tv Bloomberg Markets European Open Bloomberg October 4, 2017 2:30am-4:00am EDT
♪ guy: good morning and welcome. you are watching them berke markets. this of the european open. cash trading will start for european equities in 30 minutes. . am guy johnson matt miller is off this week. trump advisors are said to have given him a selection of a few names to chair the fed. speculation is ranging from kashkari to powell. we will get stanley fischer's take this morning. from the chair to the throne.
the king's speech slammed on accessible -- unacceptable disloyalty. for annal in a prepares independence declaration. profit the operating eating estimates. the stock opening in under 30 minutes time. we will see -- hear from the cfo of tesco. equity markets go we get the first trade? we will see a reasonably flat open. the dax playing a little bit of catch up this morning. it was close yesterday. let's talk about what we see around the world from the gmm. this is the picture. the bloomberg dollar index down by .3 of 1%. that feels like the market is pricing in a more dovish fed. we will wait and watch and see what happens and talk to mark cudmore. australia's dollar moving an inverse correlation.
pay attention to what is happening down under. bloomberg is speaking with the russian president vladimir putin . that is taking place in moscow for you and the russian energy weak 2017. do not miss the discussion that he is having with john fry. let's get a bloomberg first word news update. here's juliette saly. u.s. president donald trump is suggesting the -- that debt would need to be wiped clean for puerto rico to recover. his comments came after a visit to the island where people have been without power and in many is notrinking water available. preconstruction costs could be as high as $60 billion. the british government is going increasingly concerned that it could crash out of the european union without a trade deal. according to officials speaking on condition of anonymity the
blocks refusal to discuss a trade pact until it is satisfied with the terms of divorce are stoking fears time will run out. david davis said he is aiming for a good deal but warned the country must be prepared if negotiations fail. secretary has said the eu and britain have made some progress on splitting quotas after brexit. bloomberg at the conservative party conference in manchester. >> as we leave the eu, we have to agree on methods of dividing that britainr should take from eu agreements and we have agreed on methodology. that is a step forward. it is also a sign that we can make progress when both sides choose to do so. king has spain's appealed for calm even as he forcked catalan separatists
violating the constitution. the prime minister is fighting to maintain control after 2.3 million voted in sunday's makeshift referendum and the regional police ignored orders to prevent the ballot. >> the regional government has broken the democratic principles of every it rule of law that have undermined the coexistence of society. authorities have rejected the affection and solid 30 that have united and will unite spaniards. they are threatening the economic and social stability a of catalonia and spain itself. juliette: global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. guy: thank you. let's get back to the big story surrounding the fed. president's advisers have given him a final list of candidates to lead the federal reserve.
janet yellen remains under consideration. while there is no current front runner, and gary cohn and kevin walsh and current governor jerome powell are said to be in the mix. the bloomberg dollar index both retreating from highs as the news emerged. let's bring in mliv macro strategist mark cudmore. we discussed this yesterday and talked a little bit about where we thought the president was likely to be in terms of the hawkish dovish spectrum. the fact that kashkari is in the mix tells you an awful lot about the discussion and the process underway. why on earth with the president put a hawk and play -- in place? i ask you that now that we have more names to put into the mix. wouldo not know what he appoint a hawkish chair. trump's history has been clear, he likes low rates and leverage.
given the struggle he has had getting fiscal stimulus passed he cannot afford a tight monetary policy. he will want someone there and he will support the rates for longer. i do not understand why a kevin walsh is the favorite. it does seem to me like people are jumping on whichever headline is moving every which way without having any substance behind it. there is a lot of tension after trump interviewed kevin wash. most likely will get dovish .ppointee bloomberg intelligence did a great case on this yesterday. it may be someone on the dovish side of the spectrum. good news for treasury bears. is that the consensus on the mliv team? mark: not the consensus, some people think that we cannot be so sure of a dovish appointee. the trump administration
struggle to appoint positions and there may be a struggle. there are still four vacancies [inaudible]g that is confirmed. it may be swayed by current board members who are slightly more hawkish. we are overall an agreement that it is most likely to attempt to be a dovish appointment. guy: we spoke to larry fink earlier. let's get his stocks -- his thoughts. fed islieve a successful a federal reserve we do not have to talk about that often. a fed played a major role in the 2008, 2009, 2010, and 11. -- the federal reserve
played a significant role in stabilizing our economy. we have a normalized economy. there is a conversation about what the fed is going to do. more informedh about how we are driving jobs in our economy. talking to erik schatzker. too three fink's we should not have a fed that we spend a lot of time thinking about. it should be a fed that it -- in some ways exists as an institution, and that an individual. are we putting too much into the individual rather than the framework that exists within the driver ofltimate policy, really looking too much at the person rather than the institution? mark: i am not so sure. what there he is describing is an ideal world. for a long time we had the cult
of the fed chair in the u.s., from greenspan onward and before then. very much now we have this world where it seems to be driven by their credo of the fed chair. that is more emphasized where the fed is going to shift away from independence and much more we want to normalize policy even if there is no inflation. they are saying our guidance is more important than data and that makes it more relevant who is on the board. he is describing an ideal world it is not where we are going anytime soon. catalans declare independence, where will markets a? mark: it is not going away at. whether an issue of there will be concessions from this several -- central government. they might go you cannot just
declare independence because it is against the constitution. we will accept there is a lot of unrest and upset and we will allow an official referendum perhaps next year on a more normal term. that is a dangerous scenario because that might lead to arrest -- a yes vote. -- he remainstion a big risk. it remains ford traders to know how to trade it. very much indeed. joining us from the mliv team. smart analysis on what is happening in these markets. the fed dominating the situation right now. in some ways we are going to speak to the person that you really want to speak to right now. , outgoing,st chair stanley fischer. he is joining tom keene at 11:30 in london.
6:30 a.m. in new york. do not miss this conversation. it is one that we will be focusing on, markets paying a great deal of attention to. that is the story with the fed. we will carry on that conversation and go from the chair to the throne. we will talk about spain. constitutional crisis. was it a mistake for the king on tv last night? that is a question. deepts beat the crisis or in the crisis? we will go to barcelona next. this is bloomberg. ♪
guy: 15 minutes till the market open. let's catch up on what you need to know. here is the bloomberg is this flash with juliette saly. juliette: tesco is to pay its first dividend in three years after reporting first-half profit that surpassed analyst estimates. 27% to 759rofit rose million pounds. the performance will raise investor confidence said ceo david lewis. u.s. lawmakers are honing in on google's services including youtube and gmail them a part of
a wide-ranging investigation into how russian linked operatives harnessed social media. called google to testify on november 1 along with executives of facebook and twitter. some russian linked ads published on facebook targeted michigan and wisconsin. yahoo! has revealed that all its user accounts were affected by its august 2013 hat, 3 billion of them. the company is part of horizon subsidiary but says it obtained new intelligence about extensive customer information. ordid not include passwords bank account details. forward with the major deal with softbank. it will demo -- limit
[inaudible] approved sweeping changes. the plan would expand the size of the board to 17 seats to accommodate two spots for softbank representatives and more independent voices. while disney's ceo whose company defended athletes who kneel in protest and called on americans to respect their rights. he prefersid while to stand for the star-spangled respecteople should those who do otherwise. he is not worried about the impact on nfl ratings. that is your bloomberg business flash. guy: thank you. let's turn to what is happening in politics. let's talk about europe, to keep political stories we're watching, the catalonian crisis unfolding in barcelona. and theresa may speaks later today.
anna edwards is in manchester. , let's talkspain about this intervention by the king, king felipe on television vowing to keep the country united. >> the cattle and regional government has broken the democratic principles of every rule of law and have undermined the coexistence of society. they have rejected unity. due to their irresponsible are threatening the economic and social stability of catalonia and spain itself. guy: interesting intervention for monarch. the king is warning separatists if they do not stop -- they must stop immediately. cabinet is pushing ahead. what happens next? was --etc., this exactly. i was in madrid and everyone went quiet.
everyone was listening to what the king had to say. they need to stop it now, this is outside the democratic order and this was followed by immediate retaliation. the regional president saying we are pushing ahead and we are prepared to declare independence by the end of the week early next week. it is escalation on both sides. guy: how does it play, does it emboldened him a little bit? maria: that is the key question. he has been under a lot of pressure, a weak minority government, he failed to scavenge eight common friend. this message from the king saying this is not about him, it is not about politics, it is about the nation. it helps if he wants to implement the article, it would a hard to see how the opposition does not back him up.
united andstay establish a common front, they said. --is the nation that is his is at stake. queen that getting involved in this situation just it. crisis.kind of unity british prime minister theresa may makes her speech later where she will fortify her leadership, or she hopes to. speaking at the conference the foreign secretary pledged loyalty. >> the whole country owes her and for her steadfastness taking the country to a great speechdeal based on that . i can tell you the cabinet is united. guy: let's go to manchester now. what can we expect from the prime minister today?
anna: he wants to move on from psychodrama. and focus on what she thinks what the party needs to shape up, to stop its wobbling and focus on voters. we will look for the theme of reselling or re-pitching capitalism to the british people. there are the advances jeremy corbyn made at the recent election. some newspapers reporting that theresa may make -- announcements about public housing. energych trading around companies as a result. >> we used to hear the line no deal is better than a bad deal. it got a little bit of a play yesterday. is the issue of a lockout back on the table? anna: it seems to be some officials are concerned about.
u.k. officials say the time could run out. key question is whether the conversation is allowed to move on ahead of the state meeting. is michel barnier going to get a mandate to negotiate more broadly and we do not know. the problem from the uk's perspective is they need to make more progress, both saying that not enough has been done, not enough detail has been shown that the u.k. does not know what progress looks like. that is one of the key things we are hearing. conversation got play on the main stage at the conference. david davis saying they're working on plan b, not the cause cabinet wants plan b, they do not want to be in a no deal situation but they think that is with the government should be doing right now. much indeed,u very anna edwards from the party conference in manchester. we are moments away from the market open.
start of european stock trading. the stock to watch is tesco, the u.k. grocer. operating profit beating estimates. we have got for the first time in three years tesco paying a dividend to its shareholders. we are going to bring you an interview with the tesco cfo, alan stewart joining us at 8:45 a.m. u.k. time. that is a conversation you do not want to miss if you are interested into this space. the other stock, european autos will be interesting. strong data out of the u.s. yesterday on the seals line. two stand out. vw numbers are also good as well. can show you the adr to give you a sense of what happened over the last 48 hours and you can see how the stock has moved
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♪ guy: minutes till cash opens. how are we anticipating we start this morning? germany will be playing a little catch-up. after the close yesterday, it will open up .5%. it will be interesting to see how vw traits. vw does.ee how tesco, we are seeing how that stock opens. watch the gold miners, as well. could be interesting. equities, since july. interesting data as you look at the mining sector coming through.
interesting to see how that window opens up. in terms of the gold trade, keep .n eye on tesco in the acquisition space could be interesting. markets are opening up. this is the picture, as anticipated. recent -- reasonably frat -- flat. not expecting a great deal of movement to come through. let's see if i can get this to move over. ftse is opening, everything is opening reasonably positively. manus cranny? manus: interesting conversation with david bloom that brings me back to the equities story. ae hbc -- hsbc global head of -- fx, the effects of violence atthe euro -- you can trade
117, 115, but as far as he is concerned, the big move is done. what does that mean for the european equities story? financials that are, up .1%. seenquity market may have the move done, that headwind from the euro could turn into a tailwind. the other debate in the market is, who will lead the federal reserve? do we really care? that was the other line from bloom. he had some interesting things to say about the prospects of the deficit in united states of america if the current suggested tax reform takes any form. this is sterling. september.un in it will take a little more to pump up sterling. we are waiting for the data today. 3.2 is what we are looking for. ,our downside risk is this
returnays politics will as the dominant feature in 2018. the bank of england moved the market, a did create the september move. the market more or less ignored mark carney. but cable is bloodied will return. you are seeing yields at the bottom of your screen, stoxx 600 flashing up there. 1.3% is where we are on the gilt yield. will theresa may shift on sterling or gilts today? she has the uncanny knack to help markets make the decisions. she did last year at the tory party conference. she told them to put up and shut up and that on with paying attention to the voters. that is one editorial piece on the bloomberg. else and sterling, that is our focus.
guy: some of the stocks are interesting. hayes is moving on the upside, up .2 .2. tesco up by 2%. --licity is interesting, publicis is interesting. could we see a potential and amalgamation. feels like more of a slow burn to me at this point, but worth paying attention to. let's take a quick look at the downside stocks on the move this morning. perkins, paddy power interesting, royal mail with the strike story that may be a problem for royal mail, trading down by 1.43%. i will get you a price on volkswagen and we will get act to that, as -- back to that, as well.
story should the be more positive from volkswagen at the start of mornings -- the morning straight. its turn back to what is happening stateside with the fed. bloomberg sources indicating donald trump's advisers have given him a final list of people they are recommending as candidates. yellen, garyet cohn is also said to be still in the running. the former fed board governer, the current fed favoredvernor, who is a fiscal conservative said to be in the mix as well. that would be interest -- an interesting choice given mr. president's view on debt. the head of investment strategy at barclays, are you paying attention to this? >> i think the world seems to be paying attention. -- i a good point, you
thought he was spot on. you have the fed in the background in a normalized economy. for us, the king we are looking at at the moment and the reason we are happy with the fed and yellen's recent comments committed toey are a more normal monetary environment, is because we have looked at private sector risk appetite as looking normalized. the u.s. economy looks in pretty good shape. even assuming -- some impact. that suggests monetary policy needs to move steadily back to a more monetary policy setting. be qe made -- needs to slowly but surely online. we would be concerned if they went to a much more dovish mandate. jeffreys is what gundlach had to say.
-- he is neel kashkari very dovish, and speaking of, he explains why he thinks neel kashkari and not gary cohn. william: it is one thing to have x goldman people from 20 years to thedenly descend central bank. the number two guy from goldman sachs, it is just too close. i think it is going to be neel not ari, who is traditionally phd trained economists, but he is the most easy guy in the reserve system today. that is why i think he might win. guy: what about him? wouldn't be your choice. we get to is, at the moment, people are talking about where we are in the cycle, and i think what you get to at
this stage is it seems to be the phase where if you have high levels of confidence, banks are more willing and able to lend into the economy and the process is creating money more so than they have in other stages of the crisis. the crisis recovery seems to be the area where bubbles pop up. i am talking more in the u.s. subprime loans, little instances of stuff where highest -- higher interest rates are needed. when capital is priced appropriately, it tends to be spent a little better. the wider economy -- and remember, inflation is lagging, not a leading indicator. for us, the lead indicators are still consistent. the world's economy hasn't looked good -- this good in many years. you have a vibrant recovery. guy: why is the market pricing in a 1.5% fed rate hike? william: there is a number of
things in there that people will be a little doubtful about the part of monetary policy from here. guy: muscle memory kicks in at this point. you would be right if you have listened to that little voice on your shoulder. william: probably that for us has to come up a little bit. there is going to be more interest rate hikes than are currently priced in in our opinion. but we have to keep in mind that the path of inflation -- yellen has been clear that the relationship between growth inflation is one that is prone to prediction. we see the labor market hike tightening further and inflation will come certain the economy but we are not expecting anything horrible yet. just that inflation is unlikely to be below target for that much longer. rockeeds to get on to the process of normalizing interest rates. that is good for the economy and asset markets. guy: it doesn't feel like the markets -- for that right now. you, hecome back to
stays with us. there are a number of people you want to listen to and we will talk to one of them. tom keene talks to stan fischer. that conversation 11:30 a.m. london. 6:30 a.m. in new york. bloomberg customer, you can access this function. tv and you get a landing page that looks like this. as you can see, there is stan fischer coming up later on in this program. we will be joined to talk about what is happening in spain. radio andan get into the events coverage coming up on bloomberg. up next, we go back to the conservative party conference in manchester and hear from the trade secretary about the hurdles facing brexit negotiations. that is next. this is bloomberg. ♪
♪ welcome back. we talked earlier about the fact we may see a little bounce in the german auto sector this morning. one factor is the dax playing catch-up, the other is we saw very solid data on the sales front in the united states for the month of september. as a result, what you get on the backs this morning, which is outperforming, is bmw and daimler all leading the charge taking the dax higher. -- daimler doing
decently, as well. the adrs have been priced into the german market this morning. let's turn to what is happening in managed -- manchester. theresa may is growing concerned that it could exit the eu without a trade deal. both sides blame each other for slow progress over talks. anna edwards spoke in manchester to ask how the eu could bring more to the brexit negotiation. >> it is our right under the if britainis not as is doing something to against the rules, we are doing something that had been agreed that we had the right to do. that agreement itself says that the european union must give due consideration to the future relationship. we think it is time for them to honor that part.
just hearing the comment's philip hammond has made today, he was talking to business groups saying that perhaps business needs to do more to persuade some members of the cabinet about the need for transition. cabinetone of those in that is not persuaded of the need for a transition? we will know what transition can be when we know what the end state is. unless you know what you are transitioning to a, it is hard to see what that will look like. i am very keen that we get to that second stage. it is the most important part of our negotiation with the eu. -- to trade investment into europe. if that happens for reasons of political ideology on the other side of the channel, that would be very unfortunate because it would be disrupted to europe as a whole, and i want prosperity for the citizens of the europe to trade on the competitiveness of europe is our priority, not
politics. anna: does that come before any transition or implementation? >> until we know what our -- we are transitioning to, it is hard to know what our position will be. out ofleading they -- the customs union by march. if we want to make rules to make sure there is no disruption to our business, i have no objection to that but i want to know what the end state will be and it can't be less. guy: interesting conversations taking place in manchester. do any of them mean anything to the financial markets? the head of financial strategies at barclays still with us. politics is taking a backseat increasingly. it is the bank of england that is really driving asset price movingon in the u.k. by
sterling, hume of the ftse 100. by moving sterling, you are impacting the gilt markets. everything else slips into the narrative. if you look at short rates, november looks like a done deal. my question is, does the uk's economy, given all of this noise , all of the spreads it uncertainty and who knows what bel happen next -- would it a policy mistake for the bank to deliver a rate hike at this point and follow it up month more -- with more. william: the first thing is, do they need to take off the extra monetary accommodation after brexit? there doesn't seem to be too much debate about that? not doing great, but certainly better than many forecast. generally, the u.k. economy from movingrspective is
along. to that extent, you probably don't need that emergency accommodation. do you start on a rate rising cycle from here? that is open to some debate. for us, the economy is sailing into dark waters from here. i think the trick with theresa may's speech today after florence, she has to fling some red meat at the conservative party table. the sterling reactors -- as we gett to make is to october 2018, what kind of deal will be put into parliament. could this more fractured -- fractious parliament vote this down? in brussels corridors they are talking about if that does happen and the eu parliament votes down, you extend article 50. what happens in that situation? guy: this is another debate.
is an extension a good thing or a bad thing? in some ways, financial markets like certainty. by extending uncertainty, aren't you just creating more difficulties for the markets to price? you pointed out earlier, the u.k. economy is almost irrelevant to capital markets. most of u.k. profit, quote -- corporate quoted profit comes from elsewhere and even the yield curve dances to the tune of the u.s. economy more than anything else. effect onion has an the u.k. economy, it is interesting relative to elsewhere in the world. investment is kind of flat in the u.k. economy. elsewhere in europe and the u.s., investment is picking up. i think we are missing out on these trends and it is understandable that around the world they are asking to see what goes on with the trade and backdrop we have to operate in. wellnging that, you may
see investment flatlining little bit. guy: stick around. he is the head of investment strategy at barclays. iser on, politicians and this leaders going to moscow for the meeting of 2017. vladimir putin will speak during a panel discussion moderated by bloomberg. do not miss that conversation. certainly worth paying attention to. 11:00 a.m. london time. this is bloomberg. ♪
♪ 8:20 one in london. a bloomberg business flash with sebastian salek. homing in on google services including gmail, a wide-ranging investigation about how russian operatives harnessed social media during the 2016 election. the senate has already called google to testify. cnn reported that some russian link ads targeted key mess -- midwestern states of michigan. yahoo! has revealed all user accounts were affected by a hack . about 3 billion of them. the company is part of verizon. telogen's about customer information, the information do not include passwords or payment card data and bank account data.
uber says it will move forward with a new major investment deal from softbank. limit -- reforms would early backers. unanimously to approve sweeping changes to the company's power structure. people familiar said the plan would expand the size of the board to 17 seats to accommodate two spots. that is your bloomberg business flash. guy: thank you very much. have hit another set of all-time highs in u.s. stocks. yesterday, blackrock with his take. erik schatzker, we asked if there was still room to run. >> less than international stock. europe has run a currency adjusted basis 10%, asia, 10%. have out run in the last three or four years, we have run much faster than some of the other places in the world.
there.rry fink as we make record stocks, questions remain about where the bond market goes next, how fair value is credit? punchy,ks look pretty as well in terms of various metrics. to be honest, everything looks pretty fully valued. there are a number of questions that arise out of that. what is the most valued, are there bubbles there? can you find correlated assets at this time? still with us, what is an uncorrelated asset right now? william: this is important. when you are talking about is what you want is -- stocks have demanded higher risk premiums. want themyou don't to, in recessions they perform terribly. historically, in most recessions, government bonds
have provided that role. and probably would in a benign inflationary environment. your concern here is that if implicit -- inflation expectations start to change, that would remove that key factor of the government bonds. if you have got a sudden return of risk premium -- and inflation risk premium and you found written interest rates going up at the same time, that could significantly reduce the benefits you see from government bonds. guy: i've asked this question and the answer seems to come back infrastructure or property. do you agree? william: to a certain extent. again, you have got to be quite selective. it is not homogenous, property, global property sector. there are lots of little bits in the u.k., commercial property in tiny yields. it was interesting, jeremy
corbyn was talking about privatizing pf i. back, i you take a step think my counterparty is solid in an at the structure deal, but if jeremy corbyn was the cabinet party, with that political risk exist? guesses,you are making as you -- as soon as you found donald trump getting into power, everyone extrapolated on every campaign promise. ignores thet congressional sludge and the difficulty of making policy action. you have got to be careful about how precisely you extrapolate policy from campaign promises on infrastructure with regards to how you invest. there is a role for infrastructure in portfolios, but sticking to the major asset classes, you still have to assume that inflation returns reasonably benign. there is a safe haven role to be
would rather talk to at this moment. it's interesting. from the chair to the throne, the king' a speech. the authorities in barcelona prepare for a unilateral independence declaration. how will madrid react? higher, and we hear from the cfo. let's talk about how the stock markets are trading around europe. germany is playing catch-up, but has now been overtaken. .4%.tse 100 is up by outpacing the wider markets. the dax is trading higher. the stocks are doing reasonably well, trading up on the back of these and data out of the u.s. yesterday. let's move on though, and talk about what is happening in the
political arena. spain's king has told catalan that the unacceptable disloyalty has no place in the state. vowed to keepas the country together. >> the catalan regional government has broken the democratic principles of every regional law. the authorities have rejected the affection and solidarity that has united and will unite all of the spaniards. due to their irresponsible behavior, they are threatening the economic stability of spain itself. guy:. we are now joined from barcelona warninghe king is separatists they need to stop immediately and the catalan government is pushing ahead. what impact do you think the intervention had? maria: we need to keep in mind that this is a king that likes
to stay out of politics. it brought the country to a standstill. everyone went quiet. he said, this is completely undemocratic and completely reckless behavior. ors is not about rjoajoy politics, it is about the foundation of the country. the regional catalan president came out and said, we're going to declare independence at the end of the week, or by the earliest, next week. this is not stopping. it's an escalation on both sides. guy: how will the prime minister use this? how will the intervention by the king work to his advantage? anda: that is the key point main takeway. rajoy has been under a lot of pressure. king enteringthe
the political spectrum and saying, this is not about rajoy. he's elevated this to a matter of state. it's interesting how the socialist party says, look, where not going to back him in this. it is very difficult for the opposition not to listen to what the king is saying and not appeal to his call for unity. guy: maria tadeo, thank you. we have seen a little spread widening in euyrope. this is the spanish government bond market trading over bunds. you have seen the spread widening. we're not at levels we saw back at the beginning of the summer. but we are definitely seeing a little bit of a move coming through. it's maybe an impact we are
seeing on the euro as well. let's talk to wolfgang piccoli. whose decision do you think it was to put the king on tv? there was pressure from the prime minister's office. any act by the king needs to be backed by the government. reflects the gravity of the situation. the king usually speaks to the country on christmas day. this shows how high the concerns are at this stage. guy: basically, the prime minister had a part in this, a fairly significant part. what was the expectation? what do you think mr. rajoy was trying to achieve by putting the king on television? >> most likely an endorsement of
the approach used so far, the rule of law. kind of em is that speech does not help at all in terms of softening the situation. it polarizes the situation even more. we're in a standoff here and in the short term we will see tensions going up further. guy: what will happen if there is a unilateral declaration of independence? >> you might declare independence, but maybe you say you will give it six months. if that goes ahead, you will see law-enforcement being used to target the pro-independence parties and politicians. unless the socialist party decides to support article 155, inning suspending the rule
catalonia, it will be forced to use more of the same, the force of the law. guy: how stable is this government? >> in madrid? in the shorterm, the question by investors is about the budget. they don't have the numbers. the party has withdrawn it. certainly, the situation has heightened. anon't think rajoy will call election until the catalonian issue has been solved or the tensions have gone down. certainly, the tensions before the election are higher. guy: how will the eu react? >> they will do what they did on monday morning, say this is an internal matter for spain. they will call on everybody to be responsible. guy: how will they react if madr id riots on the streets again?
how lnoong can the eu not make comments, or become a more aggressive in the comments -- or heighten the comments? how will brussels deal with that? they will just carry on? >> it is the usual statement, calling on everybody to behave responsibly. still, they will say there is a mende and they trust rajoy. mandate and they trust rajoy. guy: does that change the perception of the eu more widely? >> i don't think it does because at the end of the day the question is, how do we look at this? is what they are trying to do in catalonia legal or not? we have to start from their. -- we have to start from there. that's the starting point in brussels. it's very clear what they did is
illegal, and they will hide behind it because at the end of the day come intervening opens a can of worms. you don't want to be involved in that. guy: wolfgang piccoli, stick around. it's a big day for the oil sector. major players, including putin and the opec secretary-general, gathering for the russian energy weak. -- energy week. you have just spoken to the iranian oil minister. what did he say about the opec deal? >> good morning, guy. he basically said discussions are still ongoing on whether opec will extend the deal. right now it goes until march of 2018. he says opec needs a stabilization and no surplus in the market and if they need to increase that environment, they will. islly what the debate
not about whether they will extend, but if they will extend past march 2018 for six months, or if they will go through the end of the year. it is in port and to remember that production for last month was actually up, but compliance was down and for this deal to work, compliance is key. that is when i asked the iranian oil minister about. course, some of the member committed countries to our argument, compliance is not them. annmarie: now, guy, you can't talk to an oil minister without asking him what he wants to see in terms of oil price. he says $55 to $65 a barrel is except double. later today, we will hear from president putin. he was really the king maker in
this opec deal. he had a lot to do with getting this deal done. he said today he wanted the deal extended. so we might find out ourselves. guy: great coverage coming out of moscow throughout the day. annmarie hordern, thank you very much indeed. dup's brexit red line. that's next. this is bloomberg. ♪ guy: 43 minutes past the hour.
i him just waiting for the italian data to drop. let's talk about what is happening with brexit. we spoke to the dup leader yesterday, anna edwards did. given what she had to say about the border issue as it relates to the brexit talks. >> if they were to be a border between northern ireland and the rest of the united kingdom, that would be a red line for us. we cannot have that. the primefair to minister, she has been clear about that. we have seen some top coming out of europe, but that is not acceptable. guy: remember, the british prime minister relies on eileen foster in that deal that was done post the inconclusive election.
thatoncern is increasing it could crash out of the eu without a trade deal as the two sides increasingly blame each other for these slow talks . there >> is not real progress being made at the moment. -- there is not real progress being made at the moment. >> know, they are moving ahead, talking about the future relationship between the two sides. and the clock is ticking. it is a very difficult balancing act theresa may has to do. that means nobody is spelling of policy priorities. we has speeches, but a speech is not a negotiating position. guy: what is the probability of a hard brexit? is the number going up or down?
>> the number is going up, because we are wasting time. the prime minister here is continuing to struggle to keep control. and the pressure from the brexit, and boris johnson's speech, is a continuous reminder she cannot forget that. that makes it more difficult to spell out a negotiating position because once you do that, you subject yourself to attacks. it remains very fuzzy. guy: let's talk about the council. how distracted is the council right now? the leaders? we have the german government formation process underway at this time; we have already talked about what's going on in spain. rajoy is obviously worried the brits will try to go over his head. will everybody be listening?
because there's plenty of other stuff happening. >> no, because they failed. he's got the limited mandate. it will be expanded most likely in december, not before, to talk about the future relationship of the european council. the priorities are elsewhere. there is no government in the netherlands had, there is no government in berlin yet. spain, as we were discussing before, is facing significant domestic challenges. they want to focus on what is next for europe, based on the macron speech, what can be done for further immigration. important story, but they are not willing to engage with london on this. guy: we get to the summit, and the brits are hoping we get to an acceptance, so we can start running the trade talks in parallel. the mood indicated that is not
going to happen. that would be a setback. how do you expect the british to react to that setback? >> it is very difficult to say because we still have to sort out the divorce part. we are still not there. guy: but the british argument is we cannot sort that out because we do not know where we are going. >> that is an argument that is not going to fly in brussels. guy: exactly. so, we get through that summit, we are not moving on to the next phase. s negotiations.ations tell you what will happen next? -- what does negotiation theory tell you about what needs to happen next? >> it's still very unclear at the end of the day. guy: do you think we will hear more about a walkout at that
point? wolfango: i think if there is a lockout, it is suicidal at that day. a walkout would mean a hard brexit. suicidal.eadline is they are not in a position to walkout. the leverage here is not with london. that is the reality. the reality is something those in the conservative party do not want to digest. guy: one final question. do you think there is a final dose of reality in this question that trade deals can be induced easily? >> who was going to do a trade deal with the u.k. when you don't know what the future is? guy: no, this idea that we will be seeing the u.s. -- wolfango: it will take a very long time. body out there willing to do that. the european union is doing trade deals.
they just did one of canada and are doing one with japan. there's opportunities out there for the eu more than the u.k. at this stage. o piccoli,ang g joining us. oil is still trading at half the level it did back in 2014, th ough that was a weird time. later today, president putin will sit aside the opec secretary-general on a panel moderated by bloomberg. bloomberg's executive editor will leave that discussion and he joins us now from the russian capital. you will be sitting down with vladimir putin later today. what can we expect to learn from this panel? >> well, first and foremost, the key question people in the oil industry have about the industry is the future of opec production cuts. as you know, currently, this
rather remarkable deal that opec did with russia will expire at the end of march. the big question is whether those production cuts will be extended. oil is on the right side of $50 now. so, the question for president seems to this deal have worked well for russia, but how much longer could it be atended and could we imagine future and wish russia even joints opec. guy: it provides the stability, that is the big picture story. from the russian perspective, what is the big worry for this sector? john: it will be very interesting to see how the panelists respond to this. there's a narrative that russia and others established, that they are extremely
underestimating the speed by which demand for particle fuel is coming to an end. the demand will peak much sooner than you think. they do look very optimistic and in the russian oil sector, there is a big question for shareholders about value for money. rosnet has spent $100 billion in acquisition fo but the market capital is only $58 billion. that is a very difficult question for president putin and the people who run the russian economy about whether this actually is the best use of taxpayer money. withjohn, we are all agog anticipation, waiting for this event. as you sit down with such an
amazing panel. we will look forward to that discussion. thank you for taking the time to join us. , moderating the panel later on with vladimir putin, the russian president. we will be looking for that at 11:00 a.m. russian time. tesco reporting adjusted operating profit that beat analyst estimates. we spoke to the cfo. the 759 million pounds we declared, 27% on last year. u.k., werly int hn the have held inflation below where the rest of the market is. we are about one percentage point below and we see stronger volume growth particularly in fresh food and food. customers have responded well. reporter: will you continue to hold inflation below the competition? something you have done in 2017 and even before. >> it is something we have been
trying through the year. inflation has been here throughout the course of this year. as we go forward, we would want to be on the side of the customer and holding back the inflation, working with suppliers for as long as possible to mitigate that inflation. reporter: the second quarter, the analysts we surveyed, we are looking for 2.5%. inflation, that is and how much of that is volume? >> we have seen volume growth north of 3%. that is underlying stronger growth because of this 30 basis points of drag by the way we've been managing our profitability. so, if you take out the general .otion, underlined volume is up we are pleased with that. reporter: when it comes to brexit deals and inflation, you think we are over the most volatile period, given the pou nd, at least for now, seems to
have settled? >> there are two elements to inflation. one is the currency impact and there has been volatility. the other element is underlying commodity and inflation. we're seeniging that as well. well's some that may continue, but we are trying to remain more competitive. reporter: when it comes to brexit, do you have contingency plans in place to ensure supply for fresh food, in case the worst-case scenario, hard brexit, plays out? alan: we have looked at a number we'renarios and for us, looking at our suppliers, where the use of reasonable labor in the agricultural part of hours r supply base is affected by brexit. reporter: how are you managing it, the fact that real wages
have been declining because inflation is outstripping the pace of wage growth? alan: we see no impact really, in terms of change in consumer behavior as a result of inflation and potentially less money in their pockets. for tesco employees during the first half of this year, we have determined a 10.5% pay increase over the next two years. more than 300,000 tesco colleagues in the u.k. have seen some salary increases. reporter: the target is 1.5 billion in 2020. it seems to be on target. agreed? alan: yeah, we are slightly ahead of where we planned to be and expected to be. we always felt if you look at the graph we shared when we first spoke about this, coming to your next year and the year after that, that we are pleased
francine: the fed shortlist. president trump's team gave him a selection of names to replace yellen. from the chair to the throne, of king's speech speaks unacceptable disloyalty from catalan separatists. no deal fears. the u.k. government is worth they could clash out of the eu. this is "bloomberg surveillance" and i'm francine lacqua in london. happy wednesd