Transcripts For BLOOMBERG Bloomberg Surveillance 20171024

Timing right come if we do it too we could derail the theast, both th timing right, if we do it too fast we could derail the entire thing. Mark this is bloomberg surveillance and im mark barton. A pmi for manufacturing and services, that is the composite fromed to 55. 9 in october 56. 7. Economists predicted the measure would drop to 56. 5. Job creation in manufacturing rose to the highest levels since Data Collection started in 1997, reflecting strong order inflows. Service Sector Employment also strengthened. You have got to see the recovery is gathering pace, just as the central bank convenes this week to decide on how to gradually pulled back monetary support. Thee is the euro against dollar. The stoxx 600 is a little bit lower today, down by about 0. 2 . Earlier it was up for the third consecutive day. The bloomberg dollar spot index is rising for the third day, the highest level since july 13. Investors eagerly awaiting President Trumps pick for the next fed chair. Theres a consensus trade in for this weeks centralbank meeting. Well talk bonds later this hour. Crude oil is down. Holding near 52 per barrel, before tomorrow, which is forecasted to show prude stockpiles declines. Chinas Ruling Communist Party has approved a revised charter. The divisions confirmed xis rapid consolidation of power and reinforce speculation he might seek to stay on after his second term ends. No chinese leader since mao has managed to put his stamp on the partys prevailing ideology before stepping down. Spanish editors today will draw up plans that remove the catalan president. Any declaration of independence by the president could mean he is accused of rebellion with a possible prison sentence of up to 30 years. Plans are being fine tuned to stop access to Regional Government buildings. Theresa mays cabinet meets today as pressure mounts to agree on the kind of trade pact britain wants from the european union. Businesses have called for an urgent agreement that would allow them to trade as usual for two years. The Prime Ministers signals the transition would only be sealed as part of a wider deal. Such an agreement will be finalized until shortly before brexit day. Donald trump has said he is very very close to announcing his choice of fed chairman. He is considering jerome powell, while also praising janet yellen. Aidesesidents closest are steering him to either taylor or powell. James comey has outed himself on twitter as the person behind the account. Hes kept a low profile since being fired in may, when he was leading the investigation into russian meddling. Now there is a next resource to monitor for damaging comments. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. This is bloomberg. Mark thanks a lot. Excessive speed in nonperforming loans good derail the recovery of italys financial system, and that is according to the countrys finance minister. He discussed challenges for europe and the ecb before attending the future Investment Initiative conference. This is certainly a challenge. We in europe must find new ways to combine the overall systemic dimension, the european dimension, with the national and local dimension. We need all of these dimensions to perform in a harmonious way. Yousef what else can europe do to mitigate the risks of that . There are some european challenges, which require european responses, like migration, security, like growth and jobs. There are National Responses that are insufficient. We need to integrate them with a higher level of policy. Es a lot moreer work that needs to be done to slow down the trend we have seen. Are these structural problems . These are structural problems and there is a window of opportunity to deal with them because europeseconomy is growing at a healthy rate. This is not enough. We must reform our institutions and make them more flexible. Yousef lets talk about the italian economy. Growth projections for this year are 1. 5 . Is there any chance we could see more upside to that growth . It could be a little bit stronger. There are upside risks this year and the coming two years. Yousef so, i have much more do you think the economy could grow . Well, if all the reforms were fully implemented and if all the resources were mobilized and fully spent for Public Investment, we could certainly go up to 2 . Yousef how would that translate into the countrys debt and gdp ratio, that we have seen rising in the recent two years . It will accelerate because of nominal growth coming up a little bit. Inflation is much too low still. Yousef recently you have spoken about some of the ecbs reform efforts. You have expressed your perplexities, and that is a direct quote, when it comes to supervision, the ecb, perhaps, going beyond its boundaries. Could you clarify your position . This was specific to the thent communication about speed and timing and features of the program that needs to be implemented. This of course, absolutely is vital for all economies, including the italian economy. My point is, we must be careful in getting the speed and timing right. If we do it too fast, we could derail the whole system. Yousef there is the ongoing issue about the job opening up at the bank of italy. If it was offered to you, would you take it . The minister cannot take up that job. So, this is out of the question. Italys finance ministers. Decision day for the ecb thursday. The central bank will give details of his plan to taper qe. President draghi is predicted to reduce asset purchases to 30 billion euros a month. We also see draghi hiking for the first time. S francesco. Ow i what do you make of that survey . 30 billion euros for nine months , ending in september. Is that close to your forecasts . Fromat is the consensus the conversations we have had with clients. My impression is the ecb will try to avoid that cliff affect in the First Quarter. The First Quarter of next year will have a lot of uncertainty on Global Growth. Holding ane italy election and that seems to be quite a steep drop in the pace of monthly purchases. Consider the ecb estimate, the flow effects from these purchases are pretty high. So, the presence from the central bank in the secondary market, in their opinion, is one of the important factors keeping financial conditions easy. So, what to do. We have the view that the likely income will be of a near tapering, so we go to 60 all the way to zero throughout the course of the year, or a more lateral like profile. Mark is there an end date . Do they give an end date . Is it risky . Date is necessary to appease the hawks within the council, but that end date could be left as an intermediate stop, as they have done so far. So, december is now september according to your consensus and september could be provided that the situation has improved by then. Mark does it tweak other measures, because of the scarcity of various bonds does it decide to buy a variety of other types of bonds . Two things here. Related to the first point, we have to consider redemptions. Earnestons kick in in towards the second half of 2018. You probably want to have net purchases decline slowly initially in order to allow redemptions to kick in and maintain a profile in the marketplace. Secondly, you say, ok, theres y,is issue of scarcit primarily in the german bund market. So, probably, the ecb, the german bundesbank, has exhausted the 33 cap of what it can buy. So, it could redistribute these purchases in other parts of the curve, or it could blend that quote of purchases to other Central Banks, which by the way, is what has taken place over the last several months already. Mark given the projection you are forecasting, how would you expect markets to respond . How do you expect the bond market to respond and the euro to respond . Would you say your path is a neutral path . Theres a hawkish path, lets call yours neutral. So, theres a level of rates. We have to understand how long the purchases continue for. Because in the mind of the market, the longer the purchases last, the later the Interest Rate hikes will come. That is very crucial if they want to keep the level of rates low. As far as spreads go, it is the pace of the purchases so, this growth versus net pace that will matter. If they drop to 30 billion euros, i suspect spreads will come under some pressure, despite that the level of Interest Rates will remain low. Mark Francesco Garzarelli from Goldman Sachs stays with us. Stay with surveillance. The race for the chair. The president says hell announce the new head of the fed soon. L Chinas Communist Party elevates the station of president xi. We will talk what it means for market. This is bloomberg. Mark you are watching bloomberg surveillance and im mark barton. President trump has said he is very close to announcing his candidates. Governor jayaid powell is for the top job. Is still garzarelli with us. Are you putting your weight behind any candidates, or not . Is it too difficult secondguessing the president s mind . It is very difficult. I think the situation will remain very fluid. The market is avidly looking for this uncertainty to be solved. It will be solved by the next fed meeting. Frankly, if the theres so many things happening in the administration pertaining to regulation and obviously the fiscal policy that a changing, the person at the helm of the fed, in my personal opinion at this point might be adding another source of you know, perplexity for markets. I think the choice of yellen might be the one that looks the easiest. Mark she seemed to be out of the running a day or two ago, but now it seems she is back in the running. I think markets will like that, because they have knowledge of how the board operates under her leadership. But i think the trade, as it were, under the paola announcement would be more of the some. Under the powell announcement would be more of the same, dov eish, what i think taylor would hike more quickly than the current path affords. I think these are all trades. I think well last a week and then have forgotten about them. For the mediumterm, i thinka a choice that resembles more the yellen profile seems to be the one mark and the other positions that trump has to fill, are you keeping a close eye on that as well . For sure. All aspects pertaining to Financial Regulation are very important. My sense is that theres now consensus that the pendulum has swung too far. Particularly within the fixed income markets related to liquidity. In the u. S. , theres this sense of trying to do something about this, to amend some of these constraints that have been built up as regulations got set. And that is also very functional to allowing the fixed income markets to become more liquid as the fed withdraws qe. Mark back to you in a second, Francesco Garzarelli. Up next, theresa mays troubles. Pressure mounting on the Prime Minister as she deals with eu demands on a brexit transition deal. This is bloomberg. Mark you are watching bloomberg surveillance and im mark barton. Meetingmays cabinet is later today to agree to a kind of trade deal britain wants from the eu. They want a transition agreement to allow them to trade as usual for two years. However, the Prime Minister is signaling the deal would only be sealed as part of a wider deal, which is not expected to be finalized until shortly before brexit day in march of 2019. Francesco garzarelli is still with us. I mean, do you look at the daily or are you more big picture when it comes to brexit . Well, that is a hard question. I think we do both. We look at the daily fluctuations and see where the endpoint changes. At the present stage, i think its more the end point most of us have in mind is a relatively benign one. So, not involving hard outcomes, but some sort of appeasement as we go along. Probably the transition period being stretched out enough for the Business Decisions to take place over time. Mark is this the time for th eboe boe to be raising rates . We had a great story on the bloomberg today and i will read the title if i can find it quickly. Carney repeating policy errors o f tehe ecb and boj. And they are talking about the ecb of 2008 and 2011. Could carney repeat the errosrs of those Central Banks by raising rates next week . They have delivered a lot of insurance, i would say, immediately after the vote which helped a great deal. I think they find themselves in a situation which is fairly strictly. The supply side of the economy is definitely sliding down, and i think will continue to slide down in 2018. The demand side of the economy, which is essentially consumption, and foreign trade, is growing still at a brisk pace. So, you need to rebalance these two, otherwise you will find yourself having to hike as the economy slows. I think they have a window of opportunity now, maybe to touch on the breaks and see what happ ens. In february we also see some of the credit measures rolling off. That might at the margin be another restriction. I think it is appropriate. That they have a nice opportunity now. And theyll take it. Now, whether they will regret it, who knows. But for the current pace of the economy, this is appropriate. Mark Francesco Garzarelli, chief market economist for Goldman Sachs. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Word news. They will draw plans to use constitutional powers and included removing the catalonian president. A any declaration of independence could mean he would he accused of rebellion. At the same time, separatist activists are planning a human shield to keep them from gaining access to government buildings. Tradere mounts to agree from the european union. If this would allow them to trade as usual for two years after leaving the eu. This would be part of a wider deal. A such an agreement is not asked acted to be finalized until brexit day 2019. Donald trump said he is very close to announcing his choice for fed chairman. Raising current chair janet yellen. The president s closest aides are steering him toward powell. James comey has outed himself on twitter as the guy behind a twitter account. He was leading the investigation into russian investigation. He is writing a book they hope will have more revelations. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. Mark china approves a revised charter that gives the president s name under the guiding principles. Want to stay on after his second term ends. No one has put their stamp on the party all enjoy ideology. His power is consolidated. We knew he was in a very strong position going into the conference. If he emerged a stronger position. Mark what does it mean for the things we like to look at, the economy . The challenge is still very much there. The interesting thing is he clearly said the focus should no longer be on Economic Growth, rather rotter indicators of human welfare. Warning for the fact that we are going to try and deliver and that means slower Economic Growth. The challenge is still ahead of china. Are they going to do that without massive shocks . Probably they will. The key indicator to watch is the property market. If you look at what going on, we did a 70 city survey. This time last year, we were having growth of 2. 2 arid now we have monthly growth close to zero. We have seen it deceleration in the property market. That trends white a lot here it up in the months to come, we will see contraction in the property market. How much are chinese Property Companies hit by this . They have increased their debt load quite a bit. Mark that is the big question here in question. Wont low up in a generalized fashion. What you will see in the next six months is more concern about the Property Companies and some concern for the Banking Center as well. Outlook orabout the the currency . Keeping that stable is a priority of the government. They made it clear in the past year that for their international ambitions, having a Stable Currency is very important. Rates,ve higher interest its an attractive investment given the currency stability. Mark how does this fit into the overall thesis of investing in emerging markets . We are positive on emerging markets in general. It has done extremely well this year. We think the fourth order will be very good and continue to have good performance. Considering that china is particularly in the emerging markets, they have gone from five percent of that market to over 30 today. They have had enormous growth. Thats where china has potential for concern. Athink we are moving from phase where there is security selection and more focus on individual national situations. Mark give me an example. The political situation in turkey is difficult. Its too soon to make a turkish investment. South africa is getting more difficult. We think the South African risk is understated. Mexico is probably overstated worried chile is that way for us. Its much more about picking the regions and the countries rather than the asset class as a whole. Mark back to you in a second. Up, bond buying programs will be the focus. Could we see draghis first interestrate hike . This is bloomberg. Mark welcome back to bloomberg surveillance. Nara is following the action. Is closing higher after a winning streak. In europe, stocks are dropping. Industryok at the groups, energy is out performing. Downside, you see Consumer Staples as the worst overall,s are in a its flat on the stoxx 600. Snap to gainss earlier. It is flat now. Ins is showing the dollar june may be repeated in october. Waiting an we are announcement from President Trump about the fed chair. We are talking about a fed proof that. A number of strategists are betting on further flattening. This is what we see back to 2010. The trend has been forecast. The 510 and also the 210. We also see a little bit of curve steepening. That is just one day and doesnt make a trend. The 10 year is giving the index a lift. Finally, copper, this is one of the standout performers in the commodities space. With 7000ore than 1 dollars per metric ton. Todays is it higher in session it, if you look at the past year, copper is a standout performer. Mark thank you very much. The ecb will take up qe thursday. Draghi is predicted to reduce that to 30 billion euros a month. They also see him hiking the first time in early 2019. Story, there is growing strategists. Should we be going short german tenyear ahead of thursday . I think it makes a lot of sense. Weve been relatively negative about the european debt so far this year. Its been an upanddown story. There has been a draft in a wide range. Questionhe interesting is what happens in terms of the ecb. We have seen our own forecast. Bring qe downwill to 25 ilion. Mark is that more hawkish . Is anything less than 30 hawkish . Exactly. Is howeresting question does this focus on how policy will of all. We could see steeper curve in terms of europe and more hike expectations being built in and the rise in 10 year yields. Mark it comes to an end when . September, that it wont fall off a cliff. It it depends on what it looks like an september. If we see another strong year of growth . Mark what is high enough for it to end . Its a good question. I think we will look at the composition more generally and where the breakdown of regional inflation is. If they feel we are getting close to those levels, they might be comfortable in stopping it in september. Come 15. Ave to be more reasonably, we are looking at the end in 2019. Mark along with this yield rising, we see the euro rising . The euro has done a reasonably well. Its already come off a little bit, it is in the trading range around 120. It could will down further. In the longer term, you expect to see european Interest Rates rising with the trade surplus. Areauld the around the 125 and 12 months. Mark are you feeling comfortable with spain . When you look at the spanish german spread, its below the height of the referendum. Up five basis points. There are more interesting things to be doing in other markets. I think italy is still a more interesting opportunity in spain. The spanish situation is still very of unstable. There is an interest if the rates are coming off that it goes more broadly. I think other markets provide better opportunity. Mark thanks for joining us. We will look at the big calls for the week ahead. This is bloomberg. Mark youre watching bloomberg surveillance. This is been approved for 38 suvs with diesel engines. Its another effort to remedy u. S. Vehicles that skirted cleanair rules. To avoid offering fighting back the vehicles. Noble group is falling on the back of the sale of the oil business. This is seen as buying noble final time. It faces the inevitable restructuring of 3 billion of debt. Bonds rallied after the deal would provide proceeds to pay down to debts. They did not respond for requests for comments. They are on high alert after a new jury convicted a former executive of fraud for front running a client order. Its a victory for u. S. Prosecutors to hold individuals accountable for global currency rating. The banks paid more than 10 billion in penalties. He faces 20 years in prison, though he is asked acted to get less. It faces possible takeover bids from european competitors. Being advised on options and not preparing a Defense Strategy foreign acquisition attempt. Representatives the kind to comment. That is the Bloomberg Business flash. Theyre deciding whether to spend it off. We spoke about the business, which is starting to show a turnaround. The order. Ood about all divisions contributed to the growth area our innovative medicines divisions, weve got new drugs firing on all donors and generating good growth. Alsoenerics business is true. The best part about the order was our outcome business rue sales 7 and profit 20 . I feel good about where we are as it happening. We are a focused company with a very strong pipeline for the future. Lets talk about that. These are Uncertain Times for people working there. What is the new bar for you . Itit does not achieve that, does . What is the current thinking . We announced this morning is the Strategic Review was well underway and we made a lot of project recasting the strategic plan. This business should be able to grow topline at or above market rates as well as profitability in line with the second or. You are starting to see that. The business has turned into starting to generate growth. At the same time, it will benefit continuing that path. When i think of our associates working very hard to return the business to sustainable growth, we said no decision has been made today. Teaching review also said he business continues to perform well, a Capital Market exit of the business where we created a separate Standalone Company would add considerable shareholder value. We have done things like look at tax structure and financials where we would in or break a lot of work going into that. We have not made a decision yet. In the near term, we are focused on multiple orders of sales growth in operating Income Growth so that if we do decide on a spin off of this business, alcon will have a position of strength. This is what you should be watching today. The house of parliament in germany holds its inaugural session. Later, philiphalf hammond faces questions from lawmakers. In the u. S. , we get a whole host of earnings. Lets get some final thoughts. Bond traders are piling into that improve thats and trumps pick. I think it depends which her we are talking about. From the fiveyear area out, i would suspect that curve to flatten. Curve shouldhe steepen. The u. S. Curve should have more curvature in terms of the fiveyear area rising relative. Mark where are you on the amount of rate hikes the bad will implement fed will implement . We have an ambitious hiking schedule. We are more on the hawkish side. For. The feds are the for. Ore toward thats been the issue all year. There is a disconnect between what the fed says. The market should be listening to the fed more clearly. Thats why we are concerned about more stiffening. Mark are you take into account the next fed chair in the forecast . Its reflection of what our expectations are and where the u. S. Is in the cycle. Donald trump is always unpredictable. Its difficult to tell what we are going to end up. Mark what worstcase scenario for bond markets . Is it taylor . The other thing which is important, the job does change the perspective of the person who gets in. That is true of any job, particularly in terms of this job. We have had fair chairman fed chairman who work white different. Mark another story that caught auctionits the biggest in 25 year inflation. These are interesting times. What is your outlook the bond market . The u. K. Market probably is going to be driven by the market elsewhere. If we are negative on the , we cant help but be negative about the yield market area. Mark the boe next week . Its very close. Its a difficult one. Mark would it be the right decision to hike . It depends and what your expectations are in terms of brexit. Thats the problem. You have plenty of reasons to think Monetary Policy should be tough in the near term. You should be concerned about what the implications of brexit are. Mark its nice to see you. Bloomberg surveillance continues, tom keene joins the program. This is bloomberg. Tom this morning, markets in the United Kingdom must decide between the norwegian and the s wiss. Prime minister may demands a plan from europe. What will a u. K. Eu Partnership Look like . A presshi, i believe conference on thursday. Maybe President Trump will, too. He needs to fill chairman and vice chairman chairs. Morning. This is bloomberg surveillance and im tom keene in new york and guy johnson is in for francine lacqua. Shes on assignment. Its an exciting day, guy, for our family in london, isnt it . Guy absolutely. Bloomberg had big announcements about the big building down the road. Francine will return in the next hour, tom, after she has been out there. Walking around, taking a look. Tom im really proud of that new effort. Well get to it this morning. Right now without our first word update, here is taylor riggs. Taylor the communist party has elevated president xi jinping to the same status as president mao. The Party Approved a revised proposition. He is the first sitting leader sense mao to be named in the document, giving him more powers to enact policies after a crucial reshuffle tomorrow. In the u. K. Prime minister undera mays cabinet is pressure to agree on the kind of trade deal britain wants. Business leaders want an agreement that would allow trade as usual for two years as usual. May has signaled there will not be a swift transition deal. Americas top generals have signaled it could take weeks to find out what really happened in niger. Joseph dunford said the u. S. Control did not expect contact with the enemy. Four americans were killed in that fight. The conviction of former hsbc executive is likely to echoes through the 5 trillion foreignexchange market. A jury in new york found mark johnson guilty of fraud, a victory for u. S. Prosecutors in their first attempt to hold individuals accountable in the currency rigging probe. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im taylor riggs. This is bloomberg. Tom equities, bonds, currencies, commodities. A very quiet market today. Our friends at bloomberg print, drifting in equities, drifting with the yield curve. What do you have, guy . One got really excited yesterday. Historically, that would be a blip. European stocks, pretty much the same this morning. The ibex, trading a little bit higher. Strong pmi data out of the eurozone this morning. Weve seen the stronger euro as a result of that. The copper is a better bid. Tom i have seen all sorts of good graphical efforts on the interesting grind up and melt up in the market. It oo took this work far. This is the dow relative strength index i usually dont use charts like this. This is the crash in 1987 down here. Here is where we are and the relative strength index, a comparison of the relative effort on any given index. We have not been here since 1955 and 1944. Its absolutely extraordinary how original this day after day after day Global Equity strength is, guy. Guy it is amazing and the volatility is incredibly low. Most banks is the value of risk totals and the premier 100 days have been quiet with a. 5. It actually takes you outside. This is a chart im sure you are familiar with. Tom oh, love it. Guy they are all moving in the same direction. Look at that, flatter. Tom i am stealing this, guy johnson. That is too good to be true. Guy i stole it from somebody else, so i cannot take any credit. As can find it on tv well. This compression we are seeing is fascinating as well and you could argue to a certain extent Central Banks are responsible. Will we see this coming to an end . We also have this stability story coming out of china, which is fascinating. Chinas ruling party is wrapping up whats going on in terms of its 19th convention. A massive tick in the box for president xi jinping, his name being added to the roster that got into the constitution. Mao had it. This is a massive stamp on his kind of authority, the stamp of approval for his authority. It tells us the next five years will be pretty much what we have seen already. In so manytability parts of the world right now. China is not one of them. We will see over the next five years a man in charge. Is china an importer of stability for the rest of the world right now . I would agree with that. But i would also say that he might even last longer. There are not any obvious, young successors there. We might look at him as having a significant influence will be on his time as chair. But to your point, is china and exporter of stability . I am not sure because they are not active in terms of foreign policy, but it is a challenge to the western political order. If you look at what happened with brexit and the election of President Trump, arguably one of the least qualified president in here youory, and have china looking at Strong Political stability, and a multidecade long quest by the president to become this powerful and he had to be very qualified to get to this position. How does the challenge the notion of western democracy . That is an interesting debate we need to have. Guy from a Financial Market point of view, what does this mean . Stability in china is good. Continuity is good. So, it adds to the overall relatively benign environment we are seeing. Tom i find it fascinating, the relationship of the United States and china versus germany and china. Will we have a new capitalism out of this new Party Congress . What will that new capitalism be . Relationships have been joint ventured. There have been talks of mergers. There has been a transnational feeling of western capitalism. What will the new capitalism be . Oh, i dont know what the new capitalism will be. That is a question that probably far smarter people than i could answer, but one theme i see emerging here, you did not mention japan lets look at china. All three after the election again with the resounding victory of abe, we are looking at governments that have been in place for 10 years plus. That suggests that potentially the new form of capitalism means to be longterm oriented. A german Economic Policy going back to 2010 is very longterm oriented and maybe that is reflected in the political system, too. So, maybe a greater emphasis on longterm sustainability investing relative to what we have seen in the last 20 or 30 gain, where a shortterm was often preferred. Tom when a look now at the markets, and we will get to the markets later in the hour, where does china fit into the markets, and for that matter, asian emerging markets . Theres been a heck of a move. Is the move over . That depends very much on whether we have any black swans emerging on the political arena . Korea springs to mind. But it also depends on the path of Monetary Policy, which seems to be relatively benign. The importance of china in this if china continues to grow as it has over the last couple of years, that is good news for global trade and Global Growth. Are seeing Global Growth slightly above its Growth Potential and that might continue into 2018. Tom we will continue with andreas utermann. All of this coming up to the ecb meeting on thursday. Speaking of china, thrilled to bring you not only David Goldman, but stephen growth will be here. They will be here together. Taylor this is bloomberg surveillance. Im taylor riggs. Its another milestone for volkswagen. Emissions fix for the system has been approved in the u. S. Repairs have been approved for almost half a million for other bmws and audis in the u. S. It will be a new trial. Federal judge in california has laid of a new test for how to determine damages in design Patent Infringement cases. The Supreme Court rejected the test the jury previously used to award apple 399 million. Warns. Finance minister bloomberg at the future Investment Initiative conference in saudi arabia. We must be very careful in getting the speed and timing right. If we do it too fast, we could derail the whole system. Haver italian banks reduced the nonperforming loans by a quarter. Thats your bloombergs nest flash. Tom there is a delicious tension in the market. Actually, any number of tensions and one of them is what i would call a transatlantic tension. Lets put that one between draghi and chair yellen. Andreas utermann is an active board member of the Cfa Institute in the United Kingdom. Andreas, let me bring up the chart right now. This is the difference in two year yields between the negative germany rate and the positive u. S. Rate. Absolutely extraordinary, the widening of this spread. You can flip it one way or the were getting back to spreads of the late 1990s as well. This tension has to be released. How will it be released . Andreas well, i think european rates are on the way up. We will also see some currency adjustment. I think it is interesting to note that while this fed has widened, if you want to put it this way, or u. S. Rates have improved relative to the german rates and the european rates, the dollar has been relatively weak. Once that reverses and interestrates and expectations moved to the euro area, i think we should expect further euro strength. Tom within that, people have to manage money. Do you manage a portfolio of fixed income institutional assets given this will be a stable process, or do you have intoing into ratio, maturity cant because of instabilities that could come . Andreas; you have to. We have set for a very long time now that you want to stay away from longdated benchmark government bonds. I would not want to lock myself into a 10 or 20 year negative return scenario. Thats one aspect of it yes, bring in duration. The majority of our Bond Fund Flows from institution and Retail Investors are in short duration type strategies. Or the spread product, the that the credit spread product or the emerging market product. Guy yields have gotten flatter and flatter. Will we start to see a change . Andreas i think initially he gets flatter, until Inflation Expectations really pick up and taper comes to an end. Lets not forget. The bond markets are not manipulated by the Central Banks. Thats a real issue for companies that want to invest capital. Nobody knows what the real market determined cost of capital is. That is the issue. They will remain so until tapering comes to an eend. Guy once we start to see tapering coming to an end, japan i think is a special case japan will be an anomaly. Andreas we have not started in europe yet. Guy there is a lot of money being invested in risk parity trades. The rate of change in yields going higher is very important. How will the market is the market capable of absorbing a rate . Ning higher andreas think the market is not ready to absorb that, is not expecting that, and Central Banks know that. Wayes a good two understanding between the markets and the Central Banks. Every time the markets get ahead of themselves, the Central Banks cool them down. Centraas long as that remains the case, we will month the any disorderly unraveling of this quantitative easing policy. Tom i have never asked this question before, andreas, that is why we love to have you on. It is widely understood the markets are a million miles away from chair yellen. Are the markets a million miles away from mr. Draghi . Andreas um, no, i would not say they are, actually. I think the markets have learned over the last few years to listen carefully to what the Central Banks have said and heed the guidance they give. Thats partly the explanation as to why we have seen this upward squeeze in equities, and where we have seen this very low volatility and very low rate environment. Tom we are going to come back. Andreas utermann with us on the markets, and the tension in the two year space. Of theup, the tension Trump Administration, their relationship with capitol hill. Who better than wilbur ross in the 7 00 hour . Guy guy johnson in london and tom keene in new york. Francine lacqua to join shortly. This is the german lender, facing a possible takeover bid. My consensus, tom, they are not doing this as a defensive mechanism, but they are doing this. It is interesting, one of the shares that could be on the list, unicredit having to release numbers earlier on. Consolidation within the european banking sector. Andreas utermann is still with us. Andreas, is it fair to say that regulation in europe is getting tighter and the expectation, at least from the Financial Sector in the u. S. , that the regulation will stay as it is or get easier . Is that a good 30,000 foot view of the world . For the u. S. , probably yes, but for the eu 2027, i dont see that coming. I think we will continue to have a tight Regulatory Framework comic maybe even tighter still. Guy so, we keep moving forward in terms of regulation in europe. I want to get your take on this because you guys are good on this stuff. Regulators have been slow and releasing guidance. U. S. Regulators or european regulators . Guy european regulators. I dont think there are any expectations on that in terms of the guidance. But it is very clear ultimately if you read the fine print, talk to the policymakers, what the endgame is they wanted to get to, which is essentially, the decision was made, reince should not be charged for this. Decision was made, clients should not be charged for this. That is what the desired endgame was, so guidance did not need to be forthcoming because we knew where the train was headed, and we knew what we had to do. Guy if the market ready for it . I was a most participants are ready for it, but what is a bit surprising is we have not seen the adjustments from the noneuropean regulators because it does impact the way you trade globally. Therefore we need to see urgently guidance from the sec and other regulators in asia. Importantis really and this is one of your skills. If the sec does not play ball under huge pressure from new york wall street, are we going to see the sell side of the Global Industry migrate to new side going the buy to have to go over to new york to get the brainpower of the sell side . I dont see that as a risk and my understanding is, having had discussions in washington recently, that we are to expect an action from the sec shortly on precisely this topic to allow the method implementation globally, to run smoothly. Tom but if this does not run smoothly, is there a risk of bodies moving to other geographies . Now, i dont see that. I think it means we just have to adjust our trading patterns and have different conversations with a number of our clients. Lets not forget, u. S. Clients are asking very difficult questions of us at the moment, saying, our u european subsidiaries are not being charged. Tom this is so important, i want to come back to it during the next half hour and talk to you about this. This is at the heart of what we see at bloomberg and what we see with global wall street as well. Guy johnson . Guy tom, thank you very much. Andreas utermann sticks around. For more bloomberg stories, pick up the latest issue of Bloomberg Business week. This week we will feature the ceo of google. That story in Bloomberg Businessweek. This is bloomberg. Tom welcome back. Im guy johnson in london. Tom keene is in new york. Francine lacqua will be joining us a little bit later on. She has a busy job, looking at the building here in london. Lets talk about the headlines we are watching. We are doing an interview with the saudi Sovereign Wealth Fund, seeking leverage to boost its return. That is interesting aspect for this story. 2025,ects to employ by having 2 trillion by 2030, and this is to support new City Projects in the coming years. This interview is ongoing and is happening right now. This conversation he will month the it elsewhere. It is a fascinating conversation and we will bring it to you as soon as we have got it wrapped up. We will be bringing you all the details playing it out for you coming up on bloomberg. Lets get a look at these updates. Taylor republicans are sending out mixed signals about the fate of retirement accounts in the new tax bill. Hours after President Trump ruled out changes to the plan atop congressional writer indicated their status is under review. Kevin brady says plans are still on the table. Speculation that republicans may reduce the amount workers can set aside for retirement. The u. S. Is considering new sanctions on myanmar. Almost one million muslims have fled and are living in bangladesh due to violence. In spain, both sides have been moving toward confrontation over independence in catalonia. Todays spanish senators are expected to draw proposals to approve powers that include president. Talan as the president of the European Council is floating the idea that the u. K. Will stay in the eu after all. A good deal, no deal or no brexit. Theresa may has struggled over how to handle brexit talks. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Riggs. Lor much. Hank you very in germany a set to clash with other parties over the nomination of senior parliamentary positions when the this after last month plus inconclusive election. The major goal is to set up a parliamentary committee. Interesting aspects of the story. , thank youian coal for taking the time. John guy is it going to be something that can be managed . , german can be managed parliamentary life is very organized and stylized. Its usually empty like most parliaments are. Its going to be organized enough. Howproblem is going to be much debate there is, how much confrontation there is. A new eracoming into of german politics where there is more confrontation than there is consensus. Guy that does seem to be the change we are going to be seeing. Merkelag followed angela. Organized in a single direction. Do we not get that in the next period and what impact does that have in germany, Angela Merkel possibility to make policy . John there will be two aspects. There is this party and they will try to be dramatic and may be confrontational. Secondly, this time, siou assuming negotiations succeed, it will be the first time the government has to deal with two coalition parties. The two coalition parties, the liberals and the greens dont really agree with each other a much. Insider government is going to be lots of disagreement. That is going to limit her ability to move and decide as she has done during the past 10 years. Guy what role do you anticipate the afd . Playing what kind of role do you see it playing in this parliament . Ohn we will see be a disruptive role. They started with that. One party split already to start with but theyve already started speaking in a very aggressive way. If they have any idea how to be a parliamentary party, we will see you a couple of experienced people are very few. This is sort of the specter hanging over europe, this idea of rightwing populism. Im not very concerned about rightwing populism. In germany because of the history, everybody is very excited about it likely to be a lot of emotion and confrontation with the afd and all things they say. Tom thats right where i wanted to go with you. Im just looking at Christopher Sebastian mala bes father passbook. Are we entering a new european war wrapped around migration . You see what happened in austria. I read the article on the Czech Republic last night at of the atlantic magazine. How will the german people and chancellor merkel react to this new clarity about refugees and migrants from the middle east . Ohn i would not call it a war i think thats the wrong term. I think what were entering is a new period of political debate and possible disruption. Europe has been artificially stable politically for a long time because the parties and the leaders have kept out the radical groupings. Now the radical groupings are either in government or they are the government. I actually welcome this. The minority of one. Actually welcome this. Breaking apart the crust that is been keeping down real debate and having people really talk about who they are and what their goals are. Tom if we look at ken burns series on vietnam, surely there was an early domino affect reality in southeast asia. Are we going to get a populist domino effect over refugees . John i dont think so. I think what you get is a strengthening of the populist vote. I dont think a domino effect suggests the system is going to collapse. What you are going to have, the refugees have one of the main the refugees are one of the main things. When youre going to have our major confrontations. Major political confrontation over the effects of globalization and refugees and i think youre going to see more of those. Europe is going to change into something else. Tom i know this is front and center for secretary kissinger. Kissinger looks at the migrants and refugees let me ask you a question, can they be pushed out of europe . John to a considerable extent, they have. Donaldns criticized trump or his plan for a wall, but if you go down to the slovenian and hungarian borders, you will find a wall also. There has already been a strong reaction against refugees in the southern European Countries its been a fairly physical reaction. , when you look at the situation in germany, the germans have taken five to 10 times more refugees in the territory than any other country has. Its very difficult. Its like a mosaic of different reactions and situations. Its going to make for europe which is not so steady and maybe a little unnerving from time to time. Guy thank you very much. John christian kornblum joining us. A whole series of events unfolding, whats happening in catalonia, germany, eastern europe. One fact remains, the ecb is buying the bonds and they have certain amounts of flexibility. Stay may be having a few issues. How true a picture is the fixed income status and political reflection were seeing at the moment. It is not a true reflection of political events. The bond markets are artificially priced and they are explicitly reducing spreads whenever theres other risk coming in. I think that is clear. Next year, i think initially nothing much. That is going to be quite significant in terms of the overall bond markets. The issuance, ultimately what we have seen in the past year, whatever longterm bond yields edged up a little bit there were longterm buyers coming in wanting to immunize longterm liabilities. It will take quite a long time for the bond markets to normalize even after tapering stops. Tom want to make note, Erik Schatzker is in riyadh. Important conferences in saudi arabia. Important announcements by the saudi government. Start in royal way to your car. Bloomberg radio, coast to coast. This is bloomberg. Guy there is currently a special interview taking place coming from teacher Investment Initiative in saudi arabia. The ceo ofng you saudi arabia plus Public Investment fund. Do not miss this interview. A true heavyweight in the Financial Markets. The views that are held are fascinating. Tom looking forward to it. Norway. Dge of i would look at that is the idea of growth. His countryis our is o lets get to it. The silliness of the fender be, and understand everybodys focus and it is a big deal. Do you buy the idea that the president can do a joint booking of chair and vice chair . Andreas im not sure i buy that. Do you . Tom its television. You got to give me a longer answer than that. Im kidding of course. Your john taylor running as chairman. Pushed aside aspos chairman. Andreas i think Central Banks are hemmed in by their own past history, previous fed chairman. I think the room for maneuver in the short to medium term is limited. Longerterm depends on the composition of the overall fed. Stanley fischer, the vice chairman who was a former governor of the bank of israel, of course andreas was late in his career, a public service, almost as a figurehead for chairman burning key and chairman for chairman ellen and sherry chair yellin . Andreas probably more a sounding board and behindthescenes conciliar event than a figurehead. Guy are we going to understand the reaction function of the fed . Premisedty much pre based on what janet yellen has told us. The fact that there is a relationship between the labor market, inflation, is that going to be the case Going Forward . A rulesbased system. How do i make great from what we are now to what youre going to if you were to get the position . Gos it matter that we through a period where we dont understand the reaction function . Andreas im not sure i buy the central premise. Our view has been for some time that the only way the Global Economy can rid itself of excessive debt on the government side as well as the private sector side is by essentially quantitative easing and the mechanism of transferring wealth to the debtors. Negative Interest Rates and whoever is the chair in the fed, for the next three to five years will be hemmed in by policy and we want to continue that. Therefore i think we will continue to see the fed behind the curve. Guy you think politics gets in the way of that . Andreas politics support that. Guy you could argue that cute he has not trickled down in the way you hope it wouldve. As a result of which, the andtion of President Trump plenty of other politics gets into the mix. Andreas that would require everybody to understand what is going on. The nefarious nature of quantitative easing easing cannot understand what i just explained. That is politically something that the current government in the u. S. And current president actually support. Guy thank you very much indeed. You want to stay with us. V go, use it youve got all the options. Interactive tv in event coverage. Plenty more still to come. Taylor lets get to bloombergs business flash. The federal Aviation Administration is launching for a potential fallout. Boeing is one of the 500 or so customers affected by steeltions that kobe failed strength tests. A lobbying group for facebook and google wants to Keep Congress out of the companys advertising business. Its offering selfregulation is dead of a proposed federal law that would require more disclosure for political ads. As a hearing on the proposal today which comes out of the investigation into Russian Election meddling. The federal government will scale back use of socalled searches involving tech. Ompanies the company had argued that Cloud Computing is in jeopardy if customers can trust that their data will remain private. That is your bloomberg is this flash. Carted global wall street out of new york, out of zurich, out of hong kong, andrea utermann people that are managing money in the sell side who provide Research Services to the buy side, i thought you were Just Brilliant about this linkage of what the fcc will do. What do you think Goldman Sachs . Ill do what will mr. Blankfein and his team do . Andreas i think we know what they are doing in europe. They are basically going and then you price. The services they provide will be different between equities. Nd fixed income most of the research thats provided as in the public domain. Equity research is going to be charged. So we know thats was going to happen in europe and the United States. We would hope that something similar is going to happen but because of current regulation, Goldman Sachs and other brokers that is less likely to happen today. But we need, is the sec to give themnce on that to allow without becoming investment advisors, to Price Research in the same way as they do in europe. Tom that may have been. London, zurich, new york, and i need at hyman of evercore isi, i dont want to argue about who pays for it. I need that research. How my going to get evercore isi research if i am in london under different rules . , iteas in that instance wont be unbundled and were going to have to redirect trading floors in such a way as that as not to get is complicated but can be done. Guy does it affect big caps . Andreas i dont think it affects the market on the cap scale. What it will do ultimately is it will make its more expensive for investment next 12 southside research. Be smaller cap coverage. Overall, the quality and quantity of research, the buy side will have to respond by hiring some of those analysts beefing up their research department. Tom i dont agree with you but im going to tell you something, we had the smartest conversation on this it ive seen. Peggy so much. Thank you so much. On china, next, Stephen Roach. Who knew that phones would start doing everything . Entertaining us, getting us back on track, and finding us dates. Phones really have changed. So why hasnt the way we pay for them . Introducing xfinity mobile. You only pay for data and can easily switch between pay per gig and unlimited. No one else lets you do that. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit or go to xfinitymobile. Com. Tom mr. Mario draghi needs to steve roach on the short list. On the future of china, yes, said dr. Roach. We look at the next asia. Erik schatzker holds court with royalty of global wall street. Good morning, this is bloomberg surveillance, live from new york. Im tom keene, with me, francine laqua. Francine it was pretty beautiful. I think we have pictures we will put up shortly. Its pretty spectacular. I think it is just been voted the most Sustainable Office building in the world. I cant wait to show it to our viewers and listeners on radio. Tom lets go to sustainable first word news. Taylor starting in china, the communist party has elevated president xi jinping to the same status as mao zedong. He is the first sitting leader since mao to be named in the document. More power to enact policies a reshuffle tomorrow. Prime minister theresa mays cabinet is under pressure to agree on the kind of trade deal britain wants after leaving the european union. To urgebusinesses want an agreement that lets them trade as usual for two years after brexit but may have ed there will be a swift transition deal. Americas top general says it may take weeks to figure at what happened in the ambush of u. S. Soldiers in niger. Joseph dunford said the u. S. Patrol did not expect contact with the enemy. Four americans were killed in the fight. The conviction of a former hsbc executive is likely to go Foreign Exchange market. A jury found mark johnson guilty of fraud. A victory for u. S. Prosecutors in their attempt to hold individuals accountable in the currency raking probe. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Tom quiet market. Equities up to a grind with the market near, not at record highs. 11750 1. 1750. Francine a little lack of conviction when you look at markets across the world, look gaining. Llar g stocks moving sideways. I think theyre waiting for u. S. Tax reform and the us that share. Tom francine put up a killer chart yesterday of relative strength. This goes back to Welles Wilder in 1978. Out. Book bar put this this is a jawdropping chart. Dow back to of the the depression. The crash of 1987 and the ugliness. The recent massive run we have seen. We have not seen this since 1955 and 1944. We are extended out here compared to any other time. That is an extraordinary chart. Are you sure that is not your cardiogram . Francine its some kind of charge. Disagree. His is a very simple chart circle there,e which is basically the ecb rate decision. There was a concern in two dozen 11 they were ready to act. They lifted Interest Rates. You saw credibility drop. When the boe meets next, this is what they will be thinking about. But they dont want to do is hike so this would be a reversal of what we saw last august, to drop again. Very good. Let us look at the cardiogram. Bring up the chart again if you would. This is mych saying cardiogram. You got that right. , whohere is William Miller was the fed chairman of some august back decades ago. Up here is greenspan. Summary real emotion around president truman. No one better to speak to about centralbank than Stephen Roach. Inventor of Morgan Stanley research. Wonderful work on china. We will get to that. Your original thought on where we are now, was this process constructive . Stephen its hard to characterize such a public discussion of a highprofile position with all these rumors his construction is constructive. Im struck by your reference to g William Miller. He had no clue as to what he was doing as a central banker. Tom we were set with mr. Powell. Stephen i dont think we do. The lesson from g William Miller was i think the shortest live fed chairman in history, you need somebody with a grounding andarkets, economic theory, the interplay between central banking and realtime assessment of the problem. Tom right now the gaming is powell with john taylor as vicechairman. Can be get away with a g William Miller business type irks and as chairman knowing that we got a fourth standard deviation event. Does that the rework . The fed is a stephen deep institution with a big bench so the question becomes what are businessman does he have the skill set and ability to listen and decipher evidence from this broad bench of talent on the staff of the Federal Reserve or. Not. Liam miller did i would be shocked if john taylor were to take a number two job. I dont think this is necessarily something he aspires. O at this point in his career anything can happen in these political sweepstakes. You,ine good morning to Stephen Roach. Political sweepstakes. How much doing no about what the president wants in terms of deregulation . Stephen youre asking me to give you a sense of what the president wants. Think thats impossible to do the president wants something new and different many times a day. Predicting him is sort of like looking at this chart it has put up. It just moves all of the place. Ive no idea what hes looking for in terms of Monetary Policy, fiscal policy, regulatory , i thinkbudget view that is a difficult thing to discern. At this point in time and for the balance of the administration. Francine what do you believe will be the driving factor. At once youre in the seat youre looking at the same data as the previous chair. Stephen this is why im sympathetic to some of the candidates mentioned earlier like kevin worsham. Stateing the fed has out the socalled emergency policy put in place in the deaths of the crisis. Announcedt trajectory by janet yellen and her speak of aggression return to normal policy. That is the script we saw in the precrisis period from 2004 to 2007, where you just take away the stimulus a tiny bit of the time it in the meantime markets are frothy. Om the charge on asset bubbles. Inflation to study and employment bring up the chart again. This defined would you have talked about forever. Eisenhower,train to it back to the normandy invasion. Rv and an asset bubble caused by central bankers . Were in it stephen period of is beenuantity that injected into global Financial Markets the last 17 years. Almost unprecedented in terms of the influence Monetary Policy and Central Banks have in distorting asset prices across the spectrum. The promise from the fed, and not much of a commitment from the ecb and the commitment from , is that thispan excess quiddity is going to remain in the system for years and years to come. By their ownation formulaic discussion is. Vailable on their website looks at a Balance Sheet that is 2023 mediumed until that based on circumstances. Rolling the dice. Exactly what we did in the precrisis period, 2014 early 2007. Francine thank you so much. Later this morning, tom will thatu our interview interview being done in saudi arabia with Erik Schatzker. This is bloomberg. Taylor lets get the bloombergs business flash. Disposing nonperforming loans to fast could start he spoke to bloomberg at the future Investment Initiative conference in riyadh. We must be careful in getting the timing right. If we do it too fast we could derail the whole system, which is gaining speed. Taylor italian banks and more than 350 billion of them performing loans at the end of last year. Theyve reduced that by about a quarter. A new trial for apple and samsung in their dispute over patents. A judge in california has laid out a new tax on how to do cover a new test. The Supreme Court rejected a previously used. Apple will only be able to ship as many of its new iphone 10 smartphones as planned this year , court to japans nikkei. 20 million phones will be shipped. Apple has been having problems with tech issues that involve iphone 10s new face of authentication feature. Tom i want to bring note of two things. Before we get to the apple iphone. Interesting headlines. More on this through the day, particularly with Bloomberg Technology later in the day. Ofhasis with interesting mix of inventory plus financial numbers as well. Im calling it the iphone x. Almost that autumnal christmas frenzy. Iphonee definitely the 10. Looking at the major suppliers. Kopin. Piece by tim posted salesision numbers. This interesting because of it is all about bottlenecks. Tom Stephen Roach with el leiversity with ya university. Scathing comments on trade policy structure during the campaign. Dr. Roach, that included analysis of a white paper called the viral ross navarro. Wilbur ross will appear with bloomberg later today. Still the trade policy of the Trump Administration . Functionmr. Navarros as been eliminated. Tom his emails have to go through general kelly as well. Stephen thats a good thing. He was a destabilizing force in the u. S. Administration. Wilbur ross is still out there with the mistaken view unfortunately that trade policy should be aimed at eliminating americas trade deficits. 101s to see that we have bilateral trade deficits in the United States and this is a reflection of our shortfall National Savings which requires us to run multilateral trade deficits. The yale. To yel he does not understand the core principle of investment, savings and balances. University, what is the specific economic thing mr. Ross is missing out of james tobin economics 101 . Stephen to understand that when nations do not save enough and they want to grow, they import surplus savings and run an array of trade deficits to attract capital. A fundamental miscasting of the role of the trade deficit. He wants to get tough with country a if we dont boost our savings rate callers is going to get worse under Trump Administration budget deficits, the china problem goes to another trading part her. Trading partner. This gets at the heart of the dilemma some people have called onmics. Tom much more coming up. Festivities today opening bloombergs headquarters in london. Wilbur ross, later this morning and the 7 00 our. This is bloomberg. Tom bloomberg surveillance. Washington, kevin cirilli. I thought it was an odd day yesterday in washington, almost a clumsy news flow of people trying to figure out what the theme is for President Trump on tuesday morning. Kevin republicans wanted to be tax reform. You will hear from President Trump on capitol hill likely today. Paul ryan delivers an address on extra form. The budget will likely get voted on the house in the house on thursday. Tom i saw the 401 k blip yesterday. Down it went like everything else. Is this going to happen time after time . State and local taxes, dead. Is that the theme to come . Kevin border adjustment tax is dead, gone. Ratification, big news for asset managers. Blackrock from aig, they are happy that is gone. They still have to come up with money to pay for it and other ways. All of that will be worked out when they get to the Committee Hearings which could begin next week. There has francine been so many claims of the tax per falls lives here toward geared toward the wealthy. What we know that the president monsons tax proposal . Kevin the administration is saying it also benefit the middle class. I think when we get to these ,earings, which will be public mike health care. A situation where you could hear instead of a reduction of seven brackets to three we could have fortified brackets. I think this is really going to be on republicans to make that case and why you are hearing ritually every day major speeches from top republicans. Thank you so much tom . Has always kept his eye not only on twin deficits and trade at the budget deficit as well. Was holds egan says we did watch Douglas Holtz we could watch 7 deficit. The fate dynamic scoring is almost as old as you or i are. The idea that we could have self funding budget deficits through has been disproven decade after decade and yet the conservative republicans in that we needisting to let the economy go and responsete a certain to tax cuts that are skewed to save rather than spend. Fine. Onomy will be if this period of fiscal stimulus with the low National Savings rate. Francine this is bloomberg surveillance. Town tobloomberg was in launch the start of the new building. To norman fosters to become the mayor of london. It has this 210 meter ramp inside that encourages collaboration between workers and the pantry that is still there. Stayed at the art studio and will bring you shortly. Enough aboutsay the siding of this building. Norman foster has done a phenomenal job of it of placing 4000 people into the heart and history of london. If we run the tape you can see at the beginning, christopher wrens iconic states even church. Ephens certai francine i cannot wait to invite you for a cup of coffee. The head of saudi arabia upon Sovereign Wealth Fund he instead 2 trillion of assets under management. If both Erik Schatzker in his first ever interview. He says they are targeting competitive returns compared with global competitors. Yasir we find them between 4 to 12 in the best cases. Said, we want to place ourselves in. Indicating between 8 to 9 . 2013, we should be looking at the figures. Erik by 2025 how much do you figure you will be managing . Yasir it was announced that in the we should have at least 2 trillion assets under management. Francine the head of the saudi arabia investor investment fund. There are questions about what they do with saudi aramco. Whether they wait or they only ipo domestically and wait on whether they decide for hong kong, london, or new york. Tom as the western elite descend on the royal family, the fluidity is extraordinary. Backandforth of the future is not up in the air but very fluid. Francine quite a lot of rumors and they change almost every day. We dont do rumors really do first alert news here. Taylor republicans are sending out mixed signals about the fate of 401 k Retirement Funds in the new tax bill. A top congressional tax writer indicated their status is under review. House rate house ways and means chairman kevin brady says choices are still on the table. New sanctions on myanmar. Oneone million or million muslims fled. In spain, both sides moving toward a confrontation over independence in catalonia. Spanish senators are expected to draw proposal to approve powers that include removing cattle on catalonias president. The president of the European Council is floating the idea that the u. K. Will stay in the eu after all. All task told the european parliaments up to london. British Prime Minister theresa may has struggled with splits in her own government over how to handle brexit talks. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Thanks so much. For our global audience, particularly for our wall street audience, this is special. Kind enough to give me two chapters of my book flying on one engine one million years ago. David goldman was with the bank of america, now with asia times and Stephen Roach was with Morgan Stanley and now and yell university. Never appeared on set before. This is really special. We will talk about the derivative in the ghosts of 2007. You talked about the next asia in an important book area and what is the next china . David now just concluding in to beijing, lays out a profound view under the new paramount leader, xi jinping. Not that he is a new leader. This is a new status. A vision that now spans out to 2050, which would be the 100th anniversary of the founding of the peoples republic of china. Seeing china progressively move from welloff society to a great power. An awful lot that can happen between now and then. They have set up a framework that will have an important impact in shaping and reshaping policy. Tom do you buy the timeline of 2020 . 2030 . Or is it a philosophical arch to a trouble china . David chinas in the midst of a value explosion but biotechnological revolution, which mobilizes the talents of the largest and hardest working population in the world. Something the world has never seen and its going to going to amaze all of us. Francine talk to me about deleveraging in china. Are they deleveraging enough . Stephen i think theyre focused on it. Nope question. Point about the debt problem that is important, they all the debt to themselves. They dont all the debt to potentially skittish foreign investors. The highest savings rate in the world. That does not mean they should continue down the road of debt intensive growth, especially if it is debt that has largely been accumulated by state owned. Nterprises in china if theres one big piece thats they have yet to grapple with this issue of state owned enterprise reform. , debt issues that are not going to go away francine i was going to ask about shadow banking. Is this enough . David the most important thing about leverage is that two thirds of the corporate debt is attached to infrastructure. China has a primitive text system. To mess to fund this infrastructure development, airports, roads and so forth, they pushed credit through stateowned companies. Whats on the other side of the Balance Sheet is Something Real and productive. Not an efficient way to do it but its not the same thing as an American Consumer bubble fed financed byebt derivatives. The shadow banking problem, not big enough to take chinas economy down there moving faster. The amount of Wealth Management fallen in thelly last few months. Tom should we worry Stephen Roach about some current credit . Runch in china david i think theyll be judicious in the way that they focus on deleveraging. About to appoint a new central. Anker unlike western Central Banks, chinese authorities are very focused on financial stability. They are mindful of the wrists mindful of the risks. Tom your expertise 12 years ago, do you have an understanding of the flows and obligations the chinese finance has . David you have to separate it into the major bank Balance Sheets. Shadow banking is about 1 10 of the credit entity. Its not big enough to bring the system down but its a mess. A lot of this is dodgy real estate deals by developers which it would hurt. Two thirds of the total debt is railroads, airports, power and other infrastructure. That has a Solid Foundation even it is too highly levered it should have been financed by tax revenues, but one of the key reforms, possibly the most important is the value of as tax dearborn share of the chinese population is headed up to 75 between now and 2030. Thats going to take a lot more in the way of urban construction , existing cities to drive out. He demand for credit this is a massive urbanization. Were going to continue this. Breathing after breathing, bloomberg intelligence. Francine to the house of commons. Testifying. He wants to agree on brexit transition and suppose zone as possible. Some of the backbenchers, maybe looking to topple the government starting with the chancellor. That has been suggestion could be a warning into the tory rebels, deeply responsible against the budget. Henson. T to dan great to have you on the program. Charting what the ecb Interest Rate has been compared to the boe. Maybe three weeks ago a done deal that the boe would hike. Now it seems people are uneasy. As a just that the numbers dont really add up . Dan what weve seen recently is John Campbell us and dave remsen expressing concern about how immediately bank rate needs to rides. There is a big credibility issue , delivering the hike in the first place. They will deliver the can november. It will be unanimous. It will be a tight decision but they will deliver it. Weather proved to be a mistake, thats a different question altogether. We think it will be an unnecessary headwind. Whether they decide to go cycler and start a hiking , we think that would be the mistake rather than taking back the emergency stimulus we saw in august last year. Francine how do they do it that is is not seen as a mistake . Is the difference between the boe and the ecb. Hike. To take away that reversal of the emergency cut last august . Dan i think there was signal. The market is pricing three hikes in their forecast to rise in. It we think they will signal that is not enough to bring inflation back to target. Think they will point to more hikes coming. Whether they deliver the house is another question. We think Economic Data will sell next year. They wont be able to deliver those hikes. Francine thank you for joining us today. Lets get back to our new york studio. David goldman and Stephen Roach are still with us. Have you look at brexit . Exactly how negotiations will unfold. If youre in the u. S. , to you just look at the fundamentals of the economy or do you try to follow this u. K. Versus brussels thing blowbyblow . Stephen i think for people in the United States market, keep key aspects are beyond us in the negotiations. From the german commotion elections, the Catalonian Independence and so forth, that there is a chill wind blowing in europe against brussels overreach and that many people want to return power to national entities. I believe brexit is going to hurt england in the short term but Economic Growth is not the only criteria. Many english friends think it is a matter of National Character in independence brings it will be worth it even if it is costly. Tom we were talking fascinating conversation earlier our of the. Oundational issue this populism wrapped around migration in refugees. David history tells us this is the type of luber nationalism and populist, antiimmigration sentiment that was characteristic in the period following world war i and up until the Great Depression that led to the demise of what was powerfulxtraordinarily wave of globalization. History does not repeat itself but i think you have to be mindful of the rhymes. A lot of similarities with what we saw in a troubling period earlier. Offer, i known the the leaders Rightwing Party in the german elections, and you see a purge of the neonazis and really unpleasant types. Tom we move the not balls out on a regular basis. David it will be like a moon rotating around the cdu, all cdu to the right. I dont think we will see a cataclysmic change but i do think we will see a shift away from the more utopian universalism. Tom i want to talk to David Goldman about a chart as we look back to 2007. The volatility we saw in 1987. Your briefing, how can you do better than Stephen Roach and David Goldman on china . , you can steal the chart. Ive stole from you. This is bloomberg. Tom Stephen Roach and David Goldman. Goldman was in the trenches as we went down. Standard deviation move in august of 2007. Story after story, its going to happen again. Anothers naked here to forced standard deviation move . I david think weve reduced a lot of the corporate sectors to a set of static monopolies that dont have the kind of inherent volatility be had in the past. Tech companies are not volatile companies. Theyre like utilities. Implied volatility on google and microsoft is lower than that of electric utilities. Thanks are in a straitjacket and padded room. Tom that is why steve roach left. David thats why i left. The kind of risk we have, you look at general electric, you dont like the way they calculate profits. They have been perhaps inflating prospects and they have to make revisions. General electric goes down 6 in a day but that does not affect overall market volatility. It used to be if a big dow member got crushed you would see a big spike. Yesterday, hardly a ripple. Francine lets go to saudi arabia trying to reassure Global Investors that it is on track. Aims to have 2 trillion in assets under management by 2000 30 by 2030. He says they are targeting competitive returns compared with global competitors. Vision 2030, a couple of different things. One of which is the diversity. Our assets under , the saudicurrently economy. Its mainly in the conventional sectors. In order for us to have more we should we thought have on different pulls of investment, one of which is international and the second the next generation of investments. Ioc, lifee the erik . How much do you invest now in the Public Management fund . T Public Investment fund Public Investment fund. . Yasir when i came in it was we had assets all over the place. So now i think we are about 230 billion assets under management. 2020, this would be announced i think tomorrow, its going to be much more. Erik in excess of a trillion . Yasir im talking about 2020 remember so that is an two years. Erik what is it we are going to hear the next few days that 20 bring you up to a higher level . Yasir is the investments. If you look at the investments , the return on investment is 4 or 5 . Portfolio. Y balanced we have been but we are going to the more than 4 . Erik whats going to yield more . Are way muchf them more. Doing muchity firms, better. Fund is doing much more. If you look at the track record, 44 . Above 4 . Erik what are you targeting . Yasir i said in 2025 to 2030 we are targeting benchmarking. Xercise we have done we find them between 4 to maybe 12 in the best cases. Indicatingt between 8 to 9 . At2030 we should be looking these triggers. Erik by 2025, how much do you figure you will be managing . In theit was announced vision 2030 we should have at least 2 trillion asset under management. Softbank. Mentioned you committed to 45 billion. It committed 20 billion to blackstone. Why those firms . Yasir the best thing in the investments is to find the right partners. Im not saying they are the only good partners in the world. We are always on the search. Now we are talking to everybody. Looking at different things. We are looking at their current teams which is very important to us. Everything we do go through a rigorous process of governance. We have a lot of things to be looked at. All of these things have to be checked and checked. Tom a conversation on 2 trillion of Sovereign Wealth Fund assets out of saudi arabia. Extraordinary, these blocks of money we call Sovereign Wealth Funds. Francine what theyre going to do with saudi aramco has all bankers of the world on tender hooks. Tom let me do a foreignexchange check as we exit. This is bloomberg. President trump says his fed chair decision is very close. J powell is the front runner. Manufacturing data outperforms. Economy maintaining momentum ahead of Mario Draghis next move. Groundwork to steer policy for decades to come. From new york city, good morning. Warm welcome to bloomberg daybreak. I am jonathan ferro. Alix steel