritage solutions over to abb. francine. francine: i think this decision would actually cap months and after of bidding process this started back in december. it has been quite a while. oil gaining for a third week after opec meets today to discuss production cuts. opec and its allies have suggested they will wait longer to see if further action is required. earlier we caught up with nigeria's a minister -- home minister. $60 a barrel, we are not too far away from that. if we get too much and find the need to do more, we will. fromine: yusef joining us the end. moodare in a wait and see to see if oil cuts need to be extended. a lot of factors are the economy, demand and shell gas in the u.s. >> you hit the nail on the head. we also heard from the russian angie minister saying they will not -- energy minister saying they will look at the data and see where things are. we also have lines out from the kuwaiti minister underscoring that opec cannot sit back and relax and there have been improvements on a technical level on the front part of the brent curve. they can afford to wait longer before a decision. francine: the nigerian oil minister gave you a target price. i tried for years to get a target rice out of anyone, but he says the group as a whole atted at $60 -- wants it $60. >> we heard that from the venezuelan oil minister couple weeks ago. $60 a barrel seems to be the consensus thinking. to get to that, they need to find fresh momentum. the data also suggests inventory could start building again, which is why we are hearing from the kuwaiti minister that they need to do no ideas, deeper cuts from the iraqi minister as well, and possibly monitoring exports. tom: you are in vienna. let me ask the question we ask every september, how cartelly is the cartel? are they strong, are they mighty? what is the strength of the cartel as they take their one zillionth meeting? >> they are stronger. people have written off opec. it is not really opec anymore, it is opec 2.0. and will try to stay agile react to real-time data, that shows you we are entering a new era. this is far from over. francine: thank you so much. vienna where he will be garnering more interviews throughout the day. john studzinski of blackstone with us. i don't know what the price of oil has to do with the real economy. i have been told once he goes down, it impacts real growth. i have not seen that much. have those dynamics broke down? john: i think the market understands the nuances of what has happened in north america due to shale. what has happened to houston with the hurricane has been tragic, but we are still seeing range,the $45 to $55 which is the range it has been in for quite some time. i don't think the markets are quite as sensitive to this, not just because of broader options with respect to supply in north america, but because it is no longer seen as the cutting edge geopolitical issue. francine: what do they have to worry about? it is amazing from the geopolitical point of view seeing saudi arabia and russia coming together. john: it is important. i think the most important thing to focus on in terms of oil is russia because remember the stability of russia and economy of russia is predicated on oil. that is, of course, had a negative impact on russia in the past. tom: let me ask you a question. we saw a buyback of a modest amount of shares. what is the strength of big oil? i have not asked that question in ages. it is a question from another time and place. does big oil play? john: play defined as what? tom: as exploration, as moving down the food chain to retail, and does big oil play as part of the discussion in nation capitals? five,i think big oil in 10, 15 economies of the world are very big in terms of capital investment and employment. you still have companies like exxon and two or three others, but fewer and fewer, who are global players who play a role, and we see that with rex tillerson transitioning to secretary of state as having a clear grasp of economics and geopolitics coming together. i think it is less than it was 10 or 15 years ago, because as you know shell is different today than it was 10 or 15 years ago. bp is very different. you still have two or three layers. i think the difference is the chinese all companies are becoming much more important. francine: thank you very much. in the meantime, if you have questions for john, you can contact us through tv . you can look up some of the cool segments we have had over the last hour, and you can ask us underneath the video screen to ask questions directly to john studzinski. we await them. this is bloomberg. ♪ ♪ taylor: taylor: this is "bloomberg surveillance." i'm taylor riggs. general electric is close to selling its industrial solutions unit to support company abb. the deal would be valued at as much as $3 billion. an agreement is likely to be announced next week. ge put the unit up for sale in december. easyjet has been selected as preferred bidders for air berlin. air berlin was forced into insolvency last month after its lead investor withdrew funding. tom: thanks so much. it is a common feature of new york city and london, the place you do business back generations. john studzinski of blackstone is a great student of this. we speak to him this morning about the future of wall street and the future of the city as the prime minister speaks in florence. do you buy the doom and gloom on the city? john: i don't for two or three reasons. it is certainly the case that certain aspects of the financial services industry for technical, regulatory, and other reasons may have to relocate to the new european union on the continent. having said that, london as a ister of capital because it a place people want to live, talents in europe wants to live in europe. in terms of infrastructure, school, culture, and the open nature of the society, so i don't think london will change. we have been through this drama in 2000. we have been through it at a couple different points where people thought frankfurt would evolve, zurich would paris would evolve, they did not happen. london will remain the second world financial capital. i think the question to raise is thinking about the future of --g kong in relation to remember that the 20th year anniversary, the chinese made it very clear that by having 20 military tanks going through the town they would become even a higher influence through the city of hong kong. the question is whether hong kong remains the dominant financial capital in asia or that shifts to singapore. emotionald a very discussion on this a number of weeks ago. on the your update ability of the chinese government in beijing to allow hong kong to the hong kong. i think the chinese government has done a good job so far. many of the things they do in hong kong is really aimed at making a statement back to the mainland. you know, when you look around mostorld right now, countries, tom, are exporters of instability and risk. i would say one of the few places in the world which is exporting stability is actually, you may be shocked to hear this, is beijing and the chinese government in terms of what they are doing. we are happy with the tpp outcome. they want to see hong kong be the stable source of capital investment in asia. xi certainly wants that. whether investors see that is going to be something that is tested over the next couple of years. tom: very good. john, thank you so much. very much appreciate this visit with john studzinski up blackstone this morning. coming up, an important and timely conversation with ellen zentner. we reset and recalibrate after janet yellen. i want to focus on productivity and the horse and cart of shifting us to better productivity as well. it is friday. markets churning this morning, some stability after what we see friday. prime minister may in florence in a few hours. stay with us. this is bloomberg. ♪ . . . so new touch screens... and biometrics. in 574 branches. all done by... yesterday. ♪ ♪ banks aren't just undergoing a face lift. they're 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. that's how you outmaneuver. this morning, the most sinceant breakfast speech june 23 of last year, the prime minister travels to florence to europe.promise with recalap after janet yellen, morgan jams i, and the traffic think maybe subside in midtown new york. mr. mueller of washington with a weekend counsel. good morning, everyone. this is "bloomberg surveillance ," live from our world headquarters in new york. francine lacqua in london. a quieter week. everything shifting to florence. tell our global audience right now why this speech is critical. francine: it will set the tone for negotiations between the u.k. and eu when it comes to brexit. this is the first major speech on exactly what theresa may will concede, first of all, and there is a concern about trade. all eyes will be on johnson after a pretty rocky week. does he want to quit, does he not want to quit, does he stand behind the prime minister? good, francine. much to talk about with ellen zentner in this hour. right now on korea with first word news come here is taylor riggs. onlor: north korea back president trump's threats, the highest level of hardline countermeasure in history. he suggests the country protects a hydrogen bomb in the pacific. president trump wants new sanctions on companies and banks doing business with north korea. prime minister theresa may may do a new outline on the brexit plan. businesses will have time to adjust. the bbc says the transition will last two years after brexit takes effect in 2019. talks between the eu and u.k. have been done let -- have been deadlocked. rico, hurricane maria has hurt the chances of a speedy resolution to the u.s. commonwealth's financial crisis. the total bill for damages could hit $30 billion. all of this comes four months after puerto rico sought protection from creditors in the biggest insolvency ever. a case. is stepping up for american content requirement. the idea has already been met with skepticism by mexico and canada. in the "washington post" commerce secretary wilbur ross says the administration wants a specific amount of u.s. concert and goods traded within north america. global news 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. i am taylor riggs. this is bloomberg. francine, tom? tom: taylor, thank you very let's go to data, equities, bonds, currencies, commodities, before we get to mr.'s i kevin cirilli. higherth the reset of a yield come onto the next screen, 9.979.. the dollar weaker. franc is key, francine. francine: it certainly is key. safe havens include gold come and i wouldd, yen, like to point you to the euro. that seems to be gaining sentiment for germans head to the polls on sunday, tom. tom: very good. most interesting weekend not only in washington but also investmen in bedminsted north korea. is really joins us. we have -- kevin cirilli joins us. we have a lot to talk about. what will our generals counseling president this weekend? kevin: first, the president trying to use the united nations -- a good day for u.n. ambassador nikki haley on the issue of north korea, maybe not so much on the issue of iran. clearly getting some kind of agreement with the chinese. maya president xi jinping not have been in the meeting yesterday at the united nations with the u.s., japan, and south korea, but clearly the elephant in the room. a nice surprise for trump himself. kevin cirilli, there is a difference between the words "atomic" and "hydrogen." "hydrogen" creates fear. do they believe north korea has the tool? kevin: shinzo abe said yesterday this is a bigger deal than the bomb the u.s. dropped in hiroshima. this is something that is significantly more than that. that is a perfect illustration. there is no question that general kelly, chief of staff of president trump, has tried to close the circle around the president but also try to streamline military communications to the president through him. i think that significantly has, in the past couple of months, is what you are noticing such better cohesion and streamlined communication between the white house and the united nations. this president was critical of the united nations before he started, but he was able to get them on board for north korea. kevin, what will the white house focus on this weekend? will they focus on a new investigation or on geopolitics? kevin: i think geopolitics. to some extent, we have noticed significantly that the white house has been caught, left flat-footed. this can change, but in the past weekend, they have been caught flat-footed on the molar investigation. expect you at inexpensive steakhouse in washington, taking notes on the table next year. that would be productive. we will see you. kevin is really come our chief washington correspondent, this morning. the acclaim she received about saying wait a minute, all of the interest rates, she was like, "maybe not." she was dead on. ellen zentner joins us this morning. let's get right to jp. goes to 1.7. atlanta gdp grows over to 2%. i do not buy the hurricane noise. ellen: it is the hurricane noise. we are about 2.2%, tracking for the third quarter. tend to, is that you depending where these things hit in the quarter, you get dampened activity in the quarter, but you start to get positive activity coming out. the important thing here, it was such an exciting week on the trading floor for the fomc excitement. tom: they let you on the trading floor on morgan stanley? ellen: not dangerously unsupervised, but they let me on. all of the fixed income trading floor. i have seen the fed after each of these major hurricanes. they do make a statement, usually in the first paragraph, where they say despite or notwithstanding hurricane effects, the economy continues to grow. they basically said "don't look at all the data, don't look at inflation data, all of this does not matter because it will be kicked around by hurricane effects," so essentially saying, "none of that matters, we are hiking rates in december." tom: do we have a regime change this week, or is that almost transition are -- transitional? ellen: certainly yellen, if she is not her own successor, has ever successor a gift by thisssfully getting announcement behind them that they will start drawing down the balance sheet in october. that pretty much the third hike is in train and they are expecting in december. so her successor will come into that with pretty much everything set. -- howestion i have is does a person decide to put their stamp on the fomc? a huge position. you typically do not come in without a fairly large ego because now you are one of the most important people in the world. you tend to want to put your stamp on policy. does that mean you may change the path of rates? i don't think so. i think trump said she did a good job. people do not come in and start jacking up to. you could have someone who comes in with a deeply different ideology about the balance sheet and start changing the principles and the normalization plan. you could have someone who comes in and do away with the box on day one. and i tell you, tom, i will not miss them if that comes. francine: ellen, what will you miss? because this is a political appointment, if the new person is just as much dovish of the more, whatir, if not do you do away with? ellen: great question. it is a fair argument that in order to get a nomination, you will have to convince trump that you are seeing i die with him. but again -- seeing eye to eye with him. but again, he has said janet yellen is doing a good job. that said, i have heard, from ours, could it be the second coming of arthur burns? i hope that is not the case because we have seen in the 1960's where that got us, but that is always a risk. on the second question, i would do away with the dot dot. i think it was useful when he said was first out and we needed to anchor the yield curve, but we do not need to do that anymore. it creates a lot of confusion. instead, if you want to replace it with something, you can replace it with a lot more on how policymakers feel about what the enticing represents versus rate hikes. we have seen a few policymakers mention they would like to see it. but i would get rid of the dots right away. francine: thank you so much, ellen zentner. she stays with us. a regulators uber, saying the bridal hailing has not -- right hailing at has not regulator saying the beenhailing app has not operating properly. the transport for london saying uber will not be issued with a private hire operating license. this is a huge deal for the company, who has already lost people at the home, tom -- helm, tom. tom: i did not think this would happen. what is the backstory? francine: like in many european cities, i imagine, you have cabbies, cabdrivers, who have fought this to the nail, that they have paid for their taxes in a such a huge come almost licensing way. ubers are arguing that should not have a license. the backstory is, where there are incumbents, people there before, trying to push them out. we will try to get to the bottom of what that means. this is bloomberg. ♪ taylor: this is "bloomberg surveillance." i am taylor riggs. let's get to the bloomberg business flash. general electric is close to selling its industrial solutions unit to the swiss company agb. according to people familiar with the matter the deal would , be valued at as much as $3 billion. an agreement is likely to be announced next week. ge put the electrical product unit up for sale in december. hewlett-packard enterprise, according to people with the matter, they will eliminate at least 10% of their stock and dismiss 5000 efforts. it is to reduce costs in the face of tougher competition. in shares of l'oreal rose the most in seven years. the largest shareholder could clear of its owner bets in a takeover or buyback. a 20% stake has been sold before. and that is your bloomberg business flash. tom? francine? francine: thanks so much. try to revotell her brexit plan after a period of transition. the landmark speech the prime minister is expected to propose certainty to businesses worried about it. it may lightly think that britain will continue to stay in the eu until 2020 when the budget runs out. the offer is estimated around 20 million euros -- 20 billion euros. with us is bloomberg's anna edwards. who is she talking to? issue talking to people in her , or is she actually talking to other eu leaders? anna: she has all kinds of audiences in line. she might be talking to european union leaders. they might not be in the room, but she is talking about a total change in the brexit debate. she is talking about the long history that britain has with europe, predating the european union. she also wants to prove that her cabinet is on the same page. they have not been on the same page as each other or with her on brexit, so she wants to show unity on that front. many back home if were not in favor of brexit. she wants to relate its value, something forward looking rather than backward looking. maybe there is that in her sites as well, francine. francine: anna, talk to me about the timing of this. is a crucial that it is today's before the german election? she will have to wait for angela merkel. anna: the fx markets, i have been watching, is certainly alive with talk about how we may see a pop in the pound is she enter something that is seen as further transition, something positive the ok positivelivers that -- for the u.k. if she delivers something positive, we may see a pop. that could be interesting. the timing is interesting, francine, coming two weeks before the party conference. remember a year ago at the party conference, that is when theresa may put red lines in the sand around brexit. this will be a speech with a very different tone. what will she returned to in two weeks' time, though? tom: who is she speaking to? is she speaking to brussels or to the individual nations? get: she is trying to around brussels, i suppose, is that she, tom? she herself said, when she was in new york, they devolved the negotiation process to brussels, to michel barnier and his team. really it is the head of the 27-member states. she wants to take this as a direct appeal to remind them of the long history of you came with europe, predating the eu. withants to -- of u.k. europe, predating the eu. she still needs to show progress on the three priority issues. annaine: all right, edwards in florence, thank you so much. tuesday, a lot of beking analysts, we will talking about brexit and the impact on their business. diamond will join us. this is bloomberg. ♪ francine: "bloomberg surveillance" this is without breaking news on uber -- francine: this is "bloomberg surveillance" with breaking news on over -- london has decided not to renew the license on uber. appeal that,ays to and they will be able to continue functioning for those 21 days. on the bloomberg, all kinds of news. ftfl says it is not on proper to hold. is bloomberg's technology reporter, adam. adam, how much of this is commercial, and how much is political? adam: i will say both. thatf them is a program a softwarewhich is tool created internally, which was a way for them to avoid regulators. they are able to recognize when applators were using the and steer away from them so they could not get an inside look at what was going on. there are also health care issues that have reportedly happen when people are using them. tom: adam, i am sorry, i am focused on heathrow. what is going to happen when they ban uber? i mean, come on. i need my mercedes. what is going to happen? adam: there are some 3.5 million people have uber in london. there are some 40,000 drivers, according to the company. so the impact will be not insignificant for the people who use it. blacka big boost for the cap industry, which has a lot of political weight in the city. they have been pushing hard for tighter rules against uber. as these cars are proliferated, their businesses have been hurt. what happens now is uber will probably appeal this. be probably some sort of meeting of the minds where some changes are made. tom: adam, thank you so much. we will be touching this all day. onhave business briefs, less uber, airbnb, and amazon, but on the destructive cocktail. this is a really nuanced story. this is what megan murphy is doing in "bloomberg businessweek." it is a really detailed story about the many faces of mr. zuckerberg and his facebook. we will have more with ellen zentner and her america on productivity. stay with us. this is bloomberg. ♪ so new touch screens... and biometrics. in 574 branches. all done by... yesterday. ♪ ♪ banks aren't just undergoing a face lift. they're 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. that's how you outmaneuver. they save us from gettingones? lost, getting hungry, every branch running like headquarters. and getting tired of places like this. phones changed everything - shouldn't the way pay for them change too? introducing xfinity mobile. where you can pay for data by the gig, and share it across all of your lines. no one else lets you do that. see how much you can save when you pay by the gig. xfinity mobile. it's a new kind of network designed to save you money. call, visit, or go to xfinitymobile.com. tom: we rip up the script for here.logy francine lacqua in london, tom keene in new york. out with a new headline, no surprise, they will challenge this idea from the government in london that there will be no uber, with their license revoked. we are fortunate to have ellen zentner with us of morgan stanley. on airbnb, on uber, on amazon. bring up the chart here. this is what chair yellen talking about, which is the price of technology. that is the london chart. we have a chart right here from new york. there it is. down we go. a gradual decline in cell phone bills as well. you can do this for a whole host of technology. ellen: we can clearly see technology's affect across many spaces. what we did recently is took many researches -- all of the and wech internalized it come after having conversations with the bls first to make sure the bls is capturing this price effect. i am trying to forecast what effect fed will be looking at, what the markets will be looking at when the data comes out. theconclusion was structural elements that are holding inflation down, that the fed would not get to it 2% goal, and that the fed would have to be happy with the. tom: but on the x axis are these one-off level shifts, one time technology inputs into our system. is there a trend to them that means they must adapt to each other? ellen: there is an underlying trend to them, and we think it means inflation rather than 2%, somewhere closer to 1.5%. does that mean the fed should be changing their goal? no. they have a symmetric band around that 2% goal, something we were reminded of two weeks ago when governor greener spoke. band.a symmetric do they have the right policies in place to expand deflationary pressures? another reason they can tolerate easy financial conditions. and why they maintain that gradual pays -- they have low inflation to not pressure them to go more quickly, but that recognize that growing above potential and points below low employment, all of those factors would scream at a policymaker that you need to speed up rate hikes, but below inflation means we do not have to. this is what dudley says, he thinks low inflation is a good thing. the market does not see eye to eye with the fed. they do not think the fed should raise rates until we are at 2%. so there i a disconnect here. francine: you argue that disinflation can pick up quickly? ellen: it can. this is what chair yellen believes. she was on a fed back into 2004, 2005 as vice chair. she said it is not going anywhere now, but the unemployment rate is going lower and lower. i am worried. she was proven right. here is a woman who was learning economics in the 1960's when we go back soon, francine, we were talking about arthur burns, when ,he policy was to do nothing and inflationary pressures build, wages grew, and by the time they realized something needed to be done, it was too late. so if you are chair yellen, you have seen this play out over and over again, which explains why she is on the tightening v ibe. tom: come back with ellen zentner on productivity. here is taylor riggs. taylor: president trump has imposed more sanctions on north korea over its nuclear weapons program. kim jong-un has responded with new threats, saying he will take countermeasuree in history. that may include testing the hydrogen bomb in the pacific. president trump just weeding out "kim jong-un is a madman and will be tested like never before." in mexico, the death toll from the earthquake has risen to 273. more than half the deaths were in mexico city. wrecking crews say there are no missing children had a collapsed school. they were searching for a missing girl who was believed to be trapped. has issued an unusually blunt warning to the u.s. the kremlin said they will retaliate against american-backed fighters in syria. firing onuses them of syrian-backed troops. russian special forces are fighting alongside the syrians. president trump is heaping praise on turkey's president erdogan after the two met in new york. the president says he gets high marks for the jobs he is doing. this is after his security guards beat a protesters in washington. president erdogan has drawn criticism for his crackdown on dissent. global news 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. i am taylor riggs. this is bloomberg. francine, tom? this is what we will do on germany as angela merkel and martin schulz slug it out. german elections may have an outside influence. polls are suggesting that merkel is poised to win a fourth term. berlin is the head eu program. are we under resting the amount -- are we underestimating the amount of change? depends.ll, that this time, it will be pretty difficult to form a coalition belowe if the fcb scores 23%, they will not be very willing to join another because they think the longer they stand on a grand coalition, the more they lose their peace talks, and there will not be a majority, according to the polls today, there will be a majority of the black and yellow coalition. black,er option is yellow, and green. large that it will be pretty difficult to find compromise on some issues like eurozone, like the defense policy. francine: that is one of the things we see. dr. puglierin: i think it will most certainly be merkel, but it will be difficult. francine: jana, talk a little bit about angela merkel's weak spot. she has been talking about pro deutschland. dr. puglierin: that will be a new problem because the ife will enter the bundesbank as they third-biggest party. and the germans have been very .ight-wing we have not seen not in a very long time. them really reaches the right wing positions, sort of lining with the fascist position , so to deal with them is really a thing of culture in the german government. if there will be another will be thet largest opposition party, the afp will always be the first to answer angela merkel in the parliamentary debates. i think that will definitely change the tone in parliament. puglierin, thank you so much, german counselor on foreign relations. we will speak with ellen zentner of morgan stanley. we have much to talk about as well. i want to talk about preparing for the morning. thank you for listening to our conversation on bloomberg television. when you get in the car, bloomberg radio, "bloomberg daybreak" coast-to-coast, serious xm channel 119. this is bloomberg. ♪ taylor: this is "bloomberg surveillance." i am taylor riggs. let's get to bloomberg business flash. breaking news this hour -- a big blow for uber in the u.k. london is not renewing the operating license in the city of london. there are 40,000 uber drivers in the city. lufthansa and easyjet have been picked as the main bidders for air berlin that will give both carriers a chance for germany. insolvency last month. general electric is close to selling it industrial solutions unit to the company agb. people familiar with the matter the deal would , be valued at as much as $3 billion. an agreement is likely to be announced next week. ge put the electrical unit up for sale in december. from our world headquarters in new york that is your bloomberg bs flash. francine? francine? tom? thank you. opec and allies say they will wait to see if further action is needed. earlier, bloomberg's yousef gamal el-din spoke with the oil finance minister. >> the members will try to get as close to $50 per barrel. we are not too far away from that. much, and it needs to do more, i think we will. francine: let's now get straight to vienna where we are joined by yousef. yousef: this speaks to the probably more favorable conditions, taking place on the sidelines. but ultimately sets the stage of a bigger composition about the future of the opec, non-opec accord. the in mind it is not on table. the indication here is they will be looking to enforce supplies more strictly. the numbers have been going up, but they are making more so of a point to saving market will rebound quicker if everybody holds their weight. closer to the eventual expiration of the date of the data comes in. voices we the bullish have been hearing, the latest being morgan stanley revising the bread forecast upward, shows you once again momentum is on their side. companieswe have seen are selling crude, for example, from some of their places because of the extent of demand increasing for them. yousef: yes, so that is a very key structure when you look at some of the brands or wti charts. the wti is still very different brent,ent, but with that applies to the front part of a brent crude, which shows demand is improving. people w will anticipate premium for delivery times on the brent crude. a picture that is changing, but they question will be whether that momentum will continue, and as demand forecasts are revised and as time passes closer to the expiration time, this is far from a told story, and that is why alexander novak made this very important point. if we need to think about the longer-term strategy here to stay ahead of the winning that happens so far, this is far from over. tom: yousef, thank you so much, from vienna. ellen zentner with us for morgan stanley. most people in america could care less about open and cartels. it is like america extended in hydrocarbons. where do hydrocarbons in america fit into our gdp? interesting because when oil prices and gasoline prices started plummeting in late 2014, economists were out there saying -- who cares? energy infrastructure in the u.s. is about 1% of gdp. what happened, though, it ended up being a big impact on the economy because it is a much larger share of the s&p. energy companies lost in the s&p ended up feeding through -- use of energy within our economy, and there were surprises when we were down to $29 a barrel. ellen: there were. over time, about a mid-1990's, we cut the amount of energy to produce one dollar gdp by about half. it is important to an overall time ---- diminish over this is a special example of where the benefits to consumers in the short run did not outweigh the hit that we were seeing through the industry, because it has been the fastest growing industry, the fastest-growing piece of investment, for 10 years. it was a really big reversal. tom: partly energy dependent in 2017? ellen: i think we're more independent than we have ever been. hurricane destructions hurt refining. that raised gasoline prices here in the u.s. we have a little bit of debt to consumer spending. , outside of natural disaster destructions, we are fairly independent. tom: ellen zentner of morgan stanley, we will come back with our single best chart of productivity. that was my almost chart of the year. stanleydesk at morgan or anywhere else, to get wisdom from ellen zentner, you can come here, click on a previous segment. you will see the segment, then you will migrate over to a chart of beauty. this is chair yellen's wireless cell phone chart. bonus round. where else can you get a t-mobile?c chart on i am wearing a magenta shirt. ♪ francine: this is "bloomberg surveillance." i am francine in london and tom in new york. coming up on "bloomberg daybreak ," david westin, jonathan weston, and alix steel. david joins us now. you have a great conversation coming up on commerce. david: exactly. we have wilbur ross on the saturated -- on the set. given what is going on with north korea and united states, let's go to china and how much this complicates his potential reform with china. tom: we are looking forward to this. i've read the essay in the ross.ngton post" from mr. david, to me, it is a very lonely as a. david: i tell you one set of people who were not behind us -- u.s. automakers. this will not make their life better. i do not see where the emphasis is. tom: david westin, thank you so much, looking forward to our conversation with the secretary of commerce. we now speak with the secretary of for activity, ellen zentner of morgan stanley. now bring up the single best chart. this is the runner up to the chart of the year, the collapse through the 1980's, the review 90's, chairman greenspan noting the oddity of our own and inductivity -- our boon productivity. your team is the best at slicing and dicing. which part of productivity is the biggest for ellen zentner? ellen: we concentrate where the biggest shortfall since the financial crisis has been, and it has been in capital deepening. ,here are industries hurt now we are optimistic around, productivity driving now, because there are industries that are exhibiting they over hired, labor costs has risen too much, and they are starting to incentivize. then they come back toward capital deepening. -- unfortunate thing there and also unfortunate -- but the reason why the productivity will still below is because it is mostly in the security sector industries. shorte saw an inflation list -- chart this week, not only deflation but rolling over to a period of deflation. productivity lead us to better growth, or does a recovery of better then 2%, 3%, does that boost productivity? ellen: the aggregate demand has not been there to incentivize businesses to invest more. longer inlot the cycle, but demand is there, and it is kicked off by a very big growth in global demand. so global trade started picking up over the summer, and we started seeing u.s. businesses respond to that. it had been led by growth in this cycle, and it came very late in the cycle. what bothers me most about the charts that you are showing is that real wage growth tends to track over time in line with productivity. this explains why wage growth is slow. governor powell has been spot on with spotting wage growth in the u.s. his thoughts on -- why are we so disappointed? we are where it should be. .5% growth in productivity, roughly, and 2% inflation, 2.5% wage growth, that is what we should be happy with. we should stop bellyaching. wage growth is right where it is going to stay. francine: the dollar dynamics must have an impact on the return. where do you expect the dollar to be 12 months from the? ellen: the interesting thing about the dollar is the downdraft this year has really caused net trade to surprise to the upside, that coming on the back of stronger global growth in our weakening dollar. that surprised our forecast. redecker, our global head of ethics strategy, has that view. what we lose sight of , the highsl years right after the election, that is still depressing overall growth and investment in the economy. we could have gotten an even bigger boost from the decline per dollar, but that is not coming in in a bigger way as it would have. in fact, price contractors are still being affected by the previous depreciation in the dollar, so it will take time to work through. francine: how does china factor into all of this? europe and the u.s. see higher inflation, or is that the wrong thing to look at? very bigina gives a share in our consumer price index here in the u.s. robin jean come our chief china sees the finish grade, which what matters here in the u.s., that downturn socing power is coming down, we see expectation of more lead over from china's prices into u.s. prices. itrything to keep in mind is affects core good prices in the u.s., which is about 20% of the index. what matters more is what we get out of the service side of the economy, which, as tom showed, is being depressed by technological factors. tom: ellen zentner will continue with us and david gura on "bloomberg surveillance" on bloomberg radio. i mentioned earlier euro swissie. i put that up top. it is the ultimate safe haven. euro stronger, swiss franc weaker. stay with us worldwide. this is bloomberg. ♪ joanathan: tensions as north korea, they threat the highest countermeasure in history. prime minister may has an offer for the eu. a landmark right to speech today. angela merkel, the german elections take place weekend. from new york city, good morning. along alixan ferro steel and david westin. we have a slight risk and a bit of a haven bid. are 225. in the equity market, we snap that run of record gains on the s&p 500. we pulled back just a touch. futures are softer this morning. alix: we are talking about the safety board. off the lows we saw earlier in the session with faced slide down on the nor

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