tv Bloomberg Daybreak Americas Bloomberg November 3, 2016 7:00am-10:01am EDT
welcome to bloomberg daybreak on this thursday, november 3. i am jonathan ferro alongside david westin. on this side of the atlantic, election jitters and a seven-day losing streak on the s&p 500 in focus. unchanged in the futures market. the cable rate with a stronger pound in a court decision in focus. david: this is what you need to know. the court decision is a big setback for theresa may. the u.k. high court says it must go through parliament before triggering article 50. in the next hour we get the bank decision andrate the latest growth and inflation forecasts. the decision comes at 12:00 noon london time with mark carney's press conference starting 30 minutes after that. the federal reserve leaving rates on hold ahead of the u.s.
election, giving a subtle nod to a december rate hike. london, thet of u.k. government has lost the brexit lawsuit over article 50 and we have full coverage all over the city. and john fryer join us from our european headquarters. what have we learned in the last hour? walk us through it. patrick: remarkable really. i think everybody thought because it is likely to go to the supreme court the government would walk this stage, but not so. the judge decided to bring against the government, saying triggering article 50 would be against law. jonathan: the government says they would appeal the decision. talk about process from here, the legal process. how long could this take?
patrick: the legal team today suggested there was a four-day slot set out in december for the supreme court. usually they will hear that in a ruling will take about 12 weeks to come through, but i have been speaking to the legal teams and they are expecting one around mid-january because of the importance. jonathan: a look at the market reaction, the pound is stronger. won'ts not mean brexit happen, but did it move the dial for the markets? guy: we do not know i think is the simple answer. there is still a lot of butguity surrounding this, the market thinks the possibility of a hard brexit might be a little lighter. it means maybe we do not get the triggering of article 50 by march. maybe some things are being priced out, but i think the market is going to be careful not to extrapolate too far. it is not like we have bounced
all the way back to 1.40. david: explain exactly how this might play out. assume this decision holds in the supreme court. what does the government have to do with parliament? >> this is now the really interesting question. it will come down to what is it that parliament will want from theresa may. a very difficult question to answer because we still do not thaty know what it is theresa may herself actually wants. we have heard a few things that suggest a hard brexit but we do if that isnot know posturing or her real position. interesting is perhaps it will accelerate the process of forcing theresa may to be a bit more transparent and tell us what it is exactly her negotiating position is. jonathan: i'm going to take you into the realm of speculation. the odds of an election taking place next year, did they just
rise a little bit? john: i think you can argue it either way. one way of looking at it, that would either make the election less likely in that it will take time to get through the process, and by the time we are through may by the time the government has an agreed position and is ready to trickle or just trigger article 50. -- trigger article 50. we will be heading into german elections so this certainly does skew the timetable. at the same time it has got to be a temptation for the prime minister. she is leading in the polls and can argue that have negotiated the deal and they want to take it to the country before they trigger article 50 to make sure they have the ultimate mandate from parliament and the people. i am sure there will be people whispering in her ear saying now is the time to do it.
jonathan: there was a big dinner last night and one of the lines that came out from boris johnson is brexit means brexit and we will make "a titanic success of it." about an hour later they are going to get some inflation and gdp forecast from the bank of england. how much weight can he put on those when you have no idea what the process around brexit will be and no idea what the deal will look like? >> i think you have answered that question. it is incredibly difficult. the bank of england does not have a good track record of predicting how the u.k. market will develop, but it is incredibly hard to extrapolate any further forward than the end of your nose. stronger,re coming in he saw that today in the services pmi numbers. that is as surprising to the bank as anyone else.
governor carney says he will stick around for next three-year. maybe today he will need to extend that further because this whole process could carry on. the one thing i think you can say is the longer it carries on, and this is the negative side, the uncertainty just goes on and that is maybe not what corporate in the u.k. want to hear. happeningk at what is in terms of hiring an investment expectations, that is what the banks will be looking at. david: i have one last question. are those of us who do not carry a u.k. passport like jonathan ferro, is there any realistic possibility that parliament could go against the will expressed by the people in the referendum? john: anything is possible but i think it would not make, to put it very kindly, would not make political sense. it would be like turkeys voting for christmas.
maybe the economic situation will get so bad and the pound will continue to tumble, things get so bad maybe it forces a re-think. i think we would have to be an completely unchartered waters or any mp to think about that. could it happen? it things very unlikely that this process will end with anything other than britain leaving the european union. jonathan: thank you very much. does continueider the conversation and bring in john normand from the city of london. i referenced some of the speeches that took place last night. george osborne was talking about this magazine and said it is dollars because of the policies of the particular magazine. that magazine was spectator and a lot of people look at this and say, i want to leave. as it moved the dial for you in any way, shape, or form, on
sterling from here? john: can you go ahead with the question? the sound went out. jonathan: what you have learned in the last hour, has that moved -- move you on sterling? the: this raises possibility that the u.k. does not exit the e.u. and because the currency was carrying a risk premium, removing that could be worth a 3% to 4% upside on sterling. we believe that article 50 will still be triggered so i do not think this is the beginning of a trend turnaround or inflection point, but probably worth maybe another percent or two. david: sort out the effect of increased likelihood of them actually not exiting the union as opposed to just the volatility, this seems like it might exchange -- extend the time. which has the most effective?
john: the risk currency has undershot what the rates market right do and the rates market might reprice substantially if the u.k. were not to leave the e.u. and the bank of england had to remove the emergency easing they put in place. i think it is more likely to be 1% or a 2% move. i do not think there is a reason to question the bank of england stance because you will find these negotiations are going had and people have to worry about the long-term growth trajectory of the economy. jonathan: a much stronger pound and strong data. you look at this as a recalibration of expectations over the kind of deal prime minister may looks to get after what we have learned, or is this shortcoming after a little bit of a squeeze and maybe some of those bearish tones in the market getting a little nervous? john: i think it is the latter
and i do not think there is reason to question what the bank of england is going to announce. this is really an insurance easing that was put in place for an economic downturn that might not happen for a year or so. that to me is still the real weight on sterling over the next year or two. norment, will be staying with us. let's get an update on what is making headlines outside the business world. emma chandra is here. on trackald trump is to become the first republican presidential nominee in generations to lose among white voters with a college degree. that may be enough to deliver the election to hillary clinton. bloomberg politics found clinton has an average 12% lead among white college grads. sinceicans have one that 1956. egypt is letting its currency
trade freely, announcing a series of sweeping measures to stabilize the economy. the measures move egypt closer to getting a 12 billion dollars loan from the international monetary fund. in chicago they are partying like it is 1908. the chicago cubs have won their first world series in 108 years, beating the cleveland indians in a decisive game that went 10 innings. the cubs become the first team in decades to win the series after trailing three games to one. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. jonathan: futures largely and changed. can we snap that seven day losing streak? -- a big move to the upside, up by seven potential --
percentage points. credit suisse was sealed by a one-time gain, down 4.6%. the united states in focus, facebook down five and a half percent premarket. the outlook projecting better -- more costs and a slowdown in ad sales growth, something they have been phenomenal at. david: it turns out trees may not grow to this guy after all. coming up next, carney's dilemma. could it force the boe to rethink its forecast for the economy? that is next. ♪
jonathan: from new york city this is bloomberg daybreak. i am jonathan ferro. futures unchanged. the day question right now as we drift higher up, 43 on the dow up five points and higher on the s&p 500, can we break a seven-day losing streak on the senate -- s&p 500? the stronger pound. conviction elsewhere, not much. 103.21.en at they call today super thursday when we get the bank of england's rate decision and the latest growth forecast. that comes in 8:30 a.m. with governor carney's conference coming 30 minutes later. when i go into these news conferences typically you have a question about the actual press release and then a general
question. i thought it would be about his future and whether we wrap that up. after lost our i guessing there is going to be a lot about what we have learned from the court. nejra: absolutely. what really is key to take away from the bank of england today is what a difference three months can make. you will remember well what happened super thursday in august when the bank cut rates for the first time in seven years and said we could see further cuts this year. this all seems to have changed in terms of expectations because we have had better than expected growth data and higher inflation expectations. is 10 year break even rate highest in almost three years and that means expectations today are for the bank to stand pat on the rate. economists are predicting it could upgrade the economic and growth forecast.
it is important what comes beyond today. --omberg television bloomberg intelligence is saying this will be a dovish tilt his mark carney wants to keep the open. it is going to be interesting to see what he says in the press conference in terms of how far a weaker sterling, because we have had an 18% drop and brexit, how far that can go and how further expectations can get -- inflation can go up further. morearkets are pricing in chances of a rate hike in 2017 than a rate cut. jonathan: typically i am very critical with central bank forecasts and i have some sympathy with the bank of england. make andknow how they model on economic forecast without any idea of what the process -- when the process will
start, and what it looks like. david: it will be interesting to see how mark carney thinks about this. jonathan: you would expect them normentt's talk to john still with us. it strikes me we have a tale of two central banks. if i look at the federal reserve and bank of england they have to provide some sort of forecast when the biggest unknown is the politics. how difficult as that is that? -- is that? john: it is a policy environment that is completely unprecedented in the uk and the cyclical backdrop does not have much precedent in the u.s. as the bank of england is focused on risk management, i do not think if you saw an upgrade to their growth forecast it would cause them to change the they feltting because the overall uncertainty created
by the eu negotiations are going to be away next year even if that is later than they anticipated, that this would depress the economy. david: in general the markets have a tough time dealing with political uncertainty, pricing it in. we saw that in brexit where there was a big reaction with equities and a retrenchment. to what extent will the markets be accurate and pricing in we found out from the court today? john: i think the only way you can measure the impact of the court judgment today is to the excessive cheapness of sterling was going into this vote. how much lower was the currency and the interest rate environment would have justified. maybe 5% tot was 7%. we do not think it is going to cancel the brexit process and that is why we think a lot of the risk premium will stay in the market. and the: the politics
central bank story on the side of the atlantic, the federal reserve and focus. re: surprised on the back of the tighter election race -- are you surprised on the back of a tighter election race what we have seen is a weaker u.s. dollar? john: not at all. you see a weaker dollar mainly versus reserve assets because there is a lot of uncertainty that would be created by a trump presidency. the dollar reasonably bid against currencies like the mexican peso because they would lose the most from trade conflicts. jonathan: great to have you with .s, john normand we will bring you the bank of england rate decision in just 40 minutes time, and a news conference with governor carney 30 minutes later. coming up, five days and
counting, it is the home stretch in the u.s. election. tumbles onit suisse earnings and we spoke to the ceo about the results and ongoing cost cuts. the highlights of that interview a little bit later. futures slightly positive, up 49 on the dow and six on the s&p 500. from new york, this is bloomberg. ♪
david: this is bloomberg, i am david westin. we are five days away from the u.s. election and attention is focused on the key battleground states. two polls overnight show how tight race for the electoral college might the with donald trump holding a narrow lead in carolina,ton in north and florida is a tossup. for more we bring in megan murphy.
this really looks like it is tight and get anything. what are the two camps doing to deliver the key battleground states? megan: what we are focused on now is the closing arguments both voters are making to their voters. donald is hitting hillary clinton consistently for her e-mails, calling her corrupt and rigged, saying she never should have run for president. all of these things that have tied into his base over this grueling campaign and trying to personalize it. hillary clinton has got to refocus and take it back to the more positive sense in making the real difference about the vision she has about america, and how she feels every day working americans are going to fit in and progress under her, and how the economy will grow. david: who is winning the news cycle? it seems whoever is in the cycle is losing. trump has been a very
favorable news cycle since last friday. the letter from james comey was a gift from heaven and perhaps persuading some independents. the race was always expected to tighten and we do not expected to tighten this much. nowonsin, michigan, nevada looking like states that hillary clinton needs to protect. we see her firewall and the near beltand the central rust states but it is going to come down to north carolina, florida, and pennsylvania. who is making that case in the final stretch that they have the vision for america and they need to keep their bases solid, get them out to vote, and also get those last few people who are still making up their mind. excitede will be watching you over the next five days. thank you very much, that is megan murphy our washington bureau chief.
jonathan: a tighter race indeed playing out in these markets. the story of the equity market, a softer few sessions, seven to be precise. a seven-day losing streak on the s&p 500. two hours away from the cash open, up 39 on the dow and four points on the s&p 500. treasuries are well bid and the yen as well. a stronger yen. 10 year treasuries hold onto recent gains in the yield down to 1.81. we will take you to banks in europe, a surprise profit from credit suisse but share suffering the most in three months. ♪
the u.k. high court tells the british government it must go through parliament the four invoking article 50. the government will appeal. we will get to bank of england's rate decision on the latest growth and inflation forecast. the decision comes at 12:00 noon london time, 8:00 a.m. eastern with mark carney's conference at the desk half an hour after. -- half an hour later. the fed gives a subtle nod to a december rate hike. jonathan: this is how the market is capturing some of those sporty -- stories. stocks up across europe, the dax up 2/10 of 1%. down on the ftse. the story in the united states, futures positive but soft is how we have traded the last seven sessions. always snap the longest losing 2011? since
suisse down int zurich after a real estate sale helped them post a third-quarter profit. witheo is pushing ahead cost-cutting measures and told francine lacqua his plan is on track. >> we are pleased with these results. it is the second quarter in a row where we see our strategy working. i just want to fit -- pick up a few top lines to illustrate that. the fact that we said we would grow in our preferred markets and we have now collected almost 31 billion swiss francs this year, up 40% and 40% on the previous year. we think that is a strong performance. we said we would drive costs down and we are well on track to beat our 2016 target. we think we have taken out the
equivalent of 1.5 billion swiss francs at this point. we have reduced that count by 5400. we have reduced non-called expenses by 12% year on year. major progress on cost. the focus is strengthening our capital position. a year ago the ct one was 10.2% and it is 12 point -- 12% today. really good progress we believe on all fronts in a challenging environment. francine: good progress, does that mean you are halfway there, that you have almost reached your goals or they are still a long way to go? >> i think we are saying we still have a long way to go. that is the sentiment that i want to convey, but we are on the right track. we do not want to be overly, how
can i say, it is a good quarter. we will focus on delivering a good fourth quarter. this is a long-term story. , 4.6we are doing in asia billion of assets in asia up 24% year on year, the highest ever. most pleasing is the collaboration between the investment bank and the wealth management. we have gone from number six or seven in asia to number one in one year. up 98%.m revenues are the strategy we had a focusing on entrepreneurs and net worth is delivering excellent results. we have gained growth and recruitment. jonathan: that was the credit suisse ceo tijane thiam.
in the last couple of hours we learned from a court in the u.k. that prime minister may well need parliamentary approval before she triggers article 50. the government will appeal that. the question is, with that delay any decision to trigger article 50? prime minister mays spokeswoman, i still plan to trigger article 50 by march. the pound stronger on the day. i want to head over to francine lacqua who joins us from london and was asking the question to tijane thiam. the stock is lower by 5%. why? francine: first of all, when the earning statement came out it was considered solid. it was not great but solid, because every unit did a little better than expected apart from equities. there is a concern the risks they put in place to see what
they need to sell is not doing its job. certainly for europe it was much worse than a lot of the other banks. there is also a little bit of concern in the market about some of their margins. in the investment bank we have been going for private wealth. they are undercutting their competitors so they are gaining business and you can clearly see that in the markets, but that puts their margins under pressure. this has happened where they actually deliver an ok set of numbers but the share price is down quite significantly. we may be seeing a little bit of that today. suisse,: ubs and credit credit suisse starting something ubs started in 2012. now we are hearing talk of cost-sharing potentially between those two banks. did we learn anything? francine: i really tried to push
him because we had david haro two days ago and he was interested. this is something that tijane thiam told to one of our newspapers in the u.k. over the weekend. tijane thiam did not have much detail. i have a competitor but i do a lot of the back office work. can you share that, can you have a separate entity doing that for you? he told me they are working on the model, that he knows there is sense in this but it is early. a.b. be there is also a little bit of disappointment on that. -- maybe there is also a little bit of disappointment on that. that they werem close to anything concretely happening. jonathan: i want to talk about one of your competitors, tom keene. you come over with top -- guy johnson next week to comment on the election.
this tom keene pick up the tab? francine: he has promised me gold everything, the red carpet treatment. i am fascinated by what we heard from the court today. i think you were right when you came earlier on "surveillance" and said the big question was whether this would postpone article 50 triggering. there are two things, let's see what the supreme court says. we know there will be an appeal, and then i wonder whether this will have to go to the european courts of justice. if it does get will not be resolved in two months so the spokesman of tease -- theresa may may say they aim for march but we will see how many lawyers get involved. bloomberg's francine lacqua covering everything from credit suisse to the brexit decision. eventually that we might actually get. david: back to the united states and chicago cubs, they made history beating cleveland
indians in the 10th inning of the seventh game for their first win since 1908. trump and clinton used this as a platform for attacking each other last-minute with added time. times of crisis, america depends on steady leadership. clear thinking. >> i know more about isis than the generals. >> and, judgment. goand you can tell them to --themselves. >> hillary clinton will not change washington. she has been there 30 years. special interests in washington insiders thrived. david: both may have shelled out big butts but there are -- big bucks but there are reports that
advertising has not been what was expected. , thank you for being with us today. research a pivotal report out within the last couple of days that political ad spending is down. true or false? jordan: i think it is too early to tell. i think the expectation was for a more robust season and the presidential spending has been less than expected. at the end i think it will be about the same as 2012. two thirds of television spending are not presidential and they are up. david: you have hearst stations but also know something about the others. presidential is down to four years ago? jordan: yes, i think so. the television exposure donald trump has had in the past few
years has given him more awareness, but he is making his plea to the public in the past several days as is secretary clinton. the presidential spending overall will be down but the overall pie will be close to 12. david: what are you seeing in places like pittsburgh, is it coming in fast and furious? jordan: the spending in the last five days has been robust and remember that november 8 is the election. four years ago it was november 6 i believe. in addition to the presidential spending in states like pennsylvania, new hampshire, with carolina, florida, there is robust spending further senate races in those represent two thirds of the pie. david: how important to a local television station is political spending? jordan: it is certainly important to some stations and
some do not participate. if they are in a solid blue or red state the spending will be less robust, but the spending can be significant. david: there is a lot of talk about social media and other forms of media. do you see losing market share of the political ad spend to social media? jordan: i do not think local television stations are losing market share to social media. i think the mix is probably the most effective ad campaign there is today. uncle television may extreme -- increased its share -- local television may increase its share. more localized races are taking advantage of the power of the reach and localism of local tv. david: with all of this demand coming into the marketplace, are you able to price it as effectively as you would others like the world series? are there fcc limitations? jordan: there are limitations
what the candidates can be charged. on everyone else it is a market rate, supply and demand. if there is more supply rates go down. david: you suggest the footprint of the television station makes a difference, what state you are in and how prominent. brian windsors says abc stations are up and fox stations are down. do you say variations across stations that way? jordan: absolutely. i think the footprint is critical. i think spending in ohio will be less than four years ago, is constant will probably be less, colorado likely will be less. there are states like north carolina where it will be up. the footprint is important and the dynamics, indiana is seeing a lot of standing in the down ballot races because of governor pence's running for vice president has opened up a seat. nfl, there a lot of
report about nfl ratings being down and a lot of concern. you have some prominent nbc stations. are you saying that? -- are you seeing that? andan: we are seeing that, two games have been against the debates. i think some of the matchups in the early going have not been the best and overall we have confidence in the nfl. david: so you are not worried? jordan: not at all. david: that is jordan wertlieb. jonathan: coming up, antisocial facebook keeps growing but shares plunging after a warning on future earnings. we will talk about whether investors are overreacting with mark mahaney. this is bloomberg. ♪
emma: this is bloomberg daybreak. i am emma chandra. coming up, former member of the bank of england's monetary policy adam posen. david: this is bloomberg. i am david westin. shares of facebook are down in the premarket despite beating earnings estimates after the company says revenue will slow and capital spending will increase. joining us is mark mahaney at rbc capital. he has facebook rated to outperform with a price target of $171. really two contrasting stories. they're reporting on the earnings was blockbuster and then they said they are not sure
about next year. what is going on? mark: you have had a high bar for facebook and frankly for the other major internet companies. ,oogle had a strong print amazon had a little bit of a sketchy print and the shares corrected, and the same thing happened with facebook. on the surface the numbers were good, intrinsically very strong fundamentals. they warned about a meaningful deceleration in ad revenue growth as the ad loads start tapering off. we view that is consistent with what management has said a quarter ago and think that is already reflected in our numbers. you think valuation right here is very compelling. david: your $171 price target is pretty robust but explain about this ad load. they have got instagram and why's out, -- what's app,
couldn't that make up the shortfall in growth? mark: they are growing their ad revenue this year close to 60%. you cannot sustain that for that long so there is going to be a gradual, natural deceleration. what matters to the stock is the pace and we think given some of the drivers you mentioned like ads, but, more video the pace of that deceleration can be very gradual. there is a limit to how many more ads they can put in that newsfeed, but i think there is a lot of innovation that still will come out from facebook. you have the other non-core facebook properties to monetize. david: he said they were up like 56% i think in their ad growth. joining them and google they occupy a lot of the internet advertising market. can they really take it all over , is there some natural limit of how much the two can dominate the marketplace?
mark: i'm sure there is a natural limit. we are in uncharted numbers. the numbers on facebook account for 15% of global advertising spend and 5% of global advertising spend. is an asset with 1.8 billion people who come to it on a monthly basis. the monthlyate of average user base, that slightly accelerated this last quarter. the have got over one billion people coming to them on a daily basis. i think there is plenty of opportunity for facebook to gain market share online and off-line. i am curious about this pavitt they seem to be making more into the messaging business --pivot they seem to be making more into the managed -- messaging business. it seems like they are going for snapchat. can they pull that off?
mark: we will see. i listened to mark zuckerberg talking about making the camera the focal point of communications. that is exactly what snapchat has been doing. they are doing it both with slightly different are very different demographic appeals. we will see who gets the user interface right were better. the advantage facebook has is this is a very large user enter bit -- user base. there is a lot they can do to get the engagement level right and they have done a few of vots very well in the past. i think facebook will get it right. david: thank you so much for being with us, mark mahaney from rbc capital. jonathan: the stock down about 4.8% of the premarket, one to watch. in the u.s. and u.k. we will go through what to look out for in
jonathan: from new york city, this is bloomberg daybreak. let's get you up to speed on the market. futures firmer, up 71 on the dow and four points on the s&p. the ftse 100 negative. the pound story reflected in the ftse 100. let's get to today's trading story. we can go through the major data points with richard jones. have a look at the bank of england rate decision and qe. 30 minutes later u.s. jobless -- jobless claims coming in and up to pmi at 9:45.
richard jones joins us from london. i want to capture the story of the fx market so far this year. the dollar is the base currency and the space is jeter. at the bottom -- the space is jeter and. at the bottom -- the space is g-10. do you think the politics changed to get some of these bearish wages come off the market in a big way? richard: i think the big news out of london was the challenge to the government's position on brexit negotiations went against the government. now we have an appeal in december. government is going to appeal, but what the court said is the government cannot unilaterally start article 50 and the brexit negotiations without parliament having it say. are on pins and needles
and wait for the appeal ruling in december. we have the bank of england today. there is a lot of things going on in the sterling market, and the big thing was this court ruling. the bank of england produces some forecast. employment -- inflation very much in focus. people will say that contains their ability to ease further after they told us they may cut once again by the end of the year. is that the correct read across this market? richard: certainly the probability of the near ease, but the market still thinks the next move in u.k. rates will be down rather than up. i think last week toward the tail end of 2017 were starting to price in probabilities of hikes and that has all but disappeared. i think the market is saying the inflation numbers will probably
be stronger but the bank of england will look through these numbers. jonathan: jobless claims come out later today in the u.s. you feel like it is on autopilot for a hike at the end of this year. is that change anything for the fx market given that expectations were already at 20 -- 25 basis points? anything,f yesterday's statement nailed it further. the rate half in 2017 is what the market will focus on and that is still pretty flat. jonathan: richard jones joining us. up next, the bank of england decision and the news conference 30 minutes later, we will be live from london. this is bloomberg. ♪
david: welcome to bloomberg daybreak. we are waiting for the boe, but in the meantime, a little market action. jonathan: the fx market looks like this. the stronger pound story add of a bank of england decision. that decision drops across the bloomberg terminal, any second. we are expecting it to remain unchanged with rates at 25 basis points. is 10rporate bond target billion sterling. 25 basis points, rates are unchanged. the asset purchase program, unchanged. the corporate bond target, 10 billion and we stay there. the bank of england says the policy could respond in either direction to an outlook change. the bank of england keeping this unchanged with unanimous votes.
the bank of england saying the npc has limited tolerance for above target inflation. the pound stays stronger off the back of this. a backdrop to that as a political story and a cyclical story given that we have a strong u.k. services report, earlier. we're looking at the minutes released. >> it is this tolerance for inflation the market will be paying attention to. that would mean that hikes are more likely and that is what the market has been pricing in. it is interesting they are making these decisions in advance of the statement. you could see a change in vat. impact -- the pound impact on cbi adversely affected the mpc trade-off.
the bank is saying the medium-term slowdown due to the cpi squeeze on consumers. the short-term inflation really pick up, and then we have to figure out how we deal with that. the bank is saying they have a medium-term slowdown due to a cpi squeeze on consumers. that will affect the growth story and that may be a reason for slowing -- or laying off, but they will not tolerate above inflation for a long needed -- periodted -- elongated of time. jonathan: when it raised the near-term forecast to 1.4%, from 0.8%, they've been cut 2018 to 1.5%. the 2017 forecast, now 2.7, it was 2%. bottom line is
inflation staying above a 2% target through the forecast. there is no one out there that about the bank of england was going to focus on inflation at the sacrifice of supporting growth. they seem to be defending their mandates, saying they are looking at this with a limited tolerance for above target inflation. you would assume that governor mervyn had limited tolerance for above target inflation. i honestly think that the bank is in a tough place, to make some decisions based on things that they do not know yet and how they are going to work their way through. this feels like they are trying to add some symmetry to the situation. out the language about a near-term cut, so that language is definitely gone. this is back to a neutral stance and the sense i seem to get from what we are getting is yes on
the one side, they will talk about maintaining a mandate, and they will have a limited tolerance, but they are also respond on thel other side, if we were to see negative changes coming through. the bank feels a little more balanced, this time. it is talking about upside inflation and growth being a risk. concern seems not to be from the near-term, but for the medium-term. that is the shift we are seeing. jonathan: it is a stronger pound story. this is fascinating. thelast time they told us targets saw another rate cut and now you see this tidbit that they are accepting we will have above target in asian, but also saying we will not tolerate it. i want to know whether this is the bank of england saying we understand the mandate and understand and will have limited
tolerance, but on the other hand will allow a look through this and hope it comes down to support growth. david: that is a great question. sayingue is, are they they will allow some of it, but not too much? we will talk about this with two former members of the boe. present -- president of the peterson group, welcome to both of you. stories going on, and i wonder how they connect. the two stories being the decision on the high court saying you have to go to parliament before you can vote this. on the other hand, we have that monetary policy committee who did not know what this decision was going to be. how do we hook up these stories? >> i read it differently. i read it kind of as a holding pattern. the data has improved from the last meeting, when they said
they will probably cut. huge amounts of uncertainty, that decision has probably added to that uncertainty with a rise in the pound. we don't really know what is going to happen. we will do whatever we have to do. there is uncertainty in the air, and trying to reassure people that they will do whatever is necessary, but a quick read suggests that they don't really know what is happening. they will respond to the data as they see it. i see this as much as a holding pattern. they would clearly not have been able to work -- respond to the hike or decision, today. not a huge amount of news in this decision. down the road, we will see a lot -- the roomy have to maneuver downward is limited. to hear what the chancellor is going to do in his statement, and a couple of weeks.
jonathan: i want to bring adam in and use what you said as a basis for the conversation that -- let's talk about where the pivot is coming from. most participants saw a rate cut by the end of the year, that language is gone. most people saw inflation above the target for the forecast double period. we shifted from rate cuts by the end of the year two policy can respond in either direction. what does that mean to you? means you have missed the two actual variables in the room. the first of the -- is the question of how anchored our inflation expectations? whether fields are moving in the same direction or not, or whether they are staying stable. in 2009, we could look through inflation because gild yields seemed to be stable.
this year, that is not the case. they are saying is there a possibility that the rise of inflation will get its own momentum? that is hard without wage increases. if the government screws up the credibility of the u.k., it might happen. the other variable you did not talk about his potential growth. it is not what the forecast is, isis that the mpc downgrading their estimate of what they think the underlying growth trend is, in the u.k. because of frexit. if you -- because of brexit. those other variables they are actually looking at. this mandate stuff is a distraction. jonathan: let's talk about the underlying forecast and the potential for growth and that inflation comes back toward target. it becomes confusing because coming into this, we assumed it
mpcyour mpc, governor kings that they would focus on growth. fundamentally, has that changed at the bank of england? >> i think what adam said was right, but i think the answer is that they don't exactly know what is going to happen to inflation expectations, what are they are anchored, they don't exactly know what the potential growth is going to be and they have basically said we stand ready to look at those things. another thing that we want to look at, is we have seen an uptick in the unemployment numbers. -- theiety of ways question will be what happens to the data, going forward and as time progresses, does the uncertainty resolve itself? the answer to adams good points by the will not know next inflation report, and it
makes sense to say we stand ready because we have never been in a situation like this, before. global happen to these investment expectations of firms that say they will cut. is this going to be impacted by the decision, today? what do we see, going forward? we are in a position where the economic --n hit by by a economic tsunami. adams points are good ones. when you read these minutes, they say the data is a bit actions totally helped longer than expected -- helped more than expected, but we stand ready. we have never been in this situation, and the question will be if inflation expectations are hit, if the potential growth appears to be had, they will have to respond. david: let's talk about that
tsunami. there are at least two affects you can anticipate. one is what is happening with the weakening pound, but there is also the effect that curtailing international trade and investment because it is more difficult to invest in companies are not investing as much, which could affect connectivity. if you are on the monetary policy committee, how do you protect your economy against those two eventualities? >> they have to wait for more data. they cannot make a spur of the moment decision they would have to reverse in other direction. when you are talking about the sterling issue. it strengthened a couple of bits, but realistically if you think about what the trade deficit is, if you assume there will be a fiscal stimulus of , yousize, at least we hope have to accept a wider trade
deficit and a particular trade deficit for the u.k. these things tell you that the pound probably has to go weaker, which means more inflation. this is the thing that the fed is wrestling with, chair yellen and everyone here, can you affect the underlying rate of growth by your decisions of monetary policy? it used to be that you could not, at all. what has become clear is if you let a recession get out of hand, you do harm to potential growth. symmetric, or that if you are easy, you can do anything about the decline in the other direction. upathan: you have teed us beautifully for the next segment. it read across the markets, the stronger pound and gild his lower.
we are 20 minutes away from the bank of england's governor, mark conference. emma: -- ruled that the u.k. must hold a vote in parliament before staffing -- starting the countdown to leave the european union. -- invoking article 50 of the lisbon treaty. the government will appeal and the supreme court will help it -- will hear the case, next month. thationwide poll has shown donald trump has cut hillary clinton's lead by two thirds. 42%ton leads trump 45% to in a race that includes third-party candidates. egypt has taken an unprecedented announcing sweeping measures to stabilize the economy. one of those was a three percentage point increase in key lending rates.
news 24 hours a day powered by more than 2600 journalists in more than 120 countries. this is bloomberg. jonathan: in the market, we have seen the stronger pound story, futures positive on the session. let's get some movement. did have some negative earnings related news from facebook. it is not from the actual numbers of the company reported. third-quarter sales were up 56%. the company's monthly active users rose higher than estimated, but commentary on the call that has to do with the plunge in the shares. the cfo says the revenue growth rates will come down meaningfully, next year. he said the company is going to cut down on the percentage of ads that users see in our news feed. -- in their news feed. also shares of adidas.
the company will scale back its struggling reebok unit. the cfo said that they will announce the sale of its golf unit, tailor-made, by the end of the year. at the same time, adidas brand sales jumped, but there is concern over a decline in gross margin that is caused by currency swings and that is why the shares are down by about 8%. wells fargo shares are not really moving, but we did get a headline that the securities and exchange commission is among regulators investigating the bank's sales practices. that has to do with the scandal of employees opening unauthorized customer accounts. it may have to do more with wells fargo's notification or lack thereof of shareholders of -- about what was going on at the company. david: we are going to be digging more into wells fargo, later. coming up next, brexit's newest
jonathan: from new york city, this is bloomberg daybreak. the cable rate moving to the upside, sterling a fifth straight day of sterling strength. we are on track to get the highest since july 14. monetary policy not decision we saw a moment ago, based -- these data coming out of the u.k. this morning and the third, the politics.
itsit -- the u.k. lost brexit lawsuit over article 50. we go to the bloomberg executive editor for international -- what has changed fundamentally for prime minister may? the first thing to bear in mind is that we still don't know if this will go to the supreme court. certainly, it makes things a little more difficult for her in terms of the kind of brexit that she wants to push through. she does not have a big majority in the u.k. parliament. in terms of what she wants, she will have to sort of way up inside of her own party. there were people unhappy with some of the policies about a hard brexit. theresa may's route to brexit is looking more complicated. jonathan: it seems to me they're
sitting on a table and there are talks over strategy and they have three outcomes. one is to take it to the vote. or, you soften your stance three, you keep your stance where it is and you go towards a general election and get a massive mandate and hope you get a bigger majority. out of those three options, where do you think the pivot will be? >> you are really putting me on the spot. the treatment by -- theresa may by nature is a very cautious person. perhaps if her preferred scenario right now is to basically called parliament's bluff. that is a viable option for her. she comes up with the kind of brexit she thinks is the best and then ask parliament if they are really prepared to vote this down.
jonathan: another brexit stare down, as if we needed one. this remarkable situation we renew the majority of mps within the parliament one of the stay within the european union, but they have to think about their constituencies. david: i am looking forward to the debates in parliament and what they will look like. that would make for some good television. now we turn back to the united states. our guests are still with us. we will come back to the fed. they do not take any action, yesterday. they did not foreclose any action in december. i want to raise the p word. as a practical matter, was there
any reason for them not to act at this time? eric rosenberg dissented, last time -- dissented, last time but didn't, this time. >> there was never any question of them moving in november. it was decided months ago that if they did not move in the summer, they would not be moving here. that eric rosenberg shifted to agreement i think is the biggest movement besides the statement. of course the election matters because we have one candidate who is proposing a set of policies that are enormous and pinions,economists' o destructive to what we have done in the past. that has to take the fed into the -- into account.
the central bank has to take it into account. david: to be unfairly reductionist, is what janet said mean hillary clinton wins, you have a rate hike in december, donald trump wins, we have to hold back? >> it might mean that. the markets are pricing in at about 66% of the prospect of a rate rise. to not move would be a surprise, but what happens in the period after the election is going to matter. possibility,one but obviously the issue of putting it off in december is that there are people who get to vote on it in january, getting to change with new folks coming on who have not voted before. i think adam is right, that there is -- there are certainly politics to it. it that if heller clinton gets in, -- if donald
trump gets in, they will wait and look because you would likely see movements in the markets. politics does intrude and i think there are arguments with whoever gets in that perhaps they should wait, but obviously mindful that voting members will change at the next meeting. i think there are a few weeks of interesting data coming. data,ny is right on the and clearly we would wait on the economic merits, but i think it is not that -- i think the issue is does the fed -- basically what we are talking about is markets crash after a donald trump win. i think there would be some sentiment that that is wrong, that they don't want to be seen doing a yellen foot in the face of a trump election and they do
not want to be as intimidated by the election. on the fundamental economics, i would be for waiting, but on the politics reaction, they might still go ahead. jonathan: i feel it governor carney would have a much easier time if you are back on the mp. agreement.ging coming up, the bank of england says it no longer expects to cut rates this year. we will look at the market reaction and bring you coverage of mark carney's news conference. this is bloomberg. ♪
six positive on the s&p 500, a seven-day losing streak on the s&p, will we break that? market, a stronger pound story as we trade at 124.84. on a forecast from an upgrade to gdp forecast in the near term, this very much in focus as governor carney enters the room at the bank of england. as we await this news conference to begin, sitting around him. the news conference, the inflation report will begin right now and we can listen in. >> the biggest determinant of the uk's prosperity will be the country's new relationship with
the eu, and the reforms that it catalyzes. will have ases significant bearing on inflation over the next few years. the perceptions of market participants regarding this economy's future growth will influence asset prices and the exchange rate. firm assessments of the outlook for demand and the ease of future trade will affect investments. the cost of borrowing and the return to savings by households as well as their confidence in the economic situation will determine consumer spending. by the end of the mpc's forecast, the u.k. economy's supply could be affected by a new set of trading agreed -- trading arrangements with europe and other countries. realities, these mpc indicated in the spring that the effects of leaving the european union on inflation would be a product of its impact on demand, supply and the exchange rate. the mpc stressed that the implications for monetary policy
would not be automatic. in august, the balance of these effects was consistent with the need for additional monetary policy stimulus, then, and the prospect -- prospect of more, soon. the mpc delivered a comprehensive package of easy measures. they were calibrated to balance the trade-off and sustain a returnable rate of it -- sustainable return of -- rate of return. since august, material growth has been uttered that expected and the mvc project the level of gdp to be 0.7 percentage points higher by the end of this year. what did we miss? what did we learn about the adjustment to brexit? -- the had expected to consumption would continue to grow slowly throughout the remainder of this year. consumption has been stronger with households appearing to
look through brexit related uncertainties. for households, the signs of an economic slowdown are notable by their absence. job security remain strong. wages are growing around the same modest pace as at the start of the year. credit is available and competitive, and confidence is solid. positive consumer sentiment has support of the housing market, which has also been more resilient as housing activity behaves more like consumption that investment. -- than investment. -- from very supportive angel conditions. these positives are neither solely due, nor totally unrelated to the actions the mpc took in august. those measures are working. mortgage rates have dropped by a full percentage point. floating loans are down by about 15 basis points and
sterling corporate bond issuance has picked up. for those looking to borrow, credit is widely available. for those who have debts, the cost is cheaper. the final difference is that business investment appears to be somewhat less soft than we had expected, in part because of easier financial conditions and because domestic demand and uncertainty appeared to have exerted a bit less of a drag. in contrast to developments in the real economy, financial markets have taken a less sanguine view of exit prospects. sterling is around a fifth lower than it was, a year ago. the latest short move appears to reflect market expectations and even less open trading arrangements than anticipated in the immediate aftermath of the referendum. reflecting depreciation, measures of inflation expectations have picked up notably and gilt yields have risen back to love
-- risen back. the committee expects stronger growth through the balance of the year. it is the fall in sterling that will have significant -- more significant implications for the path of inflation at the monetary policy horizon. it is early days in the adjustment process. firms, financial markets and the mpc will continue to learn as they go, and they will adjust their expectations accordingly. the limited post-referendum data we have seen so far suggests that households could behave toe adaptively, reacting changes in jobs and incomes, rather than those in prospect. firms are in various stages of preparation to take action and they will likely -- likely continue to anticipate and adjust.
ultimately, the tension between consumer strength on the one hand and the more pessimistic expectations of markets on the other will be resolved. the mpc's november projection, this resolution is expected to occur as imported inflation begins to way down on people's real incomes, slowing consumption growth. this moderation in household spending reinforces the cute -- curative effects of investment, which is expected to lower the economy's capital stock and dampen productivity growth. as a consequence, although stronger in the near term, growth is expected to be weaker in the medium-term compared to the committee's august projections. despite that more modest medium-term growth outlook, cpi inflation is expected to be higher throughout the three-year forecast period. largely the result of the renewed depreciation of sterling.
in our central projection, inflation rises to around 2.75% in the middle of 2018 before beginning to fall back gradually. the balance of stronger ,ear-term consumer demand modest supply outlook and a lower sterling exchange rate implies a stronger trade-off challenge. clear, modest supply growth means lower real income growth. the only question is how this comes about. it can happen through a compression of nominal wage unemployment,her or through faster growth and consumer prices, and a smaller rise in joblessness. the mpc's remix requires it to explain how it is balancing that trade-off, including the horizon over which a return -- plans to return inflation to target.
the impact of sterling's depreciation will ultimately prove temporary. mpc's judgment, attempting to offset it fully with tighter monetary policy will be excessively costly in terms of the output and employment growth. somewhats choosing higher consumer price inflation in exchange for more modest increase in unemployment. there are limits to the extent to which the above target inflation can be tolerated. those limits depend on the cause of the inflation overshoot. the extent of second round effects on. domestic cost on a scale of the shortfall in economic activity, below potential. in the mpc's november forecast, the inflation overshoot is the product of a perceived shock to future supply, causing the exchange rate to fall. alongside a modest projected
shortfall of activity, inflation expectations have picked up to around past levels, and a mastic cost has remained contained. -- and domestic cost has remained contained. given the potential for further prices, then asset mpc judges it appropriate to accommodate a period of above target inflation. the mpc is not monitoring the evolution of inflation expectations. in light of these developments, the november meeting agrees unanimously that the bank rate should be maintained at its current level and to continue the previously announced asset purchase programs. it remains the case that the path for monetary policy will depend on the evolution of the prospects for demand, supply and the exchange rate. inetary policy can respond either direction, to changes in economic outlook if the end -- if they unfold to sustain --
to conclude, the u.k. is a highly flexible economy. these characteristics will help it move to a new equilibrium as future relations with the european union become clearer and new opportunities with the rest of the world open up. many of the adjustments needed to move to that equilibrium are real in nature, and are not in the gift of monetary policymakers. they cannot construct the edifice of lasting prosperity, but they can help build its foundations by achieving the inflation target in a sustainable fashion, and in a way that smooths real adjustment to the economy, in a way that stabilizes growth and supports jobs in the wake of much larger forces. this is the best contribution the mpc can make to the good of the people of the unit a kingdom. with that, we would be pleased to take questions.
>> in the report, you say that you included expected prices to fuel, food and clothing to go up mainly due to the exchange rate and the important effect. how long do you feel that the british public should tolerate these rising prices, before you that, i say before you increase interest rates? of the mpc has been of the degree of accommodation that is currently being provided is appropriate. it is appropriate because of the pressures that are weighing down on activity and because of the forces that are causing inflation to rise above that 2% target. the reason inflation is above target or will be in our
judgment is because of the exchange rate. the reason the exchange rate has moved, predominant reason it has moved in our judgment is judgments that are being made in financial markets, about the future of the real economy, not of the stance of monetary policy, how open this economy will be, what the trade relationships will be and how productivity will evolve over the next couple of years. thosenot influence perceptions in markets. i will emphasize their perceptions. it is still early in the process. the negotiations have not yet begun, so we don't know what the arrangements are going to be. we can influence those real factors. we have to take into account their impact on inflation. the judgment we have had to make
is do we lean against them and cause much higher joblessness and much lower wages for those who have jobs, or do we accommodate some of that overshoot, given that it is caused by a real effect and that is the judgment that the mpc has taken. governor, you have upgraded growth for this year, for next year, but actually downgraded growth for 2018. could you give us your judgment about what is this is economic pain delayed or canceled? your initial reaction to the court judgment on article 50 and parliamentary sovereignty, does this increase the uncertainty around britain's exit from the european union, which you say is one of the most significant issues in terms of the economic future of the u.k.? >> i will start with the second.
i am not qualified to comment on the court judgment, but it is an example of the uncertainty that will characterize this process. as i said to the previous question, the negotiations themselves have not even begun. there will be uncertainty and volatility around those negotiations as they proceed, and i would view this as one of the symptoms or one example of that uncertainty. what we have in the report, if i can move to your first weston is that -- first question is that that uncertainty does weigh down on -- bear down on businesses, and that affect builds with time, that lower business investment has consequences for employment, ultimately. could parenthetically mention that we do see productivity growth picking up over the course of the forecast,
where we see the bigger ,djustment is with households in that real incomes, we see very modest real income growth over the course of next year, and into 2018, because of weaker overall activity and the increase in inflation. >> governor, the downgrade in the forecast towards the end of the forecast to rise and, in a sense, the driven by the assumption that we will get a harder brexit then you thought an youust -- the thought in august. isn't it a brit of -- a bit presumption of officials to make that call? >> thank you for the questions.
we have not changed our assumption of what type of brexit the u.k. will have. we recognize that for the way we run our forecast, that assumption is relevant offstage. much longer than the forecast horizon, it is a medium to long-term assumption. we have taken a weighted average of out -- potential outcomes. we used the same one we used in august. why is supplied basically in the same place, and i would emphasize that the overall level of activity ends up roughly the same level, stronger. the level of gdp is basically the same. it is minus .2 lower. the overall level of supply is consistent. we have a slightly larger output gap at that point, at the end of the forecast.
we have a slightly faster adjustment, more supply early in the forecast, stronger growth in the short-term and some of that is -- a slightly faster adjustment over the balance of the forecast, which and thus up in basically the same place -- which ends us up in basically the same place. we have not changed our assumption about what kind of brexit we will have, at all. i don't know if it is presumptuous or too soon to make that judgment, i agree. the negotiations have not even begun, and it is all to play for. the reason we have a slightly faster adjustment to that end state is that we have been talking to businesses and particularly, those businesses
that have large exposures to the european union, and we are more informed, as you would expect, about the relative pace of adjustment for those businesses. that has helped inform our assumptions on how things move. the last point i will make is financial markets have made a much bigger revision to their views of the type of brexit or the degree of openness that this economy will have, and its consequences for supply and we have.an judgments of financial markets, they are not based on actual facts because this process has not really begun. back in august, the mpc was
signaling that there would be further easing of policy, now that guidance has expired. you set limits to the amount of inflation you are prepared to tolerate. is the message here want to the chancellor, which is we are done here, and passing it over to you? ofno, the message in terms fiscal policy, as we have said many times and will always remain true, we take fiscal policy is given and then optimize around monetary policy and how it can react much more quickly. the second point is this -- our stance on policy will be a what happens to supply and demand and the exchange rate if we would
include inflation expectations in that determination, and we go, learn about that as we and it is a balance of those that determine whether or not additional easing or some other potential tightening would be appropriate. what has happened between now and august is that demand has been stronger. we have not learned much about supply. we end up roughly in the same we have theply, and higher inflation overshoot because of the bigger exchange rate. that leaves the mpc in a position where we have decided that the stance of policy at present is appropriate , and that we have a neutral bias around policy, going forward.
risent yields have significantly since the august package. i wonder if you feel that your stimulus has failed in the face of more powerful local forces and worthy monetary policy as a whole -- >> on the second point, no, we retain many options. if it were appropriate to provide additional stimulus, we retain options. further,cut bank rate introduce additional asset purchases, if that were appropriate. stimulus ande that a stimulus we have provided in august does mean that financial
conditions has helped contribute to financial conditions which on the whole are still more stimulative than they were, prior to the package. -- twoson for this elements to the shift in gilt yields. the first is changes to inflation compensation. we reference that in the report, that returning to historic averages is something we are monitoring closely. secondly, improved near-term growth prospects. overall, the balance is appropriate. i am surprised that nobody has raised the issue about your future. --now you have attempted to
for while, your presence at the bank became the story, rather than the bank's policy. in the light of that, can i ask you, the something need to change about the way the bank and the government work hand in fist, the wit to the governor and the chancellor need to communicate, and secondly, could you be encouraged to stay for a couple of more years and fulfill the full term if things are going well in 2019? >> i think we have all had enough of that. let's not reopen it with your second part. here,ms of the framework, this is an outstanding framework for the conduct, not just of monetary policy, but broader macro credential supervision. to --delegate authority but those with an accountability
mechanism testified in parliament, accountability to yourselves, the british people through the media and through what we produce, and being held to account for our forecasts and our outcomes. frameworkink that the needs to change, i think it works quite well, and i think further that over the course of the last year, with the 2016 bank of england act, and if you will, the equalization of the governance of the three in both the way they receive agreement -- reach agreements, the format of their accountability, and their degrees of transparency and encouraging them to work as closely together as possible, all of that builds on the strengths of this system. governor, in the end of
august, the bank made the forecastut to its cbv than previously thought. this time is the biggest rise to the gdp forecast in any previous inflation report. you are talking about a cut to gdp over a three-year period. >> i was talking about 2017. my question is my generality. >> it is not true that it was the biggest cut. >> it was big and these are big changes to the forecast. my question is a more general one. toyou feel that big changes forecast reasonably undermine the credibility of an institution like the bank of england?
should we care or are people getting a little bit over elevated? there first thing is that was a big change, and there will be big changes to the consequence of the decisions of the british people to leave the european union, and it has short-term implications over the next three years, for the path of growth. that is not to make a judgment about the medium-term or longer-term implications and the benefits to prosperity that could come from resetting our relationship with europe and building new relationships abroad. only making the judgment over the forecast horizon. we have taken, in august, we took a big judgment, in terms of
the implication. broad brush, where this economy ends up three years from now, we think that is right. we think we are basically in the same place. after a substantial stimulus package from the bank of england , and from stimulus from a fairly sharp depreciation in the currency. in terms of the near-term momentum in the economy, it is higher and that is welcome, long may it last. we do see in the short-term, some deceleration and deceleration into 2017, and we explained the dynamics of why we see that. about theple care forecast? those who watch the bank closely should care about the forecast.
it is right that we are challenged on what we got wrong and accept what we got right and why. the most important is why, because that tells us about how the economy is functioning. this, it tellsth us that consumers are being more adaptive, because what they see is a job market that is still pretty strong, wages are growing at the same rate, credit is cheap, competitive and available. financial markets have pulled forward a lot of the adjustments, particularly in the markets. businesses are somewhere in between, and we have a bit of intelligence on why, in terms of their preparations and also the degree of uncertainty of where this may end up, because as i have said, it has not yet begun. there are a range of outcomes that could happen.
>> i might talk a moment about the near-term forecast. the distinction between forecasting the very near-term and further out. forecasts change as information comes in. asset prices and expectations of the future, these things always change over time. always, we based the very near-term forecast, we do them in a slightly different way from those, further up. baseddium-term forecast on economic models and judgments in the underlying forces as you can accommodate, they rely relatively more on statistical models that link contemporary survey measures with what
official estimates are. in july, there was also participants he -- we were aware that when you get a big event it can be we can go though significantly for our best guess of what third-quarter growth would be. as it happens, we end up with more than most other forecasters. wereverage of forecast contraction in our output. we did not expect. the surveys did bounceback. the official estimates for brexit were high in the third quarter at the surveys indicated -- as the surveys indicated. the important thing is to learn not only about those
also moreips, but importantly, what the news about growth tells us about the medium-term. that is a judgment we have been trying to make in this inflation forecast. what do you say to the framework in the political discourse? the way the bank does what it does? you had a senior member of the governor saying that banks have lost the plot and personal attacks. thatl that fair comment people are entitled to say? just that sniping itself undermine the independence of the central bank? would you say. say aence -- would you
period silence on the part of your critics would be helpful? [laughter] opinione express their and there will always be a wide range of opinions. what is important is the mpc recognizes both its ofponsibilities and limits responsibilities set of a clearly explain our actions and are held to account for those actions. i don't think it is that much more complicated than that. and we have a variety of mechanisms in order to do that. exactlyg the minutes of other report of the same time has he information answering the questions. to testifyfew weeks in front of the tse is a part of the accountability mechanism and having a robust set of questions , all in thees pursuit of not just getting
, but getting it there in the right way and recognizing. one thing we would like to have come out of these debates and insions is we are exceptional circumstances. --we are compelled by theiament to look at trade-off between inflation, the speed at which we get inflation back to target, and the impact on activity and jobs. there are limits of how far we can move that trade-off. if those trade-offs are a function of what is causing inflation to move, what real effects are there in the economy? where inflation expectations are? --responsiblye
can we balance it? that can be as vigorous as people one. >> governor, how far and fast with the economy have to fall to make you worried, and we do roll out currency intervention and that sort of situation? gov. carney: we don't target the exchange rate. we target inflation. we target getting inflation in a manner that i just responded. that doesn't that mean we are indifferent to the exchange rate. moves andout why it the combination of the exchange rate and other factors five in the economy in order to determine monetary policy to
achieve that inflation target. forecast our forecasts, but people will be worried by the inflation forecast. what is your message to people who are making ins meet -- who are making ends meet right about now? gov. carney: we are expected inflation to go up and to be a bit above 2% over the balance of the next couple of years. that puts us into a position of making a challenging judgment we bring quickly inflation back to target at the time when the economy is undergoing, just starting to undergoing -- just starting to undergo a pretty big transition. our judgment as we have the right to agree a monetary stimulus for the economy to ensure that during this period, more people are at work, people
-- fewer people lose their jobs, and we'd growth is as strong as it could be -- and wage growth is as strong as it could be. remember what this forecasts says, which is growth of 1.4% next year picking up to 1.5%, 1.6% subsequent two years. it is growth. this is a forecast with growth with some degree in unemployment. a quite modest level of unemployment. it is a forecast that season by wagend, weight growth -- growth going up about 2%. it is a difficult period here, but it needs to be put into context.
>> can i just come back to the issue of uncertainty. one of the judgments in the -- ation report [indiscernible] what is less uncertain about the than you thought before? what we see with consumers is that has not been a big uncertainty effect. it is discernible by its absence. we are not assuming that it reasserts itself.
broadbrush business, , yes, the uncertainty effect has been there. it is hard to have real-time estimates. we don't have the actual hard data -- the actual hard data is prone to revision. what we see is up to about half of u.k. companies are taking into account the uncertainty about the future relationship with europe, and it is having some influence on their investments. of -- it isin terms more about the mapping of it, level of uncertainty to the decisions that households and businesses are taking where we have made adjustments. there is adjustment to the profile of uncertainty. we changed the profile.
unless of a spike and then follow way in the near term that characterizes the profile in august. i wouldn't describe it as a lower profile for us, the shape of it is slightly different. it is contributing to weaker investment growth. your --nor, giving giving your letter to the chancellor, would you consider staying on for longer? gov. carney: i will refer back to my earlier answer, we have had enough of that saga.
indicated they are going to appeal this ruling. , theistrative this morning judicial process is not consistent with article 50 by the end of march, i would put , there wille camp be a series of events through this process of triggering , the negotiations during that article 50 process -- there will be a series of events that will feed back into uncertainty. go to the profile of uncertainty in the forecast, i think one thing is we, on reflection, i realized that we a spike around the actual triggering of the initial start of this, but the level of uncertainty probably does not
tail a way quickly in the period, but any negotiation, kingstone companies together until late in the process. but any negotiation, that does not come together until late in the process. >> governor, you set the court rolling today was an example of the uncertainty of the brexit process, but how do you make policy in such circumstances? draw a line under it, is the politics of brexit -- difficult for the bank to what to get worse from here on in? gov. carney: the people of
united kingdom have voted to leave the european union. that is the policy of the government. there is a process that has just started in order for that to be fulfilled. there will be a lot of uncertainty and volatility throughout that process. then become in. we take into account -- then we come in. it willinto account how affect the business marking and british households and tried to calibrate against that. we learned a bit about how people reacted in the subsequent six months. we have learned more. some other refinements in this projection reflect that. the difference between consumers and businesses is marked. we said policy. we don't have the luxury of stepping back and ignoring the
effects. we have to make decisions. we made a decision today that the stance of policy was right and to let the constant -- a contingent guidance expire. that guidance worked because it was contingent on people understood the contingencies. as you saw, the economy performed better than forecasts. big surprise it is expired, but it still was a decision for the mpc to take. we can deal with it. we will be transparent about -- we will be as transparent as possible. what happened in intervene. between forecasts -- what interveningween forecasts? governor, on the guidance
that has expired, are you able to say whether the next move and interest rates is likely to be up or down? was carney: hopefully, it clear as it could be where you. can envision scenarios where it could be either way. we don't have a bias in terms of direction on where the next move will be. we are in a period of a fair bit of uncertainty. you can envision scenarios where either direction would be merited. where will be anchorages around the inflation target making sure we get the trade-off right. what should be clear is that we think unanimously as the mpc that the current stance a policy is right. and it is right for the economy. even an economy facing headwinds.
>> how much do you see growth going up? when --do you feel pressure after making decisions with their side effects? gov. carney: i will answer the second bit. know. we don't feel under any pressure from the government and none from the prime minister. the prime minister fully supports in the government fully supports the monetary policy framework he had in place. framework we have in place. how rapidly those decisions flow to activity, you get influence. it really builds with time. we don't say that the short-term
of -- n is a gift >> it is the effect of policy and elastic orders -- it is the effect of policy in the last three quarters. a little more than we expected after the policy package. hopes consumer sentiment -- most of the effect of these things comes through over longer periods of time. following your meeting with the chancellor, did it color the mpc's decisions and guidelines today? should the government come through supporting growth, is there a chance some of the
action you took back in august will be tapered more than usual? whicharney: i am not sure meeting with the chancellor you are referring, but i can answer it in general. chancellor the relatively frequently. we discussed the economic outlook for understanding the stance of actual policy. will respond to fiscal policy if we need to when it changes. between the current fiscal policy that is given, and that is in the forecast. there was nothing to be read into the forecast on the potential future stance of fiscal policy in the country. that will be revealed in due course. sorry, the second part?
[indiscernible] we have to decide the stance of policy in each meeting. there is a nasa purchase program -- there is an t purchase program. by don't you say a little bit to provide detailed. >> there was a market notice that detailed her plans for the qe program. we purchased an additional $12 billion because we had a reinvestment to maintain the stock. our intention is to continue to complete that purchase was another $30 million over the next few months. we also have one more reinvestment, which we will announce in february. the plan is to continue to implement the current decision
and the stock will be 435 billion going forward until the mpc decide otherwise. >> you have been clear that you have not changed your view about the long-term impact of brexit on the economy. that we continue to see consumers carrying on spending. -- are you saying consumers are shortsighted? >> not at all. consumers have jobs. they are being paid. this is not debt-fueled consumption. this is rational behavior. see, drawing attention
to, is the difference between the views of financial markets and the foreign exchange market. and the underline demand in the economy. that helps us set up an established trade-off. the speed and persistence of path through causes inflation to be above target. we have to make a judgment about what to do about that. >> a lot of people look to the bank to make decisions on the way they spend on their mortgage decisions. forecastsere were gotten wrong a few months ago, do you think it undermines the trust that people should have in you when they look to the bank
to make business decisions? of therney: in terms forecast, near term, we had more momentum in the economy and growth will be stronger by the end of the year. that is welcome news. we explained the reasons behind that. in terms of the horizon to make a mortgage decision to buy a house, we see the economy ended up in the same place today. know, and in terms of the position that households are in, if they were to make a decision to purchase property, foreign costs are cheaper. they are cheaper because we think we need that in an environment of uncertainty and other factors weighing down in activity.
all things being equal to support activity. that enhances credibility. anyone who was that have a question yet who would like one? [laughter] >> inflation could hit 4% by the end of next year. there arealked about limits to the amount of inflation you will tolerate. low 4% will be tolerable? we are not going to get a point figure to that question. it does allow us to underscore
that the limit, if you will, is -- there is no one limit, it is a product of what is causing the overshoot. future supplies going to be lower and real incomes have to adjust. and the combination of that, plus what it does to the exchange rate relative to demand leads to an overshoot is one in which we are clearly willing to tolerate some overshoot of policy horizon because we are making a decision to take that real income adjustment, whether it is through higher inflation, or lower nominal wages and higher unemployment. clearly, we are within the limit right now because we are providing stimulus by maintaining the august package. with respect to that
particular forecast, seems to have estimated that the exchange rate will come through faster than we think. reason, many forecasts are falling away faster, which would make it ironically less relevant for policy. there is only so much policy can do it either way. we have to understand why we are giving this -- i'll be getting this overshoot. -- we have to understand why we are getting this overshoot. there is no single number two define that limi >> ok, over at the bank of england, rates and monetary policy remaining unchanged. is message from mark carney we have a neutral bias on policy going forward. the reaction other -- the
reaction of the market is clear. dollar,d against the 124, 74, very close to session highs. reaction in the bond market looks like this -- lower -- yields higher. six basis points on the the 10-year. it was going to be this delicate dance with containing inflation -- but there has been the pivot. david: i thought the governor was frank. they had to change their estimates about growth and inflation and they were less sure of themselves and want more flexibility. when did we learn in the last hour as far as you are concerned? i thought this was a fascinating press conference. some of the takeaways were that the bank of england has limited
tolerance for higher inflation, but i wish i kept count of a number of times that uncertainty, that word, came up. the uncertainty around brexit. what was interested is at mark carney really highlighted that the weaker sterling, the fed aimed a higher inflation expectation, which of course is part of the reason for that decision today. and for what the markets seem to be interpreting as the more hawkish view going forward, even though mark carney said it is a neutral bias. he said there are a lot of things feeding in inflation. in some ways, he really was saying there are limits to what the central bank can do for the u.k. economy, especially with the uncertainty around brexit. for me, the key takeaways were a very big shift+++
in august when there was a dovish tilt. bank of england said there would -- that changed the rhetoric and the shifting saying that a lot of the issues with the u.k. economy are structural and are limits to what the central bank can do. the rate remained unchanged. what was less expected was we did not get this dovish tilt. really, they said they could move policy either way in the future depending on how the economy performed. david: there was on more than one occasion and mark carney had to address the relationship with the fiscal policy on the political side. they have to take the fiscal policy as delivered but they could turn around fiscal policy more quickly. it is an interesting relationship they are trying to work through with the chancellor. >> absolutely. ways,me ways, -- in some
-- we had a lot of questions with the high court ruling today against the government, which means there will be a vote in parliament, unless we get the appeal in december. some people say that that may delay the brexit process. mark carney says i am not qualified to comment on that, but it really highlights the uncertainty around this whole process. that was one key phrase that came out today was that uncertainty and how the bank works with that. they had been data-dependent. and today's decision is an better expected data we have had over the past three months. datar than expected growth
and inflation data as well. and we had the pmi's coming in better than expected. jon: great work. hot --this is how i interpreted things. when you deliver inflation above target, you have to write a letter to the chancellor. the governor mark carney was preemptively writing the letter to the chancellor knowing they will be over target, but we have limited tolerance. was that just a message to approach the mandate? when you look at things and where things are heading, it will be a very accommodative bank of england locate not to rate rates anytime soon. david: that is fascinating to think, setting himself up to thing, i told you so. don't blame me now. this is a bank of england that told us in august that growth would be dire.
they would see another rate cut by the end of the year. should off the bat, this is a bank of england in a holding pattern with mark carney confirming a neutral bias. let's pick it to the u.s.. \ we have had seven straight days of losses. futures are positive as we move closer to the cash open. you hear the opening bell ringing in new york city. it has been risk off. bonds, havens bid. treasuries down a little. yields up to basis points. let's get these markets open in 25 seconds into the session. is crossover to julie hyman. demo we aree open not seeing -- at the open, we are not seeing much changing.
breaking that losing streak, we have also seen volatility increase during that period time. acrosst in stocks, but asset volatility. we will see that calmed down to some extent. the reason perhaps the snapping of the losing streak has been the national polling. it is given and it should hillary clinton. -- it is given an edge to hillary clinton. what is continuing its earnings season. facebook shares pulled back by 4%. not having to deal with the numbers themselves, which were stronger than estimated with the order sales rising by 56%. cfos said revenue would not continue to rise at that same pace. that is what is behind the pullback in the shares. we are seeing a tumble in shares after the company's forecast was
way short. analysts have been looking for $981 million. the company talked about a weakness in the asian-pacific region. sales down 45% as it is under pressure for cheaper wearables. want to talk about energy stocks. atrial of companies out with earnings. chesapeake, marathon oil and -- coming out with lower estimates. chesapeake is producing more oil than analysts had been anticipating. marathon raising the lower end of its production view. shares gaining on that. and transocean reducing costs. earnings beating estimates on that. david: thank you. much of the program has been given the tale of two central banks.
the fed holding a pattern and now we heard the bank of england . for more on both of these tales, want, joined by cameron director joining us from his office in london. welcome to both of you. let's begin with london and the bank of england. let's go to blackrock first. we heard about a lot of uncertainty through mr. mark carney. they don't know what is going on a less certain than what they were before. how does an investor interest that sort of uncertainty? we have to look forward and chart the route over the next two years. the questions left unanswered is what the bank continue with qe in 2017? will inflation made their levels, or will they overshoot?
thoseswer to both of ts, and answer to gil holds the answer to what you do with currency. it is a basic assumption that growth at some point is going to roll over. the bank of england the knowledge the consumer is looking their way through this. gp -- what of gdp does not roll over? what if things hold up fine? >> the narrative is like this -- for the economy to rollover, will incomes have to declined. inflation is going to rise. oversupply in the labor market means wages will not rise in nominal terms. of the national research published a 4% inflation
forecast for the end of next year. that is predicated on wages rising. think it is very unlikely wages will rise that much. that is because of oversupply. secondly, the pass-through from currency weakness to inflation is not necessarily as clear as one can see. it can be swallowed in company mergers. chances are the bank is slightly over forecasting on the inflation side. but all valid. it will relay the question of, are they want to continue with qe as a previous he said? based on the numbers, there is no reason for them to do so. david: let's bring this back to united states. we have a very big difference backup, which is to -- which next tuesday, at the polls.
the fed is pretty focused on what is happening with growth and inflation. geopolitics is in their. clear-cut a little bit of optimism recently. q3, gdp, expectations have risen. people are excited about that in the fed is adjusting accordingly putting them more on track for december hike. i also think the bigger picture is one that is very cautionary for the fed. they have a lot of concerns about lowering growth and inflation expectations remaining above target. they adopted a risk management attitude that keeps them very wary of a rate hike cycle. encouraged byd is the recent numbers of growth and inflation. i am sure they are watching the election.
more portly, they are looking ahead and trying to assess that bigger picture. the excess the downside and any tuesday cautionary over the medium term. david: one of the important parts of that bigger picture is productivity. as a productivity numbers cross the u.s. in the third quarter, 3.1%, for percentage point expected. how important is that? >> productivity is important. that number you are thinking about is more of a function of the q3 gdp print. there was a lot of inventory, a lot of trade, things we don't think will be sustained going forward. our view is that the rate of gdp is substantially lower than that for percent print. that is important. the fed has shifted from a labor market focus to being more concerned about the growth is. stanley fischer said it is all about growth, growth, growth.
the basic observation is that as long as growth is sluggish, it is hard to close out the gaps. it is hard to type the labor market and hard to get a sustained pulse in inflation. in matters for growth going forward. the q3 gdp number is probably not going to be repeated going forward. we are looking for something lower on growth and productivity. the bond market for the month of october was ugly, ugly, ugly. what does this mean for the bond market going forward from here? >> at the end of the day, it comes down to how much this reflation will cycle. in reality, governments want more growth. central banks want more growth. the bond markets are sucking it up.
market inenormous bonds. let's think about where the terminal rate is. rate sensitivity in the united states is way higher than it has been in previous cycles. potential growth is way lower. range. at a the destination is clearer than the journey. the journey is bumpy because of the positioning. jon: let's talk about the destination and the u.k. quickly. you have seen expectations drift higher. hand, the bank of england ends in a holding pattern, neutral towards policy
for the foreseeable future. g what is your view onilts -- what is your view on gilts a bold? >> it will come a point where gilts are backed up too far. it comes down to how rate-sensitive economy is. i don't think there is going to be a very high growth and wage expectations and wage inflation. to that extent, there will come a point where gilts will under support --will underperform. jon: great to see you for joining the program. up, wells fargo, shares up in early trading. the sec is investigating its sales practices. -- can we snap a
days, can be snap that? up a 10th of 1%. crossover to abigail doolittle to take a look at facebook. abigail: one of the big stock stories is facebook. shares are sharply lower, on pace for their worst day. before we look at why shares are down, it is important to set the stage and mention the fact the social media giant has put up another monster quarter. and salese earnings estimates and posted huge growth, 56% on the top line, more than 200% growth on the bottom line relative to revenues, this is the fourth quarter in a row they put up more than 50% growth. another big quarter. so why are the shares down? investors are disappointed by the possibility of a deceleration in growth. said theyid -- cfos expect facebook topline to
decelerate. we are talking about a drop from 35% growth from 52% this year. when be going to the bloomberg to take a look at what this , 47.30 five,like this is the chart right of the ipl. seeing a beautiful uptrend on the stock. we have earnings in purple. everything is trading the right way. facebook is holding his long-term uptrend in green. are all talking about the fact this guidance is probably conservative in the shares should be bought. a buying opportunity today on the pull back in facebook, david. david: thank you so much. it will turn to facebook -- from facebook to wells fargo. is examining its sales practice.
the company says it has skills back their sales goals. it led to over 2 million fake accounts. laura recently interviewed former and current wells fargo employees. she wrote a terrific piece. welcome to the program, laura. back in the olden days, who knew what when? how far up the line did this go? laura: our story was trying to look at that, this accountability question you have. who you knew what -- who knew what, when? we looked about this generation of executives that either could have known her should've known. we talk to people and they said they were told there were suspicious numbers on the platform and they decided not to do anything about it. david: do we have any instances where senior people instructed lower people to create fake accounts? laura: no.
that would be the new wants no one we talked to said we heard or saw a senior manager who actively said to someone, please open a fake account. what we talked about to people about if they knew, these numbers are pretty suspicious. someone saw 44 account set up by a manager and no one looked into that. jon: if you were going to have a consultant look at the hierarchy and this company is made up, and ofs monster pace, the amount management above that and above that, can you walk us through that in white it is relevant. david: it is very powerful. laura: on the chart, at the very top, the banks. not talking about the ceo. in the retail bank, you have three regional bank executives.
we talk about those people a lot and the story. got 12 the regional presidents plus the very senior regional presidents. 54 of those together. that is the three top apparatus of the bank. you have area managers come about 120 of those. banks those top, the fired one person. about 5300y fired lower level employees, branch managers, bankers, tellers. why nory is focused on one at the top was found accountable? jon: did this outcome of the food chain? laura: it did come up the food chain. we have stories where people said they told his senior managers at something is wrong
here or a beach you should question it. from our investigation, those inquiries were rebuffed. we learned that the company's executives identified certain management, we don't know what that means, mid-level, higher, that they had identified for firing. when will that happen? we don't know. ist they have been saying they want to give full thrust is -- full trust to the investigation. david: they need their cooperation? yesterday. jon: were they told to go out and do it? david: we don't know the answer to that question. there are investigations going on. the story continues. think you so much for joining us, laura. coming up is "bloomberg markets"
was mark barger. quarter earnings missed estimates. hancock will be speaking with erik schatzker. and france's initiative to attract companies in britain to france post-brexit. , he will talk to the fed and talk to be a way and talk big high court ruling in london. ceo of activate on facebook after it projected greater costs and a slowdown in ad sales. can't wait. david: coming up, the white house race parks a war. we will explain next. this is bloomberg. ♪
"bloomberg daybreak." i'm jonathan ferro. he will get september factory orders and drupal goods. ahead, the last major u.s. data point the for the presidential elections. it is payrolls friday and the october jobs report coming out 8:30 a.m. eastern time. if you are in london, a 12:30 anddifference, 91:30 as usual. david: next tuesday, talking about the election, five days away. market volatility is increasing and the vix has been rising for seven sessions in a row. dani burger, stock reporter joins us. you have a fascinating piece on the bloomberg today. two big groups taking big bets. >> these are both
computer-based, use coats to trade, one is called ctas. and will adjust. -- it will adjust. david: commodity trading advisors. >> yes. they are not just commodities, they are in equities as well. they have a record short exposure to u.s. equities. it is the second shortest in history. second only to august 2015. that was not a great time for u.s. stocks. david: they are betting bit against the stock market. >> right. we have a group called equity long short funds. like the name says, they will long some things or short some things. make a very specific that. they are the most bullish ever on u.s. stocks in nine-month.
two every opposite bets, but they cannot be both right. one of them is going to have to adjust. assuming volatility picks up, which may be a safe assumption, they will exacerbate the issue. david: how could the election affected? stocks will one way or the other, the way these funds operate, because they are so stretched, they will have to compensate. if there is a rally, ctas will short covering. they could add on to a positive way. equity long short is where it gets dangerous. if we have a selloff, the l1 going to have to buy some of the stocks. they will not be able to miss out because they are high up in their exposure. david: another reason to be watching carefully.
great piece. jon: we were 25 minutes into the session. the dow up by about a 10th of 1%. the s&p 500, will it break the losing strength -- streak? stronger the board, a after they at 124. 54 bank of england goes into neutral mode after they said they would cut rates by the end of the year. that does not look like it is going to happen. that wraps up things on this thursday's "bloomberg daybreak." markets withmberg vonnie quinn mark barton's. from new york, this is bloomberg. ♪
vonnie: we are going to take you from california to paris and cover stories out of china, wall street and the u.k.. first, we have some breaking economic data. what we have is the ifn nonmanufacturing composite index, the services index coming in below estimates and falling from a month earlier. coming in worse than had been estimated. rising,factory orders up 3/10 of 1% and we have durable goods orders falling more than estimated, down 3/10 of 1%. in terms mixed picture of economic data coming out in the past few moments, but that services industries is the most