Transcripts For BLOOMBERG Bloomberg Surveillance 20161025

Surveillance. I am mark barton in london. Just getting some data crossing the bloomberg terminal. German Business Confidence just crossing now. Thectation is up on previous month, up from 104. 5 to 106. 1. The actual Business Climate and improvement from 109. 5 to 110. 5. The Current Assessment is also up. So Business Confidence in the euro regions biggest economy is increasing. Have a look at what is happening to assets today. We have had two days of finishing little changed for the stoxx europe 600, up by 0. 3 . A host of Companies Reporting earnings. The longest losing stretch since may. Diversions between the euro area and the u. S. The 10 year yield is down a basis point today in germany. There is the offshore yuan. Chinese policymakers signaling they are willing to allow greater currency flexibility assets in then dollar. The german 10 year yield which i alluded to in european banks stocks Something Special happened. European bank stocks erased all their losses from the brexit vote. This is a great chart. Is theman chart this german 10 year yield, which has come up from its lows in late september. It has come down a little bit in the last week or so, but we are hovering around zero. The bank index the euro stoxx isin next on the stoxx 600 rising. We are seeing a diversions. Does that tell Us Bank Stocks have outperformed and are going to come back . Or does that tell us that the german 10 year yield is going to increase . Questions, questions, questions. Here is come with the ramallah here is come with. Kumutha. Kumutha a belgian region has trade dealup for a between the e. U. And u. K. A poll has found more than half of adults in the u. K. Say restricting immigration is more important than maintaining access to the e. U. Single market. The survey showed a majority of britons support the current government approach to brexit. U. K. Government is expected to decide today whether to suspend gatwick, ending decades of delays over what has become one of the most contentious issues in british politics airport expansion. It will be put to parliament next winter after public consultation. Authorities in france are expected to continue with the dismantling of the migrant camp in the northeastern port of calais today. The operation will force police to disperse as many as 8000 people across the country. Resident Francois Hollande has promised to close the camp known as the jungle by the end of the year. Local residents have blamed the unrest, andsing that is hampering traffic through the channel tunnel as migrants try to move to britain. 126 by more than powered by journalists in more than 126 countries. Charlesharles mark evans says it may be appropriate for the central bank to raise rates three times by the end of 2017. The rate increases should be related to inflation progress. Charles it is important to get inflation up to our objective. We need to get the level of the federal funds rate up to a sustainable level as soon as the economy will allow it, while we are meeting our objectives, so that whenever the next troubling period comes around, the fomc has the capacity to lower rates enough in order to help the economy get through a temporary period. Mark lets talk to andrew wilson, global head of fixed income at Goldman Sachs Asset Management international. Do you worry about the next euro uncertaintyof question mark if the fed has rates so low, it does not have much in its tool to bring rates lower. Is there an urgency, you sense, to get the rate of a bit . Torew it is more related the fact that the u. S. Economy is in decent shape. Growing at a solid place. Im an claimant has come down to 5 . There is gradual, maybe muted wage pressure. Earnings are slowly ticking up. There is gradual upward pressure on wages, and more general inflation in the u. S. Raise rates just reflects a pretty solid u. S. Economy, rather than, lets get them up so we can take them down again. That is getting ahead of ourselves. Mark there is a diversions that shows an Interest Rate problem. September, 70 for for december, but next year, who is going to win out . Andrew i would have a lot of simply with evanss view. The idea of moving it to december seems likely. A couple of rate hikes in 2017, to us, sounds about right. There are caveats around there. We are seeing the dollar very strong. We know the fed looks at financial conditions. If the dollar continues to move higher, maybe they need to do less. I think in aggregate, we would es in 2017. Two hik i think the market is too cautious about the Growth Outlook and is not paying attention to potential inflation. Mark what is the neutral rate . Andrew that is a tough question. Mark it could be 2 , j. P. Morgan saying. Andrew i think if you look at productivity growth, we would expect to pick up somewhere closer to the 3 region. It seems a more regional reasonable estimate to us. Mark one of the reasons why the rate hikes this year were derailed, as i throw my pen in the air, is china, which brings us to yuan, which on offshore basis is at a record low. Onshore, at a sixyear low. This chart tells you everything you need to know. dollar, the yellow line. This is capital outflows. December january was a worrying level. Can it guides the currency lower . Clearly, authorities are allowing it to listen. Andrew they are, and they have moved to the basket mark and the basket is stable right now. Andrew it is relatively stable. What you are seeing as much as anything is a dollar appreciation story. The dollar is going up against most currencies, including the yuan. The authorities have done a good job of keeping it in the range of the basket. But as the capital flows chart shows, if you see those pickup, it is going to be a more challenging environment. Mark could we see a repeat of august last year, early 2016, financial markets, uncertainty . Andrew i hope not. It was pretty stressful. It is unlikely. We have policy missteps, in terms of chinese policy. I think they have learned those lessons. The Growth Numbers have been much more stable. To some extent because the chinese authorities have reverted back towards the old put money into investment, get the Housing Market moving, which is a lot. Chinese to us like growth is pretty stable. It does not mean it is not a longerterm concern for us. Over the next 12 months, we are not concerned about china. Mark no nearterm catalyst for a debt crisis, but there is longer concerned that there might be andrew if you look at chinese growth and what is driving it, it is credit. You see the impact of that credit having a diminishing effect on the growth story. It is taking more credit injection to get less impact on growth, and that is building up problems for the future. We would see issues in china, potentially, in 2018 and beyond, rather than 2017. Mark andrew wilson, global head of fixed income at Goldman Sachs Asset Management international. Stay with us here on surveillance. Coming up, wallonia versus canada. The belgian province throws the canadae. U. Trade deal into disarray. The european earnings season picks up. Over 100 stoxx 600 Companies Report this week. Is corporate . And monte dei paschi, the worlds oldest bank, cuts 2600 jobs as part of its turnaround plan. Will the rescue overhaul of the worlds oldest bank convince investors . Mark here is Kumutha Ramanathan. Monte dei kumutha paschi plans to cut branches and worlds oldesthe bank tends to attract investors to a turnaround key to its survival. The lender, which also announces , isirdquarter net loss targeting an annual profit in 2019. Shareholders will meet to approve a plan to raise as much as 5 billion euros of new capital. And bloomberg will speak exclusively to the ceo of the tomorrow. S syngenta says the completion of its 43 billion takeover by chemchina is expected to be pushed back to the First Quarter of next year. That indicates it is not confident the e. U. Will decide before a friday deadline to approve the deal without any antitrust strings attached. The alternative is an extended probe that could add at least another four months to the process. Says profit fell for the seventh straight quarter as generic competition eroded sales of blockbuster Cancer Treatment gleevec. Earnings fell 3 . Europes secondlargest drugmaker by sales, which is also grappling with a slump in its eye care, is banking on its newer psoriasis treatment. Hundredss planning more job cuts to be announced as soon as this week, according to people familiar with the matter. Around 8 of its workforce, or around 300 people, may be let go. A twitter representative declined to comment. The news comes after disney, alphabet, and salesforce backed out of potential purchases of the company. That is the Bloomberg Business flash. Mark kumutha, thanks. The spotlight turns to boes mark carney some of who will appear before the house of lords to take questions on the state of the economy, Interest Rates, and the pound. Mario draghi, the ecb president , gives a speech on stability and equity Monetary Policy in berlin. Andrew wilson, global head of fixed income at Goldman Sachs Asset Management international, is still with us. A chart which was a loser on yesterdays battle of the charts in my afternoon charts, but i still think is wonderful these are u. K. Assets in dollars, not in pounds. Ftse down by 8 . Down by 2 . 8 to show not all assets have fallen in dollars, these are the best performing stocks fair ferrexpo and anglo american. How do you view usss either in pounds or other currencies . Assets, either in pounds or other currencies . Andrew it shows what they have done to assets and to some extent to help soften the blow soften the blow of brexit for the u. K. Economy. This helps buffet the concerns we have about brexit. Thatnk the concerns maybe a 2018 maybe a 2018 stor. We have seen strong investment that two years ago or more was still in the pipeline. Look at the numbers. They do not look so soft. I think the concern we have an , and the reason they have entered into qe, is about the Investment Outlook for 2017 and what it means beyond that. The exhibit, the potential move from Monetary Policy globally to fiscal policy lets move that to the u. K. To what extent can fiscal policies be approached at the end of november . That would pick up some of the slack from the andrew it is timely. The u. K. , another major economy, cutting Interest Rates further is not working, and that is why they have moved into quantitative easing. Ability toies the bridge the gap as we move away from Monetary Policy stimulus arguably not doing that much into physical. Is, it just fiscal takes time. You cannot get big projects going immediately. They take a long time. To an extent, a consumer in the u. K. Is doing all right at the moment. It is not a bad idea to pivot toward fiscal. Maybe the timing of doing that works nicely. Mark you say the consumer is doing all right, which brings me to my second chart, ecb 4500. Is theple line breakeven, the difference between the 10 year yield and the inflation. Because of the weakness in sterling, its going up. People are talking about real as inflation rises. Real pay is going to diminish. Andrew i think it is an important point. Our own view is that inflation is likely to pick up meaningfully through next year. Maybe he can get as close to 3 . Ont has put the pressure real wages. The concern for the consumer is, i have done ok at this stage, but as you see pressure on real income, they start to rein in spending. Is why 2017 concerns us. You need some fiscal stimulus to take up the slack for what we expect. Mark and they have a 10 year yield, which is the blue line. You have come down. We have come up because of the weakness of the pound, because of political worries. , how do theys stand in the global universe . They are still quite generous on a yield, arent they . Relative basis, they are not so bad, but if you look at the fiscal trajectory, we would expect the budget to be somewhat stimulatory next month. We didnt expect we did expect inflation to pick up. Higher yields around the longer end of the gilt curve, those pressures, we think, will push it a little bit higher. Not dramatic way. You look around the world, and everywhere, you have a relative basis gilts have become attractive. Mark back to you in a second. Andrew wilson, global head of fixed income at global sacks Asset Management international. Up next, risky business. We find out why gsa is overweight in assets. Burton, withrk andrew wilson, ceo and global head of fixed income at Goldman Sachs Asset Management international. Where is the value . Lookw valuations stressed. No doubt about it. On a relative basis, everything looks expensive. We still think equities are at the top of the tree. We would say credit after that, and particularly emerging market credit. Stack, wetom of that would have conventional developed market Government Debt, which is very overpriced. Mark within equities, highyield equities andrew dividend paying stocks. We like consumers in europe. The fall in the europe was helpful for a lot of Consumer Products and exporters in europe. We kind of like that sector. In the fixed income space, i think emerging markets are looking pretty interesting, particularly in local currency terms. Not all of them. We like latin america, for example, places like mexico. The peso has weakened a lot. It is pretty good value. We are less positive on asia. I think the slowdown in china and the countries that rely on china from a growth point of view, for us, got to be a little more cautious around that. Conventional Government Debt or traditional german bond market, the u. S. Bond market, the japanese bond market those still look really expensive. Mark the bond market is a play on inflation. Some are questioning where Central Banks go from here. Are we witnessing a change . Do you think we are . We talked about fiscal policy. Within global Central Banks, are we seeing a change in thinking . Andrew they have been pretty creative. We cut Interest Rates and went into negative territory. We realized we have seen significant unintended consequences. The yield curve flattening. What it did to interest margins. He saw Central Banks stifel way from that, at least in terms of rhetoric. Relying more on quantitative easing to do the job. We have seen some pretty interesting policies. Look at what the japanese did a few weeks back. Japanese central bank setting where 10 year yields will be. I think we are seeing the development of Monetary Policy. I think it is as far as it is going to go. It is hard to imagine that a lot more can be done from here, which is why i think the emphasis is on fiscal policy. I think central bankers have been creative and thoughtful, but we are probably reaching the end of what they are able to do in terms of stimulating growth, getting credit creation, and ultimately getting inflation rates back toward their target level. Andrew mark what is your biggest worry . Andrew fixed income, there is a lot of things to worry about. I think politics across europe would be right up there, in terms of one of our concerns. The constitutional referendum in italy coming up in early december. Elections in germany and france. All of those good throw a spanner in throw a spanner in the works and change the dynamics between the major economies, or the relationship between the periphery and the core, as you think about the italian constitutional referendums. European politics could be a handful. Mark thanks for joining us, andrew wilson. Mark i am mark barton in london. Here is Kumutha Ramanathan. Kumutha the European Unions ability to sign trade deals has been thrown into doubt after belgians wallonia region has not signed a trade agreement with canada. It demonstrates the backlash against globalization and hints at the tough times awaiting the u. K. Itvew poll by surveytion for found half of adults in the u. K. Said restricting immigration is more important than maintaining access to the e. U. s single market. The survey found a majority of britons support the governments current approach to brexit. The u. K. Government is set to decide whether to expand heathrow or gatwick, in the latest step toward ending decades of delays over what has become one of the most contentious issues in british politics. The final decision will be put to parliament next winter after a public consultation. German Business Sentiment rose to the highest level in more than two years this month. The latest update on the ecoinstitute Business Climate index signals increased confidence in europes largest economy. Germany is overcoming a tempora slowdown as manufacturing is listed by stronger demand from the u. S. And asia. In france are expected to continue dismantling the migrant camp in calais today. This will force people to be dispersed across the country. France ollanta promised to close the camps, known as the jungle, by the end of the year. Critics say it is hampering traffic through the channel tunnel as migrants try to move to britain. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Amm camus the roman on i Kumutha Ramanathan. Health. Timism about the earnings disappointing from after reporting profit that fell for a seventh straight quarter. Lets welcome the global head of Equities Trading strategies in citigroup. How is the earnings season . I saw earlier 80 of stocks in of u. S. Reported a beat estimates. Still, it is going to be another quarterly decline in earnings. What is your early read of the earnings season on both sides of the atlantic . Huge money dispersion and performances from economies. The u. S. Is slightly ahead of us. We are going to get about 30 this week. So far, it is starting on a good foot. Banks seeing the consistent. The reported decent numbers in the u. S. Banks are important because of the underweight nature of the sector. From the first signs in europe, it is starting to feel better for the banks, fueled by the underweight positioning. Mark save your thoughts on the banks, because we will have a bigger bang chat in a minute. This is a chart i quickly made up while we were reading the. Ntroduction the stoxx 600, the white line, versus the s p 500, the green line. Both indexes have been trading july. Ys since what is going to break us out of this sideway trading . Currencies are something to keep a close eye on. You are seeing the dollar going stronger and the renminbi going weaker. These are factors which should create price moves. Worriedcular, we are about renminbi weakness. We think the Dollar Strength will start feeding through the s p as well. That could be an angle, particularly as europe grows weaker. Europe as an expert in region should do better. Exporting region should do better. Mark on the dollar index, do we hit 100 . What is the significance of that . The u. S. Elections in less than three weeks, which should have an impact on the dollar beyond that, we will have the december fully priced in hike. We would expect the dollar to go stronger. We have seen a repositioning of long dollar, short euros. Beyond that, we are going to need to see what next year looks like. Mark on the rate hiking front, expect evans saying, three rate hikes from now to the end of 2017. Is that looking a little bit too hawkish . A littleit is looking hawkish versus the house here. We are slightly below that. One interesting phenomenon last week is, if you look at the rates,tion of the s p to it seems to have completely inverted in the last week. We went negative. The way we see that is the Market Pricing inflation risk. Keeping a close eye on inflation because of the tightness in the labor market as well will be a driver going forward. Inflation is getting there, depending what you are looking at. Year. 1. 7 in the last it is certainly moving upward. Will help. If you see inflation does come back, it is very positive for the banks, because you get a steeper yield curve. It would be quite negative for the defensive staples, and everything. If you think of the last two years being dominated behind clients buying quality or buying value at times, inflation would really enforce the value case and would decrease the proposition on the stable side. Side. The staple do we think the changes we are seeing now are purely driven by fundamentals . Probably not. A lot of folks on fiscal response, as you covered in the earlier segment. A positioning aspect we cannot ignore the over positioning in bonds and the positioning in value is creating price holes where you are not price holes where you are not sure, whether it is because the fundamentals have changed or because the pain of positioning is taking you there. 2017, we are not calling this a big Inflection Point in the world just yet. But we are aware of some of the risks to the upside in inflationary markets. Mark you touched on china a second ago. One of the questions you pose in your notes is, why are developed Market Investors ignoring what is going on in china . Youve it when people like pose questions, because i can just ask you the question, and you have to answer me. Antonin never ask a question you cannot answer. Mark [laughter] one reason is, we think the reserves of china have stopped slowing down. That was the fuel added to the fire last august, in 2015. Is,e we have been puzzled e. M. Has outperformed, which in the face of a stronger dollar is not highly logical. In the specific case of china, they seem to devalue the renminbi every 60 trading days. We just had the new wave in. The question now is, what happens to reserves . What happens to the pmi and other macro numbers . As the renminbi moves slowly toward seven, which is expected, it is ok. Any jump would create a system which would be quite negative for risk. Antonin stays with us. Stay with surveillance. Survival mode monte dei cuts, branchjob closures. Will it be enough to attract investors . Then, sorry, canada. The trade pact between the e. U. And the north american nation begins to crumble. Trudeaussaved by thursday deadline . Predictionske sending the offshore yuan to a record low. We take you through all the market moves. Mark mark barton in london. Shares of monte dei paschi surging after the announcement of its plan to cut 2600 jobs, close 500 branches, and sell bad debt in a bid to attract investors to a turnaround that is key to its survival. Lets get more on this announcement by the worlds oldest bank with the italy bureau chief for Bloomberg News. Bring us the Key Takeaways from the Business Plan. Well, there were not a lot of fresh details, compared to what we knew before. , haseo, mr. Marelli confirmed they are looking at raising 5 billion euros in the capitalraising operation, the transaction they want before the end of the year. You have got the confirmation of the disposal, trying to get the bad loans off their books. The timing they said investors would meet on november 24 to approve this plan. And then you have got some bits and bobs of costcutting reducing branches, around 500, trimming personnel costs, laying off another 2600 employees in addition to what they have already announced so far. Investors seem to like it. The stock is up again today. Super volatile stock that is still, despite the gains of the last 10 days, down still 60 this year. Mark i have got the chart to my right, if we can show it. This is the monte dei paschi eight day chart. It is up by 149 , but as i said in yesterdays close show, since the highs of 2007, it is down by 95. 7 . Good to put it in perspective. Is this attract investors with the turnaround plan . This Business Plan is obviously the key to its survival. The turnaround is key to its survival, raising fresh money. Our investors going to bite debate . Bitee investors going to the bait . Dan in todays stock performance, it seems to be yes for now. On a Conference Call this morning with analysts, morelli repeated they have received interest from potential what they are calling anchor institutions,rge that he did not give any names. So other than we are going to Start Talking with potential investors, we still do not know who these people are, how much they are willing to invest in 5is bank that needs to raise billion euros possibly by the end of the year. Mark great to see you. Thank you. The italy bureau chief for Bloomberg News. Bloomberg will speak exclusively to the chief executive tomorrow, 7 00 a. M. U. K. Time, daybreak europe. Of tradeullier, head at citigroup. There is monte dei paschi, up 150 in eight days. I love this chart. This is the stoxx 600 banks index, the pricetobook ratio. The blue line is the u. S. Banks, which is at 0. 95. The white line is european banks, 0. 72. You are still underway, though, arent you . What is going to change . Antonin as a house, we are pushing for an overweight. The underweight, we feel, is from the investor community. Taking a step back and trying to onpare, one region trades book, give or take. The other is about 25 cheaper. If you go back to the financial crisis, the u. S. Banks were much better at cleaning the assets, which was a difference from a european point of view. Buying u. S. Banks in the last few months that is a mix of hopes of a steeper yield curve. Maybe it is velocity in the u. S. And so on. There is a race to buy u. S. Banks because of the yield curves. At the positioning is dramatically underweight in europe, versus the u. S. In the case of europe, one reason we are pushing into overweight is, we feel the asset is either industry extremely underweight or underweight, and they have to go back to benchmark. It is more that it served them so well for eight years, giving given some of the macro drivers. The risk of staying underweight is too much risk. If you think in terms of bankslio construction, would diversify you from the other risks, which is yield. That can play a good role. Interesting in the recent flows we have seen inflows in the banks. Times when they go to single focus onhey tend to northern versus southern europe. Those who want spice go to southern europe. That would spice up your portfolio. It is still more about hedging and flows into the sector, more so than a steeper yield curve, a continuation of a steeper yield curve in europe . Antonin in the u. S. , yes. Some of these banks are exposed to the u. S. Curve. In europe, i just draghi, when he talked last time, opened the door to it little bit. Mark is there a believe he is going to help the banks more . Antonin there is a belief let us say the headwinds are diminishing. I am not trying to say it is a rosy world out there for the banks. There are some worries. The capital increases, just on you talk about shorts getting squeezed because you are getting closer. By waiting for these cap increases, clients are taking too much of a risk. This is before the capital increases to come. Mark have we seen the lows . This is another chart, and it shows deutsche, the white line, Deutsche Bank blue, Credit Suisse purple. We have come down far and fast. This is from january. Year to date, we are down by 30 . T best, 50 feature. Socgen would others would feature, actually. We would be picking the banks we back. For now, we would probably stay away from the banks which are set to raise capital. Mark are we away from talk of the likes of Deutsche Bank and systemic crises . Is that passed now . Monte passkey monte dei paschi bringing down the banking industry. Are these scenarios not even worth discussing . Antonin it is not systemic anymore. We are days away from every bank owning the same asset, so if one falls, they all fall. We do not think it is systemic. It is more individual names who are going to get challenged, first as a sector which, from a valuation point of view, we have had so much headwind, so much doubt. Antonin why did you go overweight . Mark about four weeks ago, according to research. Mark the global head of equity trading strategies at citigroup. The euro at a seven month low against the dollar. What would fed ecb policy diversions mean for global stocks . Mark lets get the Bloomberg Business flash. Is it me . Yes, it is. It is composed the it is kumutha, excuse me. I better not take your job away. Kumutha monte dei paschi plans to cut 2600 jobs and sell units and bad debt. The worlds oldest Bank Accounts to attract investors to a turnaround key to its survival. Announced, which also a thirdquarter net loss of 1. 15 billion euros, is targeting an annual profit of one billion euros in 2019. Shareholders will meet on november 24 to approve a plan to raise as much as 5 billion euros of new capital. Bloomberg will speak exclusively to the ceo of monte dei paschi, marco verrilli Marco Morelli, at 7 00 a. M. U. K. Time. Syngenta says completion of a takeover by chemchina is expected to push back to the First Quarter of next year. Not indicates it is confident the e. U. Will decide before a friday deadline to approve the deal without antitrust strings attached. The alternative is an extended probe that could and at least another four months to the process. Novartis says profit fell for the seventh straight quarter as generic competition eroded sales a blockbuster Cancer Treatment gleevec. Earnings excluding some items 1. 23 a share. Europes secondbiggest drugmaker by sales is also grappling with a slump in its eye care division. It is banking on its newer heart and psoriasis treatments. That is your Bloomberg Business flash. I am Kumutha Ramanathan them. Thats the fed will raise rates this year while other Central Banks including the ecb continued to ease. More on what the divergence could mean for global stocks. We are here with the global head strategy. Equity you said equity versus rates is the biggest driver. Where is it taking you . Antonin at the moment . If you look at the defensive versus cyclical performance in the u. S. , that would be consistent with a 10 year u. S. A bit higher. We mentioned flows versus positioning. Rates e saw in u. S. . Isit driven by positioning it looks like equities are slightly ahead of the bond market. The other way to look at the you had some is, equities in the last few months. Did we price inflation, or are we about to price it . Im answering a question i have already answered two. Moving rates will drive a lot of equity performance. For now, we feel equities are slightly ahead of what bonds have done. Mark which means equities have to come back by . Slightly dovish versus bonds, but things could move quickly. They could easily catch up to us. We will soon find out who is right and who is wrong. Mark this is a german yield curve versus a month ago, the green line. Green line, today. The yellow line, one month ago. ,ou see german bunds yield especially around the 10 year, from minus to plus. Antonin that has been a global phenomenon. Everyone you look at has done the same thing. The price action we are seeing in equity is consistent with that. The question is, does the steepening continue . Are we getting very excited by one hike in december, a u. S. Election outcome which seems to be a bit more friendly for markets potentially . And after that, we could say the next mark Hillary Clinton wins, what Market Reaction do we get . Antonin we keep going. We would argue the fiscal side would be more difficult, because she may not control the house. That would make it more difficult to actually push more of a fiscal agenda. But most likely a continuation of the trends, versus trump, which would have been quite likely an Inflection Point. Ark antonin jullier surveillance continues in the next hour. Takes over in london, tom keene in new york. In this hour, stirring depreciation. Surginged kingdoms inflation. Can the people stand the advantages of brexit . Federalism in europe is dead as belgium says no to canada. Nasty woman that campaigned together. Will they be on speaking terms after president clintons first 100 days. Good morning. This is bloomberg surveillance. I am tom keene in new york. Anna edwards is in london. If mergers are free today, we do not know what to do with ourselves. Anna well certainly, equity seems to be one thing. Is thee other thing french part of belgium. Declinestindustrial means rejection of globalization. That part of ljm is rejecting a trade deal with canada. It has lots of global implications, which we will explore and learn about. Tom i am learning about my announcers. Brooge. Least 59n pakistan, at people were killed and more than 100 others were wounded. Most of those killed were police trainees. Authorities say the attackers are part of a militant group linked to al qaeda. There are questions about the European Unions ability to sign trade deals with the rest of the world. The belgian government says it persuade in a trade deal between the you and canada. In calais, france, more migrants are expected to join the thousands of already left the where many were as many as 800 migrants are living. Many of those living in the cap had hoped to find a way to get to the u. K. British Prime Minister theresa may has promised it will be debate on how the government approaches brexit but there will not be any vote. She says she will not reveal every detail of her negotiating stance. Donald trump says the news media gives too much coverage to shootings by police. The republican president ial candidate met with police and other First Responders in tampa, florida. He told them they had been disrespected, but that would change once he is elect did. Global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. I am taylor riggs. Thank you. Lets look at the data. Steven saywell is here to get the hour started. Cure euro. There are good equity markets. 12. 73 in the lower market. Life is good. 0. 8 4 , pretty stable as we try to figure out the meeting in november. Sterling at 1. 2237. Dxy grind is strong. The seems to be propelling dollar a little bit. Stocks in europe up by three tons of 1 . General optimism around equity. Sending about 70 in december. We go to monte paschi. The share price of that italian bank up by more than 16 . 14. T is only worth tom how about to the bloomberg. Just another day chart. The idea here is we normalized in 2009. The purple is yahoo . That is the color. Time warner outperforming yahoo nicely again this year. See their you can rally as they go into their with timeon and deal warner. So outperformance of time warner versus yahoo since the lehman lows. Anna we take us back to the macro. Hr he relates to a conversation i had earlier this morning where jp morgan Asset Management says u. S. Yields in the blue and the dollar going lower. They think both have topped out. Maybe Charles Evans in the fed would have a different view. Lets get a different view. Steven saywell, global head of fx strategy at bnp paribas joins us. I want to get your thoughts. Evans overnight was talking about three hikes in 2017. That does not seem consistent with a dollar and yield in the u. S. That has topped out. Steven lets talk about evans comments. Three hikes in 2017. It does not feel like we are in an environment where the fed needs to hike three times. We think they will not hike at all in 2017. They will go into december and then probably pause until early 2018. What does this mean . I tend to agree with the charts you focus on earlier. You could argue the market is getting ahead of itself in pricing. Previously, top highlighted the two year yield in the u. S. That is pretty high. I look a pretty high i would go a step further and look at u. S. Yields versus the dollar. You can argue the dollars ahead of what shortterm yields are saying. If you look at the models at bnp paribas, that is the case. The risk may be for the dollar to pull back. Anna we will keep that in mind. We want to play you a bit of what Charles Evans had to say. He was talking about these three also hads in 2017, but something to talk about inflation. It is important to get inflation up to our objective here we need to get the level of the federal funds rate up to a sustainable level as soon as the economy will allow it while meeting objectives. Whenever the next troubling comes around, then the fomc has the capacity to lower rates enough in order to help the economy get through a temporary period. Anna i am guessing you do not agree in order to give the fed animation in a future crisis, they need to get Interest Rates higher. Is that something you disagree with . That seems to be the motivation for three hikes. Isven i would say it pessimistic in looking at the outlook. I think what i would agree with is that the fed needs to act. They have already started once. We have that hike. But as we have said, the fed is biased towards hiking. If the data stays as they are, they will hike. They need a shock or surprise to prevent them going. But to argue rates need to be higher purely as an Insurance Program is probably too far. He mentioned a twoyear yield. We try not to use the chart. Ring up the lollipop chart. It is the twoyear yield back the year and a half. The real trend is what the fed wants to do, as you say, and they just cannot get it done. Here are the huge disappointments. Down. Here is this giant or miss rmous disappointment. Up to 0. 84 . What will be the catalyst to draw that yield lower again to disappoint the people looking for three rate rises . Our year end forecast of that is 90 basis points. We are getting close to that. That includes the rate hike to come in december. As far as catalysts, one could be this afternoon. We had the Conference Board confidence indicator out. It was very strong last month. We are looking for quite a pullback in the short term. , think to answer the question what the catalyst is likely to be, i think it will be the data. We tend to think their growth. Think groweth peaked in q3 and will slow in q4. Tom is inflation different nation to nation . We are talking about the u. S. In this hour, i want to talk about u. K. Inflation. U. K. Is 2 , in the is that different than 2 inflation in the United States . Think it is. Not i think, really, what is important for inflation is how Central Banks think about it. What we have heard from evans in the u. S. , they want to get inflation up in the short term in the u. S. The u. K. Is very different at the moment. We have had a huge fall in sterling. We will talk about they that later. But that is what is coming through with inflation. For the bank of england, they have a history of looking through temporary spikes in inflation. They did this in 2008 and 2009. I get back to that point. What is important is how the central bank interprets inflation and, importantly, we think the bank of england will look through any spikes in inflation. Tom Steve Saywell. And you highlight that 10 00 a. M. Wall street confidence board numbers. You can see that across all of our bloomberg platforms. [coughing] im getting better. Its the plague. In the next hour, kate moore from black rock joins us. We want touch on at t and time warner. This is bloomberg. Anna welcome back. I am anna edwards in london with tom keene in new york. Lets get the Bloomberg Business flash. Here is taylor riggs. Taylor profits fell for the second Straight Year in europe second biggest drugmaker. Earnings were down 3 but still beat estimates. The dow chemical ceo says that 59 billion merger with dupont may be delayed until february. He told bloomberg that the greatest concern for regulators is agriculture. Antitrust educators are looking more into pesticides. Monte paschi will close more jobs in a bid to get investors a turnaround. The oldest bank of the world would also sell units and sell bad bet. Monte paschi has already deceived more than half 1 billion for its margin its merchant bank. Anna lets get more that story about the announcement from the worlds oldest bank. Dan liefgreen joins us now. We have had a lot from monte dei paschi the last 24 hours around capital increases, the target of the business out of ability. What about cornerstone investors . They want to it they want to attract new investors. Any news yet . Ceo, Marco Morelli, said on a Conference Call with analysts on the statements of the real donation plan is that he will start conversations today. He did not reveal any names. There was speculation in the Italian Press for a couple of weeks that these are large institutions, sovereign funds, but we do not know yet the names of these institutions that could potentially be part of this 5 billion euro rescue package. Anna we will wait to see if any names come forth. Talk to us about the timing of this deal. Is december 4, when we have the vote on constitutional reform. That could spark uncertainty and have an impact on the italian governments ability to act. Dan yes. Is pushing ahead. They also decided the date of the shareholders meeting, which has to approve this plan. That will be november 24. I think he wants to get as much of it in order before the referendum takes place december 4. That includes this proposal to swap on holders bondholders swapping debt for equity. I think you would like to get commitments on that before they actually go to the market. You translatet you cram down in italian. The bank had a 10 headcount reduction. They have gone from 95 billion in deposits to 81 billion in deposits. Is there a slowmotion run on this bank . I do not think so. I do not think there has been any sort of panic, withdrawals that we have seen in the last couple of months. About a year ago, when the magnitude of this crisis was starting to increase, the bank itself acknowledged there were withdrawals, but certainly nothing significant that would merit alarm bells going off at the bank of italy or at the ecb. Tom thank you so much. Dan liefgreen in milan this morning on a troubled italian bank. And we think our milan Bloomberg News team over their coverage. Steve saywell, this goes on and on. And i do not want to get you in trouble with the general consul of the bnp paribas in paris, but tell me about the struggle to clear banking in the European Union. We do it better in the United States, dont we . Argue there isld increased focus on structural change and showing up the broadly intem more the eurozone. It is not just italy. It is other countries we are focusing on as well. 1. I would pick up on that week upone point i would pick leading us to the next ecb meeting in december. I think there is a strong chance get further easing from the ecb. Could argue that may be maybe concerning the Banking Sector can make it possible. That could have qe anna and expansion of kiwi . Steven within both of those factors could, in paid we think could be extended six months. And also the ability to buy bonds below their current rate. That is necessary to extend qe. So both of those factors, we think, will add two more easing. Anna the German Economy not doing badly. Thank you. Steve saywell from bnp paribas. Coming up, Marco Morelli will join us at 2 00 a. M. In new york tomorrow. 7 00 a. M. In london. This is bloomberg. Anna this is bloomberg surveillance. For the morning mustread. I picked something from the toronto from the toronto star. It is the other side of this e. U. Deal, where they are trying to sign a trade deal with the canadians. This coming from the editors. But the star argues, as have many others, that it is interesting. I have read lots of thought pieces on this seeming failure untila, there we have thursday to get this deal done. Some would say this bodes ill in the u. K. Trying to broke its own trade deals with europe, but others on the brexit side say they will look out the mess that is happening that is happening now, which is the reason the brexit vote materialized. What we talked about yesterday. Tom and i get canadas response and i guess i get the british response. But what is the response of germany or poland or italy to three point 6 Million People in the french part of belgium saying no, no, no . A sickly texas or the two dako tas to basically texas or the two dakotas told washington no. Anna yes. Means that part of the you, that less than half of the population can hold sway. That is wallonia. Steve saywell from bnp paribas is still with us. This is one threat to globalization at the moment. And this has implications in the long term, maybe. But tomas may have, what does germany think of this . To remember the eurozone and germany in particular is a huge export machine. If they are, they want free trade, because they are selling to china and these places. Im that perspective, you can argue the eurozone and the you the e. U. Istrade profree trade. Isi wouldnt suggest this the start of anything larger, as far as declining globalization. I look at, all in all, this trade deal and what it means. But what does it mean for brexit . The federalism idea in europe just is not there, is it . Theen as far as brexit, real problem is nobody knows yet. Because recent may has made it clear she is not going to give anything away until she trickles because theresa may has made it clear she will not give anything away until she triggers article 50. Is an underperformer as an exporter within the you within the e. U. , but wants to improve that. Millswe will talk to john. This is bloomberg. When youre on hold, your business is on hold. Thats why comcast business doesnt leave you there. When you call, a Small Business expert will answer you in about 30 seconds. No annoying hold music. Just a real person, real fast. Whenever you need them. Great, thats what i said. So your business can get back to business. Sounds like my rides ready. Dont get stuck on hold. Reach an expert fast. Comcast business. Built for business. Tom bloomberg surveillance. Anna edwards in london. I am tom keene in new york. The New York Post always gets it right. Someone has to win. Cobbs of chicago and the indians of cleveland. This is really cool. I do not know what the equivalent is to football in the United Kingdom, but it is the idea of two teams that literally have not won in 20 years, 60 years, 100 years. This is not the red sox and the yankees. This is not the dodgers. These are two teams that have never been here. In that sense, it is exciting as we start the world series tonight. Anna last year, we witnessed leicester city, but now you are testing my knowledge of baseball. Lets not do this. Tom they will be riveted on this in wallonia. I am telling you. Lets get to our bloomberg first word news. She is for the cubs. Heres taylor riggs. Of the it may be one biggest asset seizures in u. S. History. Federal prosecutors are property to confiscate for allegedly alluding venezuelas state owned oil company. 11 billion may have been stolen from that company. Among the assets the u. S. Macys, 20 homes, some in West Palm Beach and the houston suburbs. Healths for obamacare plan see their biggest jump next year. It will rise by an average of 25 . People signing up will have fewer options to choose from. Several big insurers have pulled out from some of the markets created by the Affordable Care act. There is speculation about what senator Elizabeth Warren wants from her appearances with hillary. Expectations are that she once to curb wall street influence in the clinton administration. The progressive leader is foring herself in the list jobs like the secretary of the treasury. The head of the bill head of the duterte just returned from a trip to china and is heading off for a threeday trip to japan. And you pull says britons are more concerned with controlled immigration then maintaining access to the single market. Over half of the polls say they are more worried about an influx of warners of foreigners then losing e. U. Trade benefits. Global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. Im taylor riggs. Thank you p for more on u. K. Politics, we are joined by alsomills, founder of jml, a key campaigner for brexit. He says that domestic fall in sterlings cause for celebration. Steven saywell from bnp paribas is still with us as well. Your source more broadly. First, good morning. Is a cause for celebration, but only 10 of the u. K. Economy is export driven right now. The rest of the economy is shaking from higher import costs. Exports are about 30 of gdp, so the Exchange Rate has a big impact on the way the economy functions. The trouble is the economy is very unbalanced at the moment. We have very low levels of investment. We have deindustrialized. Were running up debt all over the place. We have growth drone driven largely by asset inflation investment. And we have a problem with the globalization of the world, which has helped a lot of people in this city and in the metropolitan areas but would be back for other people. We need to get the economy rebalanced, which means a lower Exchange Rate. Anna so where do you think it should be . John the problem is an Exchange Rate of 1. 40 works for the Service Sector but not for manufacturing. To get manufacturing back to the scale, we need to balance the books. Anna why do you prize manufacturing over others . Big advantages in services because of our language, our job if he experience, the skill level, but we do not have is in manufacturing. There, we have little in the way of comparative advantages. That is why we need a lower Exchange Rate the above most of exports most of exports are goods, not services. Tom 35 years ago, he wrote a book growth in welfare. Up theow, bring chart of the brutal move in sterling. Well predicted this down to that lets her go john mills, you supported the outcome that is Prime Minister made. What you need from her to stabilize sterling and begin to create right to growth create brexit growth . Goingto get manufacturing in this country, you need an Exchange Rate around 1. 10. But that is not far from 1. 22. But when it was at 1. 40 or 1. 50, it was a huge gap. It would really get the economy to take off. But what without due do to inflation, pushing against the people of the United Kingdom . John is the economy starts growing more quickly, it is not possible for everyone to be worse off. Beryone on average will better off, mathematically. But the notion that inflation will necessarily go up because by pound goes down is belied experience. When we came out of the Exchange Rate mechanism in 1990 two, everyone said inflation would go up. Actually, it went way down. 5 in 1992, and around 1. 4 in 1994. Tom that goes to the heart of an essay over the weekend in project syndicate. The linkage of currency depreciation to inflation is unique within britain. What will we see with a 1. 10 sterling . Higher inflation . Steven lets start by saying whether we get to 1. 10. Tom youre not predictive that. You look at stable sterling. Againstwe are at 1. 22 the dollar now. First, the pound is much weaker against the dollar than against the euro. 30 in loansose to against the dollar. We have been weaker pretty recently against the euro. So a big difference. Secondly, if you look at currency valuation, we are getting to pretty extreme levels. Our view at bnp paribas is the new norm for cable, sterling against the dollar, is somewhere around 1. 30 and 1. 35. That compares to 1. 50 prebrexit. So 1. 22 is pretty extreme, but ultimately, we could move higher. Anna john, you are the pound to go lower. Would you advocate the government gets involved to get it lower . I have heard voices on the brexit side that argues we need a more active government in the fx market. May be be less open to foreign takeovers, for example. Do you want the government to act in that way . John we ought to have a government that has an Exchange Rate target rather than let it float around with no policy behind it. Anna but it is quite expensive to follow through on a target, because you have to use of in a lot of fx reserves. John you do if you try to keep it up, but you do not if you try to keep it down. You can go on reinforcing the Exchange Rate going down. But the main reason why i think the Exchange Rate has been so strong is because there has been an enormous amount of money flowing into the country to buy existing assets, shares, and ands, and property bonds property. This has pushed the pound way too high. That is what we need to reverse. Anna one thing on the slate is the decision about heathrow. Does the Community Want any airport or some airport capacity . Againstere is a case hes, but they argument around airport capacity has been damaging all around. Any decision it is better than no decision. Tom in terms of developing infrastructure, help me with how labour gets together with the conservative party . Opposition to airport expansion everywhere in the world. Some of the constituencies close to heat through heathrow are labourcontrolled, and some are conservativecontrol. And they are against expansion. By think everyone agrees something has to be but i think everyone agrees something has to be done. Tom john mills, thank you for the update. He is the chairman of jml. Coming up on Bloomberg Radio and bloomberg television, this is a welltimed interview. The secretary of homeland security, Michael Chertoff worldwide today. This is bloomberg. Anna i am anna edwards in london with tom keene in new york. Oil is around 50 per barrel. The opec january the opec secretary Tracy Alloway is here to talk about opecs planned cuts. How significant is what you rock saying about their commitment to the production deal . They do not agree with opec on how much they are producing, let alone how much the cut should be. We know there are all sorts doubts, and, cynicism about whether or not opec cuts will come through when we have the big opec meeting in november. Beyond that, there are larger questions about how they are implemented. Setting that aside, theres a notion this notion that you extra revenueeeds to fight Islamic Militants is a potential issue for the opec walk bloc. Iraq pickedember, saudi arabia as the biggest exporter of crude to china. Ch means that if you rock more,oes not agree to cut saudi arabia will have to pick up production. Everyone is vying for position in the opec hierarchy. Anna looking ahead to the meeting indiana, how are investors positioning themselves . Well, yes seen the positioning play out in the oil price. It has been steady. Hovering around 50 per hour. That is not because no one wants that is because no one wants to put in large bets before the meeting. Hedge funds have been adding steadily too long positions in crude. Sincere at their highest may of 2015. But no massive swings in positioning. One interesting thing i saw in the data that came out over the weekend is the idea that Oil Producers themselves, especially in the u. S. , have been adding to their short positions. So there short positions in the bti are the highest in wti are the highest since 2007. If you contrast that with the net long positions in investors, it says something. Even though speculators are positioning for potentially higher oil prices, producers are positioning themselves short, mostly because banks to lend to these markets usually demand some offsetting hedge. Tom the ultimate hedge is the collapse of a cartel made i do not know if you are old enough to remember the protections of opec dying. Is opec still a cartel . I have 12 gazillion barrels with saudi arabia, 4 or 5 in iraq. Is this still cohesive . Is opec still a cartel . Oily that is the question investors are asking themselves. We have been talking about shale producers as the new swing producer in the global oil market. Now the price action we have seen as a resort result of the opec production agreement, and we have not seen real but thatme through, swing in the price of oil to just opec does have Pricing Power. But this is all words so far. It could be investors eventually get tired of all of the top coming out of opec, and it starts to lose Pricing Power, which has not been borne out in actual production yet. Anna thank you. Tracy alloway joining us with the latest in the oil market. Breaking news in regards of the Banking Sector and italy, monte dei paschi halted limits down at 22 in milan. This is a research restore we talked about earlier with dan liefgreen. The markets are still getting to grips with whether the markets. An find anchor investors but when you see the moves like 23 down, this is a stock worth only one quarter of a year or now. Back in 2007, you would have to spend more than 80 years to get a share. Tom let me get the chart on unicredit. We spent a lot of time on Deutsche Bank. But here is the challenge for a large and prestigious bank. A number of their colleagues have, on to come onto bloomberg surveillance, but this is the challenge of unicredit. Down 4 this morning. We will have more on that, particularly from our print team. Let me go to the data. A churn in the market today. Nothing sticking out other then better than good equity markets in the u. S. 12. 85. This is bloomberg. Tom good morning. Francine in in for london. I am tom keene in new york. To our Bloomberg Business flash. Taylor riggs. Taylor job cuts on the way at twitter. Twitter may eliminate about 300 jobs, roughly 8 of its workforce. Twitter loses money and is trying to control spending while sales growth slows. Google bought a startup to expand its efforts into virtual reality. No terms were disclosed from eyefluence. Get eye movement to control digital screens. And according to the European Union, cam china missed yesterdays deadline to make earlystage concessions that may have averted an investigation of video. Areenta says both companies committed. Anna thank you. The pound is holding to its narrowest range this year. This comes as mark carney answers questions about the economic consequences. Steven saywell is still with us. He is clearly advocating for a u. K. Government with an ethics policy. How does that stick with your outlook . Steven in the current we have an extremely weak pound. That is the point i would make. At 1. 22 against the dollar, or close to 90 against the euro, we are very weak levels. The point earlier much weaker against the dollar. Last week thursday, we put a buy thequidation out to pound, not so much in the shortterm view but in six months. Our views that it rallies back to 1. 30. Anna does that rely on mark carney . There has been a lot of talk about what his plans are. He has until the end of the year to confirm five years or eight years. Does that matter to your counsel . Steven it more has to do with policy from the bank. You can argue the bank of england has contributed by cutting Interest Rates and reengaging in quantitative easing. We do not think they do that again this year. Which is one reason sterling may not fall much further. But if it does fall, it is likely to be sustained. So we went back up our view for rebound in sterling. We think it is very low levels. These are attractive for sterling loans. Look at the u. S. Dollar, particularly the trade rate dollar. I say to myself that was an ugly move 18 months ago and really destabilized a lot of the Global Economy. Brought hrp this is dollars. Stirling is going the other way. Thehave the strength of rubin dollar and on the right side, the recent strong move. Reticence towards rate hikes, do you assume stability in the u. S. Dollar . Steven we would argue two things. The first is that the biggest driver is the fed and the policy divergence between the u. S. And other countries, which is pretty extreme. That will probably continue. In the shortterm, we would argue it has gone a bit too far. If you put those together, we expect a pullback in the shortterm. That is probably a by opportunity. As we go into 2017, we see the e back to current levels. It is dependent on not just said rate hikes but whether we get the policy divergence of the fed hiking and further easing from the likes of the ecb and the bank of england. Anna steven, thank you for joining us. Steven saywell joining us from bnp paribas. Breaking news from the heathrow expansion run the bbc. Prime minister theresa mays government has given permission for expansion. Lead to arobably public consultation. That would be the next step in this process. We will wait for official notification of whether they go with the Advisory Committee that has advised them to go with heathrow. Tom i will go there and a couple of weeks. Hopefully they get that runway in before the middle of november. That is great news. Sorry, i think that is an important statement by a beleaguered United Kingdom. Coming up next in the 6 00 hour, kate moore of blackrock on equities. This is bloomberg. Tom in this hour, lower for longer means 2021. What do low Interest Rates mean for American Economic growth . Distribution is king. And they are two nasty women. They campaigned together. Termshey be on speaking during Hillary Clintons first 100 days. This is bloomberg surveillance. I am tom keene. With me, anna edwards. The symbolism of heathrow means so much for the people of britain. Anna absolutely. West of to the london. We understand from the bbc suite, this is the only bright start to the story, that backed bys being Prime Minister theresa may, not gatwick to the south. We will await confirmation of that later on today. It is a silly question because there will be a public consultation. A cabinet cable remains divided on this. A secretary is not a fan of expansion that heathrow. Tom further news as well this from the merger with dupont. They boost their forecast. The news coming out showing better Economic Data may therporations, separate from the distractions we see from the election. From the macroeconomics, dupont boosting their forecast, and they say net sales will come into the top. This has to do with the mix of now with first word news coheres taylor riggs. Explosives were those killed where police trainees. Authorities say the attackers were part of an Islamic Militant group linked to al qaeda. There are questions about the European Union possibility thegovernment says it is canadian government has given the e. U. Until thursday to agree to the deal. Calais, france, the french government is dismantling the camp known as the jungle. As many as 8000 migrants work living there and will be relocated elsewhere in france. Many of those living in the camp had hoped to find a way to get to the u. K. And theresa may has promised parliament there will not be any vote. Lawmakers said that time will be available for debates on the u. K. Plus future relationship with eu, but she says she will reveal every detail until of her negotiating stance. Donald trump says the news media is too much coverage to shootings by police. He met with police and other First Responders in tampa, florida. That perspective would change once he is elected. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. Bloomberg surveillance. Tom thanks so much. Let me do a little more dupont here. This is one of the themes this year. We will talk more with kate moore about this. I am going to lose the bloomberg shot and take my time here on dupont. The key story is margin expansion. Pepsicola aith few weeks ago, dupont showing in biggest 45day support margin expansion. Revenues are made up of unit and price. What is interesting is dupont did better on unit sales versus price to replace is tough right now. You see that with a moldy 1 revenue number. But the unit numbers are pretty good. A little bit of plusplus out of dupont this morning. When they go to data here quickly. We have equities, bonds, currencies, commodities. Equities have done pretty well. The vix we will get to in a moment. On to the next screen. Vix, and sterling, 1. 2236. Anna i notice that dupont says they are working with regulators to close the merger as soon as possible. Stocks up. 1 . Interesting to see that we are fairly flat on the dollar against the chinese current the, that we have seen it sues germanic compared to a basket of currencies. As the pbo c says we should do. We have the nymex for you. Forgo thee going to bloomberg and get to our guests because this is an important theme for now and for next year. Kevin logans with hsbc. They have one of the great outlier columns on the street. Ath steve majors call of 3. 15 10year yield. Then you have kate moore, looking at the equity markets, going that is not bad. Dupont merges your two worlds. Here are the mergers at dupont or pepsico. Nominal gdp is not there, kevin. Where is it in the u. S. 48 . Tom that does not get it done in this excitement of this political season. Kate we have seen this for most of the cycle. The last seven years, companies have been cutting costs, trying to preserve every dollar that they can. I think we are at a turning point in the cycle. Sales growth, we need companies willing to invest if we want the cycle to sustain. Tom i go back to jack welch and the idea of Pricing Power. Do you and all the people at blackrock see Pricing Power in Corporate America . Kate we see Pricing Power in select Companies Across multiple sectors. If we are a little bit worried we are optimistic about wage inflation. This is something we will be focused on with each company. Who has the ability to pass on slightly higher costs, and which shareholders are willing to take on a margin compression for the right reasons . Tom kevin logan, lets go to the idea of rising inflation. Hsbc is looking for rising rates. Anthony, bring it up here. We are doing this on the fly with the dupont news. There is cleveland cpi, my favorite series. Doom and gloom, down we go. It looks like Service Sector cpi, kevin, rising. Kevin no question we are close to full employment, wages are picking up a bit. But that is only part of the inflation story. On the good side, prices are falling. Was goodt cpi report in that regard. We see other items down, down, down. When we average the two, we are still in a lowinflation environment. Tom this goes back to the distinction that we talked about with Steve Saywell in the previous hour. The u. K. Inflation dynamic is different than the discussion in america. Anna absolutely. There is an underlying inflation that the relationship with iol, and then with the brexit, i guess. I have a chart here, and i wanted to get your thoughts on it, kevin, on inflation. It is said that numbers have topdown because they do not see inflation ahead. Do not get too excited about the dollar that we have seen. What is the deal where you are . When you talk about the u. K. , youre really talking about the pound. Sterling is down. That is pushing inflation up. The dollar has strengthened quite a bit. 2. 5 onnly at about 2 , the year for the dollar. That is keeping a lid on inflation. Thatthe outlook is not strong either. As long as the dollar remains strong, the growth process for the economy is limited. Unlike some other currencies. With sterling, the weakness is going to push through higher import prices quickly. In the u. K. , there will be a high rate of inflation, but not in the United States. Anna looking at the United States, which is what the chart was about, three hikes next year are being talked about. Aguess you would not see reason for three hikes in the fed next year . Kevin not at all. Belowls that we have been 2 for too long. If 2 as the target, we have to be above 2 for a period just to get a 2 average. He wants the fed to start communicating. Economists like him are distorting the system with these global rates. Help me with time warner, kate moore. Everybody else has an opinion. Lets look at the chart we made yesterday. Time warner, this is normalized back to the kate moore low in march of 2009. Here is time warner coming up here. Here is the take on price, which is a little bit in doubt off regulation. The red line is where disney is right now from normalized point back here. I look at this, the bottom line is this is a distortion of low Interest Rates. Distorted for what people expect from a normal valuation. It is one of the reasons we believe valuations do not need to revert back to precrisis levels. As long as it takes multiple ratesto normalize policy and it is cheap to borrow money. The interesting thing about the deal flow this week is that it has come on the back of a fairly tepid a fairly a fairly tepid corporate confidence. We are starting to have these deals now ahead of the election. This is a mystery and a puzzle to me. I understand it is cheap to do it, but i would like to get into the heads of these management teams. Tom a goes to the top line and a lack of a nominal gdp. We have a lot to talk in the hour with kevin logan and kate moore. It is a bloomberg year ahead summit, and a good point would be to look at some of the cyber challenges that are out there bank. Michael chertoff on radio, on television today. Summit, goodmberg morning. Tom on economics, finance, and investment, on our political economics in washington, this is bloomberg surveillance. Believed that this bank will cut 2600 jobs in a bid to attract investors to a turnaround. The worlds oldest bank would sell units and bad debt. The seventhfor straight quarter at novartis. Your secondbiggest drugmaker. Earnings were down 3 but still beat estimates. Dow chemicals ceo says the 50 billion marker the 50 billion merger with dupont may be delayed until january. European antitrust officials are taking more time to consider potential competition issues, in pesticides, and crops. That is your Bloomberg Business flash. Tom marty schencker is joining us now, out of all of economics, government worldwide. He is a nasty guy, so we talk about the nasty women with the nasty man. What an interesting day to see secretary warren and secretary clinton on stage yesterday. When the secretary clinton migrate to the middle, as i believe any president ends up doing. Marty that will probably come as she develops her condition, if in fact she wins, obviously. Elizabeth warren is really working hard to keep her on the left, all the liberal side of the democratic party. Her a lot. G to owe so we will see if she does go to the middle. Tom you mentioned the idea that if she wins. For our global audience, it is not a done deal, is it . Done deal,s not a but it is about as close as it comes to one. I note that many people have that little bug in the back of , so youads about brexit have to be a little cautious, but even with the polling at brexit being very close in the final days, this is widening rather than closing. Hillary to me like clinton it is her race to lose come november 8. The polling around this should be more reliable because pollsters have told us this before. They do not have much experience for brexit. I get your point. Talking about Elizabeth Warren is she going to get some kind of job with a very big global profile that a global audience needs to know about . Interesting. Very some people think she can be much more effective staying in the senate and leading the charge on legislation while having a lot of influence on who Hillary Clinton selects for the cabinet. Those positions have to be approved by the senate. Tom we have one quick question cubs or indians . Marty sentimentally, i have to go with the cubs. Tom very good. I think i have to go with the indians. E, he abandoned them. Kevin logan and kate moore are here in new york. Kate, let me start with you. When blackrock synthesize and i know mr. Fink has been involved in the debate when you synthesize this election, do you kate one of the things i was thinking about a moment ago is that november 9, the day after the election, all of these undercurrents, the disenfranchisement of the populist fears that are very present in the rhetoric of some candidates they do not go away. This something we will have to see, regardless of who wins the presidency. It is going to be a real challenge in 2007 and onwards. Tom i was thinking of you when mr. Trump was in the debate, and we have a 1 economy. We will talk about this later in the hour. Where does your gdp number go a year out, two years out, three years out . Kevin it stays right there bank at 2 . This is the it stays right there at 2 . This is the challenge. The fact that we are in a very low growth environment with a very low net for rate of interest and low productivity, that affects the stock market. If businesses are looking ahead and seeing slow gdp growth, slow nominal growth, where are the gains and where is the profit going to come from . 1 , heen mr. Trump says is not that far off the mark, is he . Kevin he is not. Question is, how did this happen and what are the policies and what might be the solutions . Why did the productivity slowdown . A lack of capital investment. Businesses are too cautious. New capitale investments and rmb. We just do not. And r d. We just do not. We need to get businesses to start having more confidence in the future and starting to invest. Heard that from kate moore, that it is a shift we need to see in Corporate America. Valerie jarrett, and advisor to the president through thick and thin. Valerie jarrett. That is an important interview. Look for that in the 11 00 hour today. This is bloomberg. Anna you are with surveillance. Lets throw up the data board. To see how the European Equity markets are right now. They have been strong this morning. The chinese currency is in there, with the pbo see alone pboc with the out to teamve shout surveillance yesterday for putting together the voices we had on the transaction of the moment. Gadfly kills it. Read her work yesterday on distribution and content. Lets bring it out, my morning mustread. Any company that has the attention or money of hundreds of millions and billions of people. Disney so its customers can watch it and. But it is disney that pays apple in the form of revenue sharing apps or tv series can get to apples customers. The church abuse is boring, not sexy, but there is the dividend and they are going to the kate i think we are in a situation of haves and havenots. We have been talking about slope of animal spirit. We have to think about what kemp companies of what can do to retain customers. We are seeing customers that are doing a great job of harnessing technology, partnering, and maintaining their customer base, and those that are, frankly, not innovators. There was a huge opportunity for differentiation. And a i guess we have not heard of but the last of the tech giants. Other tech giants might want to weigh in and comment buy some of it. It makes sense that Tech Companies will look at content because this is a way they can retain and capture Additional Market share, and especially competing so much for every additional moment. We have all heard about the Attention Span of the average consumer getting shorter and shorter and shorter hearing whatever you can provide that will give you the breadth of content will be critical. So i think this is a trend that will continue in the slow growth , as we talk about the big differentiation between the winners and the losers. Tom kate moore with us and kevin logan. We will bring you caterpillar and merck later. The top line, but a nice volume gain within the pharmaceutical business, and they reaffirm their forecast. Eli lilly, merck, and caterpillar in a bit. Worldwide, this is bloomberg. Anna i am anna edwards in london with tom keene in new york. The u. K. Government approves the third runway at heathrow. Get wic loses out. Gatwick loses out. The advisory panels that were set up to give advice to the thernment had suggested runway be added to gatwick in the south. There are public consultations. To our bloomberg first word news with taylor riggs. Taylor it may be one of the biggest asset seizures in u. S. History. Federal prosecutors are be ready to charge individuals for looting venezuelas state owned as pd vsa. Wn the government macys 20 homes in West Palm Beach and the houston suburbs. Premiums for the government may seize 20 homes in West Palm Beach and the houston suburbs. People signing up for these plans will have fewer options to choose from. Have pulled out of the markets created by the Affordable Care act. The world series gets underway tonight in cleveland, and one team will end decades of frustration. The chicago cubs have not won a series in 108 years. The Cleveland Indians, it has been 58 years. The average ticket for a game tonight has an almost 1200. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. This is bloomberg. Tom thanks so much. It is going to be fun. Some year is different some years are different, but this one seems to be special. Our guest this morning our guests this morning, kate moore of blackrock, kevin logan of hsbc. Kate, you were talking about nimble being so important. And caterpillar out. Nimble wins in the corporate world today. Kate nimble wins in a low lowgrowth in a environment. There has been struggling in the back half of the year to produce earnings growth. Those companies that are really different and have captured their customers will be able to outperform next year. Tom what is so important here is that it links to the Global Economy and the idea of money gdpsion or better nominal gives you time to delay. The money illusion is gone, so Corporate Strategy has to pull in with a fiveyear plan, now a threeyear plan. They had to act faster because they do not have that illusion. Kevin thats right. Inflation will not bail anyone out. This low nominal world is not allow stakes to be covered up. If we were in a rising 3 or 4 beironment, there was still top line growth, but that is gone. You would find those opportunities. It is going to expose weakness in a lot of companies, unfortunately. What does that do for our outlook . Lower for longer and longer. Rates cannot go up in this environment. Anna kate, you sit nimble wins. If nimble cannot win, maybe m a has to stick in has to step in. Deals we have seen of late come in various sizes. In europe, a lot of questions about chinese takeover in germany and elsewhere. That is something that you are monitoring as we head to the end of the year. Kate that is a big part of our conversation around blackrock in the postelection environment, which is to say what will the new administration and congress support in terms of trade, in terms of deal flow. There is a lot of reason to believe that some of these deals would be challenged in 2017, in any administration. It makes sense from a corporate perspective i think the question is going to be, how supportive will government to really pushing these forward . Anna how supportive do you think d. C. Is going to be . We heard Charles Evans overnight saying that he seems to be thinking more fiscal and heavy noting will be done, but all that convinced it will come. Do you think it is coming . This the Central Banks have been pleading for more in this environment, which is very much like a liquidity situation, fiscal policy is important. They are asking for that. The environment faces tension. The tension is that we want innovation, we Want Companies to invest more and to drive growth forward, higher productivity. On the other hand, companies have a set amount to emerge in order to protect their positions and create profits that way. That creates the political tension. That will be interesting to see how it gets resolved next year when we have a new administration in place. Tom kate moore, youre going to go west in a moment. , when i look at the year ahead, i go back to the longterm chart on equity. Stocks,ot make money in owning stocks, the losers game. What is your call for the year kate . What is your call for the year . Kate our core call is a low call among if we can get these leaders to emerge and stay innovative we have a nice 2 and change yield. We see cap return to shareholders increasing next year in a slow growth environment. You can get an ok total return. But the big message for all of our clients and for all of the people with Asset Allocation is lower your return expectations. The cost is. Tom i am not going the basic idea here, folks, is actuarial associates actuarial assumptions over the next 12 to 18 months. Kate moore will go to our bloomberg year ahead summit. She will be joined by the former governor of michigan, esther engler mr. Engler. This is an interesting guy on the American Industrial might. John engler has lived it. We will continue. From our studios in new york look, the sun is rising on indians nation. Nna this is surveillance. Lets talk about infrastructure. Lets talk about airports. The British Government has given the goahead to an expansion of heathrow airport. Tomn logan is still with over in the United States. This extremely historic decision, there will be a long consultation with the government coming down on one side at heathrow. Seven years ago it was David Cameron saying there would not be a third runway. It is kind of a relief to hear this decision from theresa may. He changed his mind comes so at least he opened up an advisory. Just reading on the bloomberg there will behat a meeting after a catastrophic heathrow decision. This is one of the conservative mps who is not behind this, not united on this. Threatened to resign over this. We will see if this triggers a threatening of the majority that they have over there. Tom help me here. I fly in from the states, and i cannot land, so i am over belgium, circling around, and i come in less down over london. I come in westbound over london. There is a runway. North of that there is another runway. Am i right that the new runway will be even north of that one . Yes you are the exact details will need to be together, but it will be a third runway. The real question is, airlines have already been struggling, flying around, wasted time in , andir, wasted petrol fuel it is frustrating for passengers. Now there will be less congestion in the air, and by now, i mean in 10 years when we actually get the third runway. Tom i remember when they built denver, they could not figure out the luggage. What is the downstream that you are reporting on . You have three runways. Are the gates going to be there to greet the pilots and the planes . Benjamin part of the plan is to build a sixth terminal as well, with the pieces that go along with the third runway that will also need to be built. Poundl be a 60 billion construction that they have given for this new runway. It will be privately funded, though. I think theresa may will be very relieved to be able to tell people that. Anna kevin, they have been estimates over the years. What kind of effect do you see when you see the Government Spending on infrastructure . When you see the expansions of infrastructure, how significant can they be for an economy that might need a boost . Be veryt can significant because we are not just talking about the runway and the infrastructure itself, but all the input, all the suppliers that have to bring in materials, Transportation Companies and so on. Later, there will be service jobs as People Service that airport. All of the clerks, luggage handlers, and so on. Iss type of project something that adds to gdp in the short run, and there is a permanent addition to growth later on. Run, you havehort been watching these kinds of discussions for years and years now. Percentage chance do we get that this starts to happen within the next few years . Are still waiting to hear from airlines what their perspectives are. British airways is a major force at heathrow. There is a campaign against heathrow or any other kinds of charges. In terms of it going through, i would not be comfortable making my own guest. Making my own guess. It is not a certainty. We have willie walsh coming on later, and we will be able to hear that. Tom what does it mean for British Airways . They have their brand spanking terminal. Is this a bonus addon for british air, or is this new competition . He is the type of guy who is very demanding when it comes to any kind of charges, which has been his main concern, which will be how much that funding gets to be put on to the airlines. He thinks those charges are already too high. The government is saying that those charges will not increase, that they will more likely stay around the current levels where they are at now. We will have to see. I am sure they will campaign quite heavily. Tom full disclosure not that i would want to editorialize but the fees at heathrow are a criminal act. Katz, thank you so much. Kevin logan, this goes down strange to that strange keynesian phase this goes down to that strange keynesian spirits. Imal from hsbcs work, is the United Kingdom new recession . Kevin it does appear that way, mostly because of brexit. It has delivered a big blow to consumer confidence. We have not seen the downturn yet because it takes time for businesses to pull out. As we up the end of the year and into next year, we will then be able to judge what the real effects of this political change will be. Tom we have merck coming out with earnings. Let me just touch on a little bit, it looks like a beat, a little different from eli lilly to say the least. They boost their yearahead earnings and revenue views. That is an important statement. We will leave in there right now. Merck with a thumb out to say the least. Powers. P, samantha she is ambassador to the United Nations for the United States of america. And areor powers bloomberg summit. Stay with us. From london, from new york, this is bloomberg. Taylor this is bloomberg surveillance. Earnings per share of merck just beating 1. 07, being analyst expectations of 1. 99 per share. Above expectations of 1. 2 billion. One more key thing, the analysts we are looking at, the expectations of revenue sales coming in lower than expectations but still overall a beat. Vix certainly with the under 13, important. How about the Foreign Exchange report right now. It is a quieter market. The renminbi continues to grind weaker. 1. 0880. Anna coming up shortly on , alix steelericas joins us with a preview. Definitely all over the oil story, but also the earnings story. And what it means for Pricing Power of the oil services. We will tackle that question with jeff currie, head of commodities and research at Goldman Sachs. Also, eli lilly, the prophet there missing estimates. We talked to the ceo of eli lilly on that profit miss, as well as taking a broader global view. David westin will be hightailing it to the conference, interviewing her. This morning, kevin logan, the hsbc chief United States economist. Mr. Logan isfor stunning outlier calls on weak sterling and lower for longer. Lets for letting to u. S. Gdp, our single best chart. I mentioned this earlier with mr. Trump, saying look at the 1 economy. Here, over 15 years, is from a 4 residential moving average. The green circle on the left down, down, down. Stan fischer said this at the beginning of his speech at the Economic Club of new york. Look at the percent change of the rate of change, and the answer is Economic Growth is down 40 or 50 . Long secular in a trend toward lower productivity growth. Growth in gdp is partly dependent on growth in the population in the labor force. That has slowed down. That is demographics. You cannot change that. What is important is Labor Productivity and the number of hours that people were. Those are trending lower as well. That is the real problem with the economy. As you pointed out earlier, insurance promises for the future and engines are really in jeopardy if we cannot see the economy grow at the pace as previously expected. Right on soe been much of this, certainly on the direction of sterling as well. Would you agree with madame lagarde that even the selected glass have full 2017 is a year of great challenges . Yes. maybe we will get 2 growth, and that is after a year in the u. S. Of sub 2 , perhaps 1. 5 growth. We are not making up the lost ground from over the last 18 months or so. It is a challenge. Areworld in a sense we talking about the globe, poverty, lifting people out of people out of poverty. You need faster growth. Coming back to the invest economys they all seem to have slipped into a slump, a slump of very modest growth. Ofpite the herculean efforts Central Banks to stimulate more growth. That is why well probably see in 2017 at least in move toward fiscal activism. Anna and talking about the 1 , i read that annex economist said the bank of ireland is talking about how they can see more that this could be inflationary. Is this something you see is actually driving inflation in the future . Kevin the question about Wealth Redistribution comes down to the experience we have had over the last decade or 15 years in which inequality has grown a great deal, both on income and wealth. That is part of the political wave that is carrying someone like donald trump or, on the democratic side, like Bernie Sanders to such prominence. So the policies that might be followed are going to address those blue problems. Does this have to do with inflation . Redistributed . Be if taxes go up on the wealthy and income is redistributed to people at the lower income levels, perhaps that increases aggregate demand. But for right now, there is plenty of space for the economy to expand. We are not pressing on resources that hard. I do nothing resources will bring that much pressure on growth. Anna reading in your notes, the phrase it is different this time comes to mind. The inflationary impulses right now are different from previous belt of low inflation. You say there is some inertia, more than in the past. You really see that with the Unemployment Rate. The core rate of inflation in the United States has averaged below 2 , 1. 8 for the last 20 years. The Unemployment Rate has soared to 6 , down to 3 , up to 10 , down to 4 . All of this has very little effect on inflation. Inertia is dominating. That gives some scope for perhaps fiscal activism to generate a little more Growth Without much risk of inflation. Tom quickly a december rate increase . Kevin for me it is about 5050. There is a loss of Economic Growth in the United States. Auto sales have gone flat this year. Housing sales have gone flat. The Unemployment Rate has not fallen since january. Tom comes, indians. Help me. Indians, help me. Kevin i will go with the National League team. The indians. O with the cubs, we knew they were great. The Cleveland Indians we will have to see. We will bring you global updates on the world series over the next coming days. ,ur bloomberg year ahead summit secretary chertoff. We will have him on radio and television. We will do that in a bit. This is bloomberg. Good morning. Jonathan good morning and welcome to bloomberg daybreak. I am Jonathan Ferro alongside david westin and alix steel. Equities stable, futures go nowhere. Here is what you need to know at this hour. Erger trouble syngenta says its tie up with to 2000 17s pushed as the e. U. Digs further into an eli lilly missing profit estimates in the third quarter. Ceo John Lechleiter will be joining us. Carney testifies, political pressure intensifies. He answers questions in the house of lords today. Will he finished out his term . Earnings trickling in this morning. Proctor and gamble is up next,