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tv   Bloomberg Surveillance  Bloomberg  October 17, 2017 4:00am-7:00am EDT

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francine: john taylor is said to have impressed president trump, but will his hawkish stance fit well with markets? jet program is challenging china's ambitions. cpi is expected to spike to a five-year high as mark carney testifies this morning. this is "bloomberg surveillance" and i'm francine lacqua in london. we have a very packed show. mark carney starts testifying at
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11:15, london time. if you look at the dollar, it's heading higher. thee's speculation that next head of the federal reserve will be hawkish. there is a little bit of concern about north korea. that also gives geopolitical risk more of an impetus. touch,o is weakening a as investors weigh during the standoff in catalonia. that is the expectation that brexit talks are heading for a breakdown. i am also looking at gold. let's get straight to the bloomberg first word news. reporter: north korea has warned that a nuclear war "may break out at any moment." the comments come as the u.s. and south korea began one of the largest joint naval drills in the peninsula.
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un expressed that his country is a nuclear power and warned the entire u.s. mainland is in range and called north korea responsible nuclear state. brexit missions to aussels might have been flop. according to a person familiar with her team's views, senior administration are now losing faith. mitch mcconnell has presented a united front, saying they are both fighting for the same front. the two appeared together at the rose garden and insisted they are closer than ever before. trump told reporters they are on the same page when it comes to taxes. >> we are fighting for the
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biggest tax cuts in the history of our nation. we are fighting for tax reform as part of that. you're getting close to health care, it will come up in the early to mid part of next year. we feel confident we have developed. reporter: in ireland three people have died. the country had some of the worst weather conditions in 50 y ears. airlines canceled flights with the storm slamming the south of the country. at least 350,000 homes and businesses lost power. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm nejra cehic and this is bloomberg. francine: john taylor made a favorable impression, we understand, on president trump. meanwhile, former board governor kevin warsh hasn't seen his star
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fate at the white house. trump is expected to interview janet yellen on thursday. what is the future of the fed? joining us now, luis costa and kamal sharma. thank you both for joining us. at whowhen you look we understands, he is more hawkish. does that mean the market needs to start pricing in a more hawkish fed, or will it be different if he gets the job? >> the market has been oscillating between a potentially dovish yellen type replacement. this week it is john taylor. everybody knows john taylor from the taylor rule, which critics %, 2%rates could be at 4
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predicted for inflation. the market is nowhere near there at the moment. recalibration. what does this mean for markets? >> i don't think it will be that detrimental. one different than we have now compared to 2013 is the fact that it is now coming to the forefront and over performing. i think that will continue until we really stopped short but something out of china. i am not saying there is going to be a fantastic catalyst for the fx, but there will be more resistance in this new environment. let me bring you over
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to my chart of the day, which is a spread of the two year and 10 year in the u.s. where does the spread go if john taylor becomes the next fed president? >> the market has one and a half hikes priced in. in that scenario you would expect the front end of the curve to remain much more supportive, and by implication, that would be dovish for the dollar. one thing wet is don't understand about what the fed is doing? >> i think there are a couple of things here. the market is still trying to grapple with the idea that there is a broader mandate the fed is looking at. the market where is pricing, i think the market has been continually disappointed by the way the fed has moved policy relative to where it placed the dots.
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i think there's a bit of conservatism there. the market believes there is a policy change around the corner and inflation remains relatively soft. francine: do you see the possibility of a policy mistake? what are the markets not understanding? >> it's a two fold normalization of policy. francine: but why? what are the markets not getting? >> four months ago yellen was in front of the u.s. senate. we're not sure what it will be like if we start moving the balance sheet so, either from the policymaking point of view, there is a lot of debt in terms of what the vital impact will be. the market is now.
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ehen it comes to the u.s., th european growth cycle looks a lot younger. so, we don't know. there's a 20% ability of a recession in the u.s. in the coming years. i think that's the story. francine: but at the same time -- and the story luis, the fed is itching to hike. the nextconcerned in downturn, that could be around the corner, they will not have enough. >> i think a lot of the focus has been on the 2006 episode,
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when greenspan hiked at a pace that was potentially too solow. this is why the market continues to focus on that concept of policy that financial conditions remain relatively loose, and that suggests the fed needs to accelerate only tightening process. that is how the market is perceiving the fed. francine: if john taylor is the next fed president, will we see a significant market move? >> i would say the dollar will rally. francine: and treasuries? >> the same. francine: there we go. both stay with us. plenty coming up, including the fight for the skies. the c series jet program, opening up in the battle with
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boeing. we'll talk u.k. this is bloomberg. ♪ francine: this is "bloomberg
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surveillance" and i'm francine lacqua in london. reporter: a new target has been found for credit suisse. according to a person with knowledge of the matter, he has taken a 0.2% stake in credit suisse. met in recents weeks with senior managers at
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credit suisse to discuss some of his ideas, including a separation of the farm's investment banks on the private banking unit. netflix shares have hit a new high after the company posted the best third quarter ever. they added another 5.3 million subscribers, and is expecting another 6.3 million to sign up in the fourth quarter. revenue was just under $3 million, beating forecastss. has received a request for documents related to falsified product data. the company said it would cooperate with the investigation and it cannot yet quantify the impact of the scandal on the earnings. risks engulfing japan's third-biggest steelmaker, whose products are used by ford general motors and boeing. confirmed shipments
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from western australia will hit 330 million metric tons this year, topping what was exported last year. the rail capacity increases and lsports by china's steel mil keep searching. francine: airbus has agreed to acquire a majority stake in the c series program come opening a new front in the battle with boeing over global aircraft sales. benedict, airbus walked away from a similar deal two years ago. so, what's exactly changed? >> so, we raised this question last night. they broke this announcement in the middle of the night and there was a conference call with the ceo. he said times have changed. was not flying and
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they did not know if it would be popular with customers. now there are more data points with this. theave some issues with larger planes. through. to work the timing at that time did not seem right. also, bombardier is in a bit of a funk. they tried to sell their train business, which did not succeed. the longer we wait, the more bombardier will have to try to find a partner. francine: what can they actually achieve here? it is not getting any money in the deal. >> it does not get money, but it gives airbus clout. the problem with the c series is not the plane itself. but for customers looking to
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purchase this plane, the question was, will this plane be around in the next 20 to 30 years? planes have some of the longest industrial cycles out there of any product in any customers buying this will ask themselves, is this something that will get serviced over the coming years and, does it have the backing of the manufacturer? now that is a resounding, yes. who can push this? who can market it? a lot of customers who might see been in the wait and scenario previously are now saying, let's do it. francine: how does this change the dynamics in the industry, especially for boeing? >> for boeing it is potentially bad news. a big buyer in the u.s. market is still dealt. boeing felt they were marketing planes at a ridiculously low price. there was a big tax slapped onto
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the c series. airbus is saying, why not make this a u.s. made product, circumventing the tariff. that is good news for you, but bad news for boeing. i know have the backing of the archenemy airbus. francine: thank you, benedikt kammel. how are trading disputes affecting markets? andl with us, luis costa kamal sharma. bit liket a little a trade war. of industries get together worldwide? >> it's a far more idiosyncratic
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story driving the dollar. there has been a history where trade war that the negative for those currencies which have large cardica deficits, the most notable period being in 1995. the dollar-yen had a significant move to the downside. it's all about the ability of capital flows to find out the current account deficit. francine: do you look at some of these stories, luis? >> we do and it is very important for emerging markets. it's funny, because we are now, 2016, we are at the height of protectionist measures, especially when it comes to natural resources. coal, steel, you name it.
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but this has been offset by the terms of trade story. we know in south africa, the aussi-dollar, some of these currencies have been met by trade. we were discussing the boom in iron ore and copper and all that. this is kind of upsetting the story of protectionist measures. one big concern is we do not know what will happen with nafta. nafta can be a total kick in the face. we don't know what will happen. two weeks ago we were not discussing nafta, and here we are worried about the total implosion of nafta, and what that means for the mexican economy. it's important component. guys.ne: thanks, both stay with us.
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getting ready for the party. caution spreads through chinese financial markets. we discuss. discuss that next. this is bloomberg. ♪ francine: this is "bloomberg
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surveillance" and i'm francine lacqua in london. caution is spreading through china's financial markets. analysts expect to see substantial reforms emerge. stocks, bonds and currencies
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ahead of the gathering. from citigroup and kamal sharma are still with us. the pboc governor was speaking at the imf. we worry about debt, and some of the things they have been trying to do is to shift onto equities. are you worried that a financial crisis could start in china? >> look, there's always this risk. it's a highly leveraged economy. do aow they have tried to few equity swaps. nine took place over the last quarter's. -- over the last quarters. trying tore gradually deal with that. dependent on the way you look,
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leverage has not changed much. what you do have now, you do have a better dynamic going on in the country. i think the one important message, in terms of china now, is over the last quarters, china has outperformed the consensus. this is an important message to give. there are quite a few china bear s out there and the trades did not work out. capital outflow started to become reasonably contained. we know a lot of these outflows are repaying some of the dollar debt abroad. ath towards a p some degree of normalization here. it needs to be balanced. would i trade here against that?
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i don't think it is the case. francine: would you, kamal? you could argue that all the dollar moves and treasury moves are underpinned by what's happening. beene data has certainly consistent by central banks in asia. i would probably ascribe that two other central banks outside of china. g10, we perspective in have been surprised about the resilience of jenny's growth and that spill over into the european growth story. -- about the resilience of china's growth and that spills over into the european growth story. we've had to revise our european growth forecast. there's a nice spillover affect. we were on the bearish side of
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the trade, but we have been surprised in terms of the resilient side of the economy. francine: where does inflation come from? this is the phillips curve, and it brings us back to where we started at the beginning of the show, saying where his inflation and what do we do about it? does it have to come from china? >> not necessarily. many countries are still grappling with the topic of high levels of employment and low levels of wage growth. that's wehere central banks are definitely trying to determine where the second round effects of inflation will come. is it going to come from wage growth? the demographic story has been well documented. francine: what is your take on inflation? >> it is interesting because coming from d.c., the world bank and the imf i noticed a lot of
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humility coming from policymakers. i think effectively you can see economies seeing a pick up in services, nothing based on energy or food. the czech republic is one example where you see a central bank that started hiking rates before the ecb, preempting the ecb. the domestic scenario is giving ample signs of some reflation. we might have some very interesting surprises in 2018, when it comes to the temporary means of alignment and realignment of the phillips curve. francine: so, it is not dead? >> absolutely not. francine: do you believe it is dead? >> we would definitely be on board. francine: if he were fed governor, fed chair, let's say
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you are kamal. would you get rid of the dots? >> now, i think the market need something to anchor its expectations. anchor to which the markets can hang their hook on. francine: would you get rid of it, fed chair costa? >> it is important, it's an anchor. it's up to you as an analyst to tgive the weight you want. if it's taylor, one of the things he is banging about is more transparency. i don't think he will get rid of the dots. francine: luis costa and kamal sharma stay with us. there's quite a lot of inflation data out of the u.k. this is probably the one mark
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carney is looking at very closely. he's testifying an there will be a lot of questions about future of the economy. he will be fielding questions about brexit. the forecast is coming in at 3%. we are looking at the core at 7%. this is as expected. there is nothing above. we're looking at some of the figures. it's a little bit weaker than what was expected. this is coming in month on month at 4% instead of the 2% we were expecting. that may be why the pound is moving a touch. that is the latest on u.k. inflation. we are looking at the british pound.
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cpi is 3%. encouraged. it -- encouraging news. >> is in the process. in terms of the move in the market, sterling has been the story over the last two or three about yield support rather than significant traction on the brexit negotiations. as long as the pound has the support from yield, which has been a traditional driver of the the pound willct remain elevated. the key point could be the inflationary report. in 2018uld eat more area -- 2018. francine: is it going to be difficult?
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is it going to be difficult for the boe to convince people like you, sterling investors that they are one and done. this is a reversal. >> they are looking at comparison. it they are taking back 50 basis points and they look at the next few months against 2018. the concern mark carney has is what he is mentioned in the past , the kindness of strangers. the u.k. net foreign asset position. and it'sa deficit starting to reverse. 125 billion pounds in the second half of 2016. they are now outflows. if the brexit negotiations become disorderly, we have a
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problem at the end of the year. the pound is at risk. that's always been our concern for sterling. carney has to manage that. david: this is one of my favorite graphics overall. francine: this is weekly earnings growth. the inflation figure has climbed to the highest in five years. there is a squeeze on british households. at one point does this become uncomfortable? >> it is uncomfortable now. it has started to slow, especially with inflation beginning to rise. that is going to start to hurt. unless the market remains robust, we will continue gains in employment. we see the squeeze on real earnings beginning to be an issue for the consumer going forward. david: what is your certainty about the pound? francine: does it go down from
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here? >> we like to be structurally long volume. if you look at sterling, it is relatively elevated. directionally, if i had to make a call, we think the cable could head back toward the 130 level by the end of the year. it already depends on how the market sees the negotiation. that is helping the pound, the transition. despite all the noise we hear from brussels and london, that transition will be agreed and that should underpin. francine: what happens to the pound if a crash out of the eu? >> we could see the pound 20% lower. francine: would it the a brutal move?
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what remember the date of the referendum. we think it could be something similar. yesterday, we saw headlines from bloomberg saying sources had a per -- intentional move. we think that is the worst-case scenario. at thee: do you look cable? >> we like euro pound as well. the risk is the euro spending does go higher. what we see from a lower funds paymentsve, the numbers are improving in the euro area. they are meeting term had winds as well. the path of least resents the entire. -- resistance is higher. francine: thank you so much. up
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next, we get a view on where they will go public and how risk events in the middle east could affect the market area -- market. bloomberg. ♪ -- this is bloomberg. ♪
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francine: this is bloomberg surveillance. mark barton has the latest. : signals he wouldn't necessarily the is hawkish as the economist rule for policy indicates. if you adjust the interest rate
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at which inflation is stable down to the level of made it by the fed, the rule would still call for r.o.e. to be set up doubled current level. bonds sold off yesterday off taylor taking over, especially when the adjusted rate rule would call for 3.2% by 2018. that is a great chart as is this, the u.s. west texas intermediate oil prices inching to a very technical pattern. the benchmark is above the 200 day moving average to the eight that golden cross. the last time this happened was in may 2016, right after which the price went up by 18% in just one month. keep an eye on wti today. -- and 11n and 11 day date winning run. good teamt, it was a
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day streak 30 years ago. the lore of japanese equities may be increasing offshore with the index trading at a 10 year. billion shares. that is the biggest increase in two point five years. there is room for more fun close. many foreigners are still under way japanese stocks. chart., this is a simple this is the italy german ten-year spread. cutting its economic growth forecast for 2018, knowledge in the political led.s that has the spanish economy will grow next year less than rejected.
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the impact of the political standoff in catalonia accounts for 1/5 of their out. francine: we have breaking news out of south africa. the president of south africa has named a new energy and home affairs minister. you can see there is a little bit of movement during the volatility if you look on my terminal. you can see it zigzagging in real time. taken with a pinch of salt because we also heard earlier this morning from the deputy governor. he said south african uncertainty limits rate cuts. that may be what is find some of this movement this morning. movement some of this this morning. if you look at other emerging-market currencies, it's the most volatile of major emerging-market currencies since
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the beginning of the year. iraq, it felln after two field halted productions. this is exclusive to bloomberg. conflict in the region won't have a major impact on markets. early to say what , howbe the result of this they are going to evolve and what the implications are on the markets. note at see, we don't major impact on the oil markets. east,ne: in the middle it's been a dramatic summer in europe as we witness the differing approaches to revolving the threat. in june, spain took the bailout approach. later, italy bailed
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out to failing banks. there are implications for foreign investors. what can they take from these examples in solving their issues and what could that mean for investors? joining me on the risks for investors is the managing director. he was previously at moody's in dubai. thank you for joining us. congratulations. when you look at the banks and what happened in europe, is there a preference on how they would deal with anything in the region western mark >> -- region? >> not using taxpayer money or bailouts, when you get to the gulf, it's a different story. you don't have taxpayers yet.
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there is no populism or political backlash against bailing out banks. in the gulf, state shareholding in banks is a regular feature of the banking system. the government likes to have a stake in the banks. they are not like emergency states. they are comfortable holding those stakes. when it comes to the bank bailed out in europe, it doesn't make a lot of sense with the government already the biggest equity holder. why would they bail in debt? the structure there in the gulf is different. thought it published kind of works in europe but not as suitable or them. -- for them. joanathan: who owns the credit? it is different in the middle east than europe during -- europe.
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>> we see in the last couple of years sovereigns coming into play with over 160 billion in cumulative in the region. the banks of always been lightly at it. you have a lot of international in testers who have come into the middle east and the banking sector. it tends to be the resource where russia or south african banks are blowing up, the middle east is more stable. it is still profitable. it's not risk offset in terms of credit investment. unit of: does that fear? crisis, you had some distress in that sector. they tend to get taken care of without any particular drama. equivalent, they
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were supported. you don't have the same drama. the government in the gulf is often the biggest borrower and depositor and shareholder. when you have all of the chairs at the table, the tape -- problem's get sourced out. francine: will that change we look at the composition of the economy like saudi arabia? will it change in the next 10 years? what that's a sea change that is happening. oil is changing the dynamic and the structural reforms, if you look at the dynamics around energy and electric cars, it's not a matter of if but when. some of the more stressed countries which have high oil prices, they need to perform. it's the first taxation measure we are bringing into the region.
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that they be the first step, maybe others will come. relatively, starting from such a low base, enviable compared to others. there is headroom to borrow. obviously, there are ipos trying to help diversify the economy. francine: tell me about ipos. is this seems a little this test for the region? there was a report couple of timeline,n terms of committing to ipoing in the region. ipo is in our perception he let us test for the region, trying to bring in external
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capital into the region and bring in warned investors. there are challenges around during it's an undertaking with disclosure issues in the media. of a local listing with some anchor investors that are well-funded might be a good middle ground, a middle step on the path to that. you probably end up sucking local liquidity. that may stress the system more. externalto tap liquidity and funds to bring money into the region and help moderate the concentration rest you have within the region. -- risk you have within the region. francine: is there a perception when they want to invest in dubai or saudi arabia? >> when you look at emerging market point will is -- portfolios, it is part of that.
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they will get pulled into the region. if you look at the story for the hunt forield, -- yield, it is very appealing. these are highly rated countries. the risk reward is quite interesting. iraq and the drama in whatnot, the bond offering a couple of months ago was oversubscribed. we will havenow, to see what happens when rates really start climbing elsewhere. for the time in, it's a growing -- being, it's a growing part for investors in the region. francine: thank you very much. coming up, a local act list investor is targeting credit suisse.
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he wants to break it up into three parts. those details are next. this is bloomberg. ♪
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francine: you're watching bloomberg surveillance. let's get straight to the bloomberg is this class -- flash. >> the move vaults the technologically advanced but slow selling plane onto the front line of the battle boeing. in an effort to circumvent the tariffs, there will be another
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factory in alabama. not much shares hit a new high after the company posted its best third quarter ever. millioned another 5.3 drivers. another 6.3pect million to sign up in the fourth order. revenue with just under $3 billion be the forecast. -- beatorecast forecast. francine: capital advisors have taken a stake in credit suisse worth $102 million. he wants to break up the lender into three parts. more, we are joined. the plan that this activist shareholder once to make sense?
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>> it's understandable if you look at the share rice. down 30% and that is relative to 15% for the stocks of other european banks are in -- banks. some may question the timing. they have outperformed barclays and deutsche bank. there are hurdles that need to be overcome. the plan to spin off the investment bank, that goes against the grain of what we been seeing over the last year. you have seen your plate investment banks like morgan stanley trying to diversify. morgan stanley is pushing the wealth management is this year in a there are a lot of questions surviving the land. -- land. -- plan. francine: he basically says the
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breakup land appears to be on the false assumption the value is similar to goldman sachs and morgan stanley. that is not true. >> it is up for debate. we have seen credit suisse struggle in asia in terms of their investment banking. they have struggled in trading as well. aat is something we have seen weakness flagged ross the industry. credit suisse have underperformed in equities. that is something they need to show an improvement in the next few orders. -- orders. francine: thank you so much. ♪
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francine: will taylor rule?
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john taylor is said to have impressed president trump, surpassing kevin warsh. mark carney will testify at the ukip parliament treasury select committee, fielding questions on brexit. and the fight for the skies. programc series jet challenging china's ambition. one of the biggest interviews i am looking forward to today, we speak to david herro. 90% of the swiss bank. good morning. this is "bloomberg surveillance" and i'm francine lacqua in london. tom keene is in new york. tom, we are looking at european banks, the next fed chair. tom: we have seen swiss banks this morning, a real impatience out there.
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yes, absolutely. north korea is threatening that nuclear war could break out any moment. kim jong un issued a warning as u.s. began and tghehe one of the biggest naval drills in the peninsula. theresa may's attempt to get brexit talks back on track yielded little. she flew to brussels for a din er with jean claude juncker. the national court the there is evidence that catalan police chief surrender to madrid. counterintelligence operations have been directed against officers in the region.
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to havelor appears improved his chances to become chairman of the federal reserve. ylor made a favorable impression on president trump after an interview last week. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm taylor riggs. this is bloomberg. tom: i'm sure that john taylor and the president spoke about the open factor and the inertial force, as seen in the bloomberg calculation of the taylor rule. let me do a data check. equities, bonds, currencies and commodities. in my script for the 6:00 a.m., i talk about not a melt up, but a grind up. oil was a little bit of a list,
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$52 a barrel. vix.o show the excuse me, still fighting francine's plague. now a real test of 23,000. two year yield moves above 1.50 and gold, light as well. francine: i don't know if you noticed, but the last 10 minutes we have had a government reshuffle in south africa. in the meantime, i'm looking at spain and the hardlined response they had to the catalonia succession threat. the dollar has gained a lot with the expectation that the next federal reserve chair will be more hawkish. an activist investor is said to be targeting credit squeeze. - targeting credit
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suisse. ceo says he wants to break parts.der into three joining me on the phone is david herro. david, always great to speak to you on the phone. i know you've released a statement, saying you were actually against this breakup. why do you think this activist investor is looking at credit suisse now? >> well, he is looking at it because unfortunately, the bank's share price has underperformed over the better part of the last half decade. and if we go back into history, we see that about two years ago, the ceo of credit suisse was
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replaced. replacement executed a on loweringocused the capital of the investment bank and pouring more of that capital into the more profitable and stable private wealth management business. so, this has been the plan for the last three years. unfortunately, this takes time. in just a couple of weeks, months, or quarters. this plan has taken time. at the same time you have had to wind down the strategic resolution unit. and so far, over the last two years, though it's taken this long, progress has been pretty good. it is still at a respectable
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pace. , you taketoo fast losses. i think the bank has been responsible. i think it's too late to do the plan. francine: david, if you look plan, first of all, how would you find a standalone program? >> a lot of the funding has come from the profit made from the other units. the bank eventually should be able to fund itself. this will not be able to happen until that sru has wound down. the profits of the company do look muted, but this is because they are winding down this sru. once this sru has wound down, and as credibility comes through in the other regions, you should
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see a much different story. they've done a very good job to date of winding down this sru, but it takes time. our view is we would rather have them optimize the wind down. yes, you want the added asset -- yes, you want those bad assets off, but you don't want to sell them at the wrong price. bank andlays, deutsche now credit suisse -- why are we seeing this? very good question. these banks have long duration, long dated assets. you have to be patient. tom: where is the impatience, david? where's the new impatience coming from? >> they are running out of room. the easy targets have been made.
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a lot of things are really expensive. the reason why the activist is going after this ink in particular -- after this bank in particular is because it is really undervalued. this is where i disagree with rbr. the management has a plan in place that should, overtime, increase value. i believe the types of steps that rbr is proposing cannot happen with the snap of a f inger. there are regulatory constraints. i appreciate rbr's input, i really do. things that look attractive, the investment bank, for instance, where less capital is required. these things would need to be looked at further. they have been looked at in
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the past, but i think management is doing a good job. francine: you believe this year prices undervalued. by how much? is there anything credit suisse can do to undeo unlock value quicker? >> as they have unwound this slowly, but surely -- and they are making good progress. over the last two or three years, they have unloaded 2/3 of the assets in that unit. if you look at projections, it is basically gone in the next two to three years. then you can see clearly the financial earnings power of credit suisse. in the meantime, there has all too much cost in sectors of the bank and they have been cutting costs.
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revenues wereme, ropped, whichve d has not happened. that is a good sign that the plan is showing signs of success. revenue and income are going up. tom: i look, david, at where we are and the key idea you have are the fewer targets. what do you see for 2018 in terms of the conglomeration and consolidation worldwide of banks? >> i don't see an aggressive move towards bank consolidation happening, only because they are still smarting from 2007, 2008 and 2009. then we had the greek
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crisis after that. capital is much stronger, but it is difficult to consolidate banks across boundaries because you have different regulatory regimes. you will probably see some m&a, and there needs to be good local m&a. and you need to see some of these little public banks pumped order stuff process does not seem to make a lot of sense. tom: david herro, thrilled to have you with us on such short notice. in our next hour, if you globally need an update on afghanistan, you cannot do better with the new show "foreign affairs magazine." gideon rose has summed up this issue on america's forgotten
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wars, and part of that is an outstanding article on the state of affairs in afghanistan. eri aaronn and from judge. ♪ tom: bloomberg's
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"surveillance." francine lacqua in london and i'm tom keene in new york. class is in session. let's go to the bloomberg. and instead of showing the chart, this is the actual function. down here is the rule, which is a first order difference equation, weighted. there's a weight, and here is another weight. what's a guesstimate at inflation ought to be. here's policy inflation. and you come up here, and my "surveillance" mathematician told me we are not on the same
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page. here's the taylor rule up here, much higher interest rate, and here is where we are with chair yellen. david stubbs. right?o all >> you did great, as always. tom: does this work? your function on just showed, there are so many different assumptions you have to make to tell you what the rule is actually saying and these are not stable over time. difficult, remely
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it's very hard to pick the right assumption. rules are an essential part of monetary policy, but my personal preference is having discretion regarding how closely you follow those rules. tom: the elephant in the room noe is there's really measurement of economic growth in here. it's a very inflation-centric st udy. what does gdp tell you now about the efficacy of rules-based, versus discretion? >> the table looks that deviation away from the inflation target and an estimate of full employment. itself isr measure
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incredibly complex and contested. the link between gdp growth and labor market performance is again, one of these things that changes over time. right now and throughout the post crisis. more gdpen a lot growth. we don't know that it's going to be the case going forward. pointed out that the economy is still unreasonably good footing and of course, inflation expectations are very low. that feeds into expectations of the taylor rule as well. there is a lot of uncertainty here as to how far unemployment can go before we seek celebration. these are the and 70's that plague the rule-based -- these are the uncertainties that plague a rules-based system.
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francine: this is the two year and 10 year spread in the u.s. if john taylor gets confirmed, what does this do? >> you can expect movement higher in yields really across the curve. probably at the longer end as markets up rates, where the terminal rate will be in this cycle. warsh, and evin now john taylor. both are assumed to be more hawkish. that's why i would see a modest move up in yields, but i think it would be modest because we don't know how these people are going to act in the crucial time of the decision making progress. we don't know if the economy will survive two, three, four years of growth.
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tom: we will try to remain math-free, for at least the next five minutes. coming up, william lee picks up the debris from the imf world bank meeting. stay with us. ♪ francine: this is "bloomberg
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surveillance" with tom and
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francine. the u.k. inflation climbed the highest amount in five years. mark carney will testify in front of lawmakers in london at 11:15 u.k. time. that's 45 minutes from now. still with us, david stubbs. lucy, great to have you on the program. we have some inflation data to look at. this chart is looking at weekly earnings growth, versus real wages. does it mean that a hike is a given at this point? but when't say that, we look at the forecasts, everyone is looking for a hike. carney laterfrom today, so if we are not going to get a hike, this is his last
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chance to aroldis back and if he doesn't, it would be a shock. francine: usually, these get political, they get ugly. it's great tv. how many questions will governor carney field about bre xit, and how politically difficult will that be for him? >> it will not be as difficult as it has been because the committee has changed. earlier this year we had a very punchy committee, these huge brexiteers that really disagreed with mark carney. at one point they accused him of being on goldman sachs' payroll. they sought his resignation. they are pretty much all gone now. that is not to say we will not have difficult questions. he's pretty certain to have to write a letter fairly thin,
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explaining what inflation so off. francine: is the pound going lower from here? >> i don't think the pound will move very much on this rate hi ke. and of course, the brexit move as well moves the pound around, but until we get to next summer, that is when markets will either have relief or concern over the path of brexit. everybody knows up until then we will get a lot of noise on both sides. francine: coming up, a conversation with stephen majors. look for that interview at 12:00 p.m. london time. this is bloomberg. who knew that phones would start doing everything?
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entertaining us, getting us back on track, and finding us dates. phones really have changed. so why hasn't the way we pay for them? introducing xfinity mobile. you only pay for data and can easily switch between pay per gig and unlimited. no one else lets you do that.
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see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit or go to xfinitymobile.com. bloomberg surveillance worldwide on economics, finance, investment, train travel as well. francine lacqua in london. iron tom keene in the -- i am
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tom keene in new york. between kurdish groups -- sayss state-run media iraqi army and its allies have taken an oil field and a refinery. say whattoo early to will be the result of these developments, how they are going to evolve and what the implications are on the markets. for the time, we don't note a major impact on the oil markets. taylor: iraq is opec's second-largest producer. a president trump undermined obamacare in order to fix the u.s. health insurance problems. is forcing republicans and democrats in congress to work together on a solution. president trump says he still wants a full repeal of
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obamacare. despite a plea from president trump, steve bannon will not abandon his war against republican congressional incumbents. according to persons familiar with the plans, steve bannon will keep backing incumbent candidates -- the latestapped up round of nafta talks with a bombshell proposal. to trump administration once disk panel gary sector -- a uses quotasm of tariffs and for dairy products. canada has dismissed the u.s. proposal. global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you so much. euro star released third-quarter results showing a 15% rise in sales on a 4% passenger growth.
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the company has been boosted by an increase for markets outside europe, particularly the u.s. joining us now, we are pleased to stay here in the studio is the ceo of euro star international. thank you so much for coming on results day. effect ofng the currency has on-demand travel. do you think that was probably the most significant thing that contributed to your results? >> i was in the u.s. to see our retailers and the market and people took advantage of the cheap pound to come visit europe. tourism is so competitive and everybody wants to attract tourism and we have benefited. with ath -- francine: sharp rise in christmas passenger figures, is that affects as -- f/x as well?
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tripping --a christmas shopping trip to paris or london and people are spending the money. francine: i think tom is planning a couple of shopping trips. are you raising prices at all? stable. we keep pricing it's very competitive out there. doing well.is tom: tell me about brexit and a idea brian moynihan is going to move bank of america to -- we call it the moynahan express, is brexit good for you? it's got to be good for you, right? the moment the preparations are very good for us. we see a lot of businesses traveling between the two cities to prepare for brexit.
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it's all good for us, i have to say. tom: the "surveillance" travel team suggests eurostar can be confined. when are you going to expand this experiment to other cities? we are going to go to amsterdam next year, it has been a long-term dream for us. next year. tom: it's a long-term dream over here as well. you want your own train. you want the "surveillance" trained so we go around and bringing you exclusive mathematics. i'm not sure the eurostar ceo would be up for that. what that route risk --nibalizing your routes nicolas: amsterdam is a booming
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city at the moments. a lot of cities are moot -- countries -- companies are moving their headquarters there. francine: i guess one of the big concerns we have here is border forces, people being concerned they need to wait for hours and hours at passport control and stuff like that. are you talking to border forces about worst-case scenarios with brexit? nicolas: we are talking completely with authorities deployedt and we have already in london, paris, brussels and adding more and more machines to ease the flow. there is a constant discussion with authorities on that. tom: are you succeeding on the back of taxpayers? explain to our audience the fiscal structure of eurostar and the way you have build it out with government support -- billed it out with government
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support? nicolas: eurostar is a completely private business with private sector -- private shoulders. it's true the launch of eurostar backed byars ago was taxpayers, especially for the line in the u.k. now it is a purely private business with conventional success. tom: david stubbs. i know mr. dimon as you training in storage -- steerage as well. david: i have been blown away from eurostar since it opened. i have taken many trips on it. i'm usually in the back in the cheap seats. in line with the jpmorgan guidance on travel expense. i have a question. one of the genesis for creating this train line was the movement of civil servants from
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london to brussels and back-and-forth. if we had brexit,brussels traffe hurt? nicolas: yes and no. a lot of companies are going to brussels to lobby what is going on and try to influence things and i think that is where we keep going because british businesses keep exporting to the e.u. and then we want to know what is going on in brussels. there. see any -- in david: are you at capacity now? can always, we expand capacity. we are comfortable. francine: we are also talking about the internet and how you can have wi-fi. got wi-fi one board and we are trying to develop the service. we are the first ones to use this technology. francine: how much does it cost?
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nicolas: it is free. francine: how much does it cost to taxpayers? nicolas: a lot of money. tom: "surveillance" correction ee" when i am-f traveling. we will continue with mr. stubbs as well. after your briefing on television, migrate to your car, the trek to work made better, made smarter by "bloomberg daybreak." this is bloomberg. ♪
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♪ francine: this is "bloomberg surveillance" with tom and
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francine from london and new york. airbus agreed to acquire a -- rity stake in the jetliner will be assembled in the united states and the move thrusts airbus into the middle of a better trade spat. still with us is david stubbs. how much does this impact how you look at the markets or how you look at trade across countries and across borders? david: i think this is a very interesting move. results andg some we heard in the previous block about the proposal for the canadian dairy sector. this is a special market and this is the market for airliners -- almost a duopoly getting closer to that with this purchase. i think everyone likes to see these big ticket items made in
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their home country and i think americans will be happy about this deal. francine: what does it mean for future deals question mark bombardier is basically not getting money out of this. is it -- since they are a bit in a funk, what do they get out of the end of it? david: it's not clear to me. it seems to be a move they made under some pressure because of recent announcement in the u.s. and investors are focused on the outcome of these nafta negotiations because where this where the rest of the global trade system might a, especially during potential trump second term. what if there's a nafta negotiations that moves big steps away from where nafta at one point was? what is that mean for his attitude potentially unwinding parts of the mobile trading system? we have to accept the fact that
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this guy could be in the white house until 2024 and there will be plenty of time to go after other key lynch point in the global economy. tom: what is so interesting about these discussions is expect the unexpected. you see that with france and quebec am bombardier. are we going to see more what i what i- not so much would call bilateral transactions, but almost a new sense of joint venture? david: i certainly think that is one possibility in terms of where trade is going. we are seeing a greater nationalist theme throughout international economic relations. you are seeing more disputes greatert the wto and questions over the impact of domestic production of free trade and you've seen some very significant winds in development when you actually have
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international investment paired with domestic production in a kind of joint venture. obviously that's kind of a tricky space in terms of ensuring free market and a lack of government interference. if we are going towards more interventionalists, i think absolutely you will see a revival of joint ventures. hopefully it will be one which serves the purpose of both parties. tom: does it lead to higher or greater world trade? david: i think in terms of volumes, probably lower. a part of global trade's appeal is it should assist growth. talk of the actual impact of trade on development usingtors, if you are
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local production to assist technological transfer, that is one of your key of the focuses. there are many examples where this has been used actually. only a few years ago this was kind of heresy. you didn't want to get in the way of the market, the market would determine that on its own. i think government is demanding more local involvement and more domestic production and it's probably something that is more prodevelopment in the end. francine: we will be back with david stubbs of jpmorgan. coming up in the new issue of "business week, we look at the godfather of mexican any factoring. find out how he -- why he couldn't care less about donald trump. questions onore european banks, some of the things happening with credit .uisse, just log onto tv you can ask -- some questions on
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the bank through tom and us. this is bloomberg. ♪
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♪ francine: this is "bloomberg surveillance."
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biggestdit suisse's shareholder shrugged off a proposal to unlock value in the swiss bank. thed haro which owns 9% of lender stock told bloomberg the activist investor and the current plan is getting results. bank in after this particular is because it's really undervalued. our view is there is substantial upside here and this is probably where i disagree with ibr. the perfect management has a plan in place that over time should release value. now is theoining us ceo and founder of algebras investments and still with us is david stubbs of j.p. morgan private bank. what do you make of this shareholder activist? is there any truth or any kind of vision for the plan or does it make little sense because the
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investor bank is very little for it to be standalone? and toink it's very odd be honest, the into russian -- the integration between the product bank -- as a result, shuffling that does not make any sense in my view and i think the execution of the -- ent management francine: is there anything that credit suisse management can do quicker to unlock value? is no: i think there
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short gap there because remember as we have seen with deutsche bank, when you come from the very high balance sheet and prepare it, with regulation fees and banking costs and integrate i.t., we have seen it in the performance plan. i never thought that was a good -- itoes he was basically would create problems between the daily operations and the greater company interest. --you look at the regulatory having businesses whether it is wealth management, investment breaks, incited actually images. lastly, i don't think any regulator will ever think of allowing banks the size of
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credit squeeze -- credit suisse -- the loss would be huge. francine: why is there so much pressure coming from this shareholder? at the moment he only has 0.2%. is it just the beginning of more shareholder activists looking at banks because returns have in venice strong -- haven't been as strong? i think it's welcome as long as it keeps within the current regulatory framework. makes sure the banks are still around. after the financial crisis, you cannot run an institution just on the interest of your shareholder. this is what lehman brothers back in the day. if are other things you need to run an institution on a day-to-day basis.
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withhen generate returns revenue. clearly a firm like credit -- normalized over the next three years which i think is very well underway. 30 and whatd that g is clear to me is that we will see a normalization of interest rates. just 50 or 100 basis points will -- obally shareholder,uisse i think time is on our side and management is executing an over the next two or three years we will get the margins central banks have taken away. much,ne: thank you so
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davide sera. let's get back to david stubbs. without making you comment about specifically, is the environment going to be better once interest rates start normalizing because it brings back volatility in the market? david: volatility helps on and invest your -- investor's trading banks. just not by higher interest rate, but steeper yield curves. i think that is what -- certainly but the potential -- certainly the potential in the next few years. when we get to -- more robust inflation, that injects a little more inflation uncertainty premium into the long end of the bond curve. we were talking earlier about the 2-10 spread in the u.s. gradually tightening. will they look at the yield
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curve not as an indicator of the underside, but a driver of it? i would like them to keep a decent spread between the short and the long end to allow banks to maintain profitability and .und euro increase expansion not just in america, but also in europe. about will not ask you other banks and put you in that position with your general counsel, but i will ask you about the ability to get -- going worldwide. do you presume continued low volatility across all assets or can we actually get spark in the market to create output for everybody including banks? david: i think we assume volatility will remain low in the coming quarters because that low volatility is itself a sign dth of there expansion and the immediate macro risk to the extent -- to the cycle. almost every conversation i get
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to is about when the cycle ends and when we get a bear market ad that begins when we have regime change in inflation. nobody knows when that time is going to come, but that triggers a set of things probably a faster exit by central banks and puts companies in a quandary. du pass on some of the cost, do they get hit with margins, etc., etc., etc.. to be a volatile time than what we see right now. of j.p.id stubbs morgan, thank you so much. we continue, gideon rose, on the united states and afghanistan. this is bloomberg. ♪
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♪ tom: this morning, call it not a melt up, but a grind up as equities touch record highs.
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the two-year grinds to a higher yield. the ghost of october 1987 seems distant. there is not a ghost of a chance for brexit to succeed. the prime minister takes dinner shouldrce talks accelerate, no word on who gets the cottage in august. deutsche bank, the birthplace of credit suisse, credit holders demand and acceleration of various and sundry's, ceos. this is "bloomberg surveillance" live from our world headquarters in new york, tom. with me in london is francine lacqua. you have talked many times to -- of credit suisse. exactly how beleaguered is he by this noise on an october morning question mark -- october morning? francine: the share price has actually increased quite a lot. i think it has gained $.40 since the beginning of the year, they are not out of the woods, but
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certainly doing much better than they used to. i think what we heard from david sera is justvide give them more time. this is not a supercharged, but certainly in the right direction for our regular listeners and i will push it on social media. tom: i made a chart as well that shows the strength of barclays and credit suisse outperforming in the short term maybe on the excitement of restructuring. we are restructured to our first word news in new york city. taylor: north korea is threatening nuclear war may break out at any moment. u.s. and south korea began one of the largest naval drills off the coast of the peninsula. north korea claimed the entire u.s. mainland is in reach of its missiles. theresa may flew to brussels with dinner from the european commission president.
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both sides issued a statement saying efforts to reach an agreement to speed up in the coming months. the u.k. once the negotiations to move to trade and transition arrangements. in south africa, and battled president jacob zuma has reshuffled his cabinet. he named the new ministers of energy and home affairs. his eight years in office have been marked by scandals, missteps, and appointments that have rocked investor confidence. -- boost his chances to become chairman of the federal reserve. made a favorable impression on president trump after an hour-long interview last week. one of the people says the president gushed about taylor afterwards. global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. current --es, bonds, currencies, commodities, let's look at the blind data check
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right now. the euro comes back a little bit. 9.85 showing better than great markets. gold down a big $13. francine: this is what i am looking at. we still look for catalonia to see what spain's response is. the dollar gaining amid speculation we may have a more hawkish federal reserve chair. i'm looking at gold declining, leadingrean yuan markets lower because of what we heard on the korean peninsula. tom: that's look at this chart. we are looking at this chart all through the week to get hints of what you do in a crash in the panic. is 1987, 1988, 1989 and i want to focus on what you would have done, should i get out? should i get out? should i get out?
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and on upward and it looks remarkably like what we saw out of lehman, just more compressed within the 1987 fullback. -- pull back. this is a good time to talk central-bank theory and get a wonky about rules versus discussion. the idea of having a set of rules versus discussion. does the taylor rule work? >> it's actually a guiding tool and a key to being a good fed chair is to know when to use it. the man who invented the rule is to tell you there are times you should not follow the taylor rule exactly. if taylor is going to be one of our -- going to be our next chair, he will be one of the best chairs we've had. tom: we are not going to be
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first order equations with you because david killed in the last hour. i want to focus on the way janet yellen is a dove and taylor is a hawk and the pros do not buy that. rate.utral real what is the neutral real rate and why will that make taylor a dove when he needs to be a dove? william: that is the key to everything. it's supposed to be the rate at which the economy is in equilibrium and savings investment is exactly at balance taking into account inflation. if you ignored inflation, where would interest rates the? -- rates be? phenomenal real rate can't get much above -- the nominal real rate can't get much above 2%. if you are guided by the taylor rule, you will not push the rates up to where they claim
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john will be doing. tom: john taylor is so basic he will dress up as a raisin in the econ 101 course at stanford. i think if he showed up in a what -- as a raisin at the white house, he would have been given the job instantly. francine: that is something we should take into consideration. are we wrong in assuming he will be as hawkish as he said he has been? we have seen it with politicians and central bankers, your ideas remain, but you look at the facts differently. william: one thing john is insistent on is you need a framework. the taylor rule uses the framework, but the key to being a great economist and a great leader like john is you know when not to adhere to it. when growth is barely pushing up
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to 2%, that's the time you say to yourself let's be careful about how to apply the rule and that is when john's expertise will come in and be very useful. francine: at the moment for markets to believe what the fed is telling them, do you have to assume inflation is lagging, but it will come? do you believe it is coming and what does that mean for treasuries? william: when i was on the show a while ago i used to talk about the coming inflation and now i am certain that is faith-based forecasting. most economists are not willing to give up the felix -- phillips curve. it's incredibly flat right now. because of that, there are additional technological changes that have also put downward shops that supply allow inflation to be really low are down other rates
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at historically low levels. i don't think inflation is on the horizon in the near term and so low, theimity is real rate is not likely to be rising. market, we the dot will have low rates for time to come. tom: david stubbs in the earlier else bill lee now, where in the world will you get this, folks? coming up, from the same firm steven major looking for a lower depressed 10-year yield and with him, his colleague, david bloom. of this is wonderful. major and bloom, look for that in the 7:00 hour. this is bloomberg. ♪
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is "bloomberg surveillance." business flash. credit suisse's biggest shareholder shrugged off a proposal from idr. -- owns about 9% of credit suisse stock told bloomberg the current plan is getting results. >> the reason why the activist is going after this bank in particular is because it is really undervalued. our view is there is a substantial upside, but, and this is probably where i disagree with idr, the perfect management has a plan in place and that overtime should release value. taylor: that is your bloomberg business flash. tom: thanks so much. we need an update from washington from our chief washington correspondent. we want to get to north korea, kevin, but i have got to ask you about this absolute juvenilia overnight of which president is
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calling which parent of the deceased. i have to go back to the agony of those men and women in uniform going up to houses and knocking on doors in 1967 and 1968. how do we get to the point to where presidents are arguing about who is calling the parents of dead soldiers? kevin: i think of the brave men and women and families and friends that had the privilege -- i had the privilege of interviewing and i think their courage speaks more than i could ever speak to it. tom: to your wonderful inside, do we have a president still campaigning and on permanent campaign? kevin: there is no question the impromptu press conference in the rose garden caught reporters off guard and very much reminiscent of his time on the campaign trail, a host of issues and also trying to walk
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the political tightrope of being there with which mcconnell saying they are ok with their political relationship, but also suggesting he is ok with steve bannon who said any republican he backs must insist that they are not going to support leader mcconnell for leadership. francine: talk to me about north korea. what do we know? is there anything we can read into? kevin: overnight north korea saying nuclear war could break out at any minute with the united states. a lot of folks are deeply skeptical of just how prison they are being, but there is no question the north koreans refuse to take any kind of diplomatic response. we have seen this over the past several weeks has -- as we have seen and raising -- a raising .oalition of economic sanctions
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also internationally seeing a coalition of russia and china and economic sanctions against north korea as well. tom: kevin, thank you so much. it is always a joy to drag onto the set gideon rose of foreign affairs. as usual, he is surprised with the obligatory issue on the president or past presidents, but a much smarter issue and a totally must read, i will bring it up now. foreign affairs: america's forgotten words. i looked at him and i said big deal, i don't really care and .his issue is mesmerizing congratulations again. the word more on isn't -- "moron " isn't in your magazine, is it? gideon: we don't use that language, we try to address real issues. the problem is there is a real discussion about the -- what the u.s. role in the world should be
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and that needs to happen and it's not happening now. tillerson's famous alleged comment -- something that seems to have provoked tillerson's famous alleged comment -- it was a little bit about the --ne where eddie murphy gets discussion ofe american national security that is appropriate to the scale of the problems involved and what we tried to do in this issue was get beyond the silly stuff going on in the public discourse to actually get at some of the real issues surrounding of air -- american involvement around the world today. francine: we are also keeping an eye on mark carney, just telling our viewers what happened. i think he just sat in his chair . we will bring you any breaking news. he will be quizzed on inflation.
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we understand he is getting ready to raise interest rates from a point of economic weakness rather than strength. --: this is on the agony of two esteemed officers who have served there. late in the article harkening to vietnam.'the amount -- are we doing vietnam and afghanistan? gideon: we are and the question now is are we going to screw up the ending of afghanistan just like we screwed up the ending of iraq and vietnam. we don't know and the answer is pulling out quickly would lead to that. jolly in the situation -- jollying the situation along -- which is what the president's advisers are trying
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to tell him to do. he basically seems to have agreed to that in afghanistan. what they are doing elsewhere in korea or elsewhere in the middle east is more dangerous. tom: the article which stunned me was a history lesson on stalin and hitler. why should reread that article and why should the president of the not it -- united states read this historic piece on stalin? gideon: we are living in a great age of biography. kotkin is a princeton expert on russian history and engaged in one of the great biographies of our age, a biography of stalin. this is a takeout from the second volume and basically a piece on hitler's and stalin's relations right before hitler doublecrossed stalin.
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it's about truly world historical figures fighting for control of the world. on u.k.: let's focus inflation climbing to the highest rate in more than five years. we have governor carney testifying. let's listen in. governor carney: more likely than not we will be writing on a letter tothe npc the chancellor. we expect inflation will peak around the october and november figures, peaking potentially above the 3% level. i think when we take a step back and look at why previous letters have been written since my time in the committee, recognizing the initial phase of my time on -- the goode in my prior, the outcomes in the first year or so largely are determined by
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previous actions. principal reasons behind inflation being very low, in 2014, in the run-up 2015 with strong run-up in factsng and the level of on a variety of energy prices. these are shocks that the bank andchoose to look through it has to justify why we would look through and the justifications -- we can go into them if you want -- are detailed in the inflation report and the letters written to the chancellor. the inflation rising potentially in the comingevel months is something that we have anticipated. we had signaled prior to the referendum that we felt that the events to lead the adjustment
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mechanisms would be through sterling. we expected sterling to fall sharply and it did and that passed through to prices. the u.k. has one of the highest degrees of exchange rate pass-through to consumer pricing in part because it is a very open economy, but there are other reasons behind it. a a consequence, we faced trade off and we still face a trade-off between having inflation above target and the need to support -- or the dire supportinglity of jobs and activity. can i make one other point and i will hand back? is inflation -- >> i am under pressure, make sure the questions are short and answers are short, too. governor carney: the point i want to make is when we look at the trade-off and i am sure we will get into that, it's over
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the policy rise and the initial ,ise in the spike of inflation there is not much monetary policy can do about that. oil prices have gone up recently and there's not much monetary policy can do about that. what we have to look at is 18, 24, 36nd output months out and netware we monetary policy can definitely monitor -- t and have are going to questions on monetary policy. you talked about inflation peaking in october. what leads you at the moment to think october might be a peak and we might see reduction toward the end of the year? governor carney: we will have an updated forecast of the first week of november so we will give
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the update. we are just starting that process now. the principal reason is because -- the main reason, the sole reason inflation has gone up as much as it has is the depreciation of sterling. from past history and past experience we have a sense that intopassed through inflation. you have a so-called level affect. the point i want to make and i will finish on this is that in general if you think about pass-through of an exchange rate move, you get 40% in the first year and 40% in the second and 20% in the third and the last is relevant because you few have a very big move in a currency, you still have an effect in year three, something pushing up and in previous forecasts, including the august forecast, it has been keeping inflation above target even at year three. >> i wanted to ask you about a
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story in the front page of "the telegraph" yesterday and the change -- reading the numbers on the u.k.'s international investment position and i wondered -- francine: we will leave that testimony from the bank of england governor mark carney. we will keep an eye on it and give you any breaking news from that. for our terminal users, you can continue listening to it by live .go -- when you look at inflation worldwide, the concern in the u.k. is the bank of england is about to hike rates, but from a position of weakness because of inflation which is more due to weakness in pound rather than stronger economy. is that a concern?
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at any otherlook economy in the world, there is no sign of inflation. only in the u.k. we have a temperate burst of inflation. one thing that distinguishes carney from every other trader's he knows monetary policy should not react. it's always the second round affect. if we start finding inflation effects are feeding into the pricing of goods and services and wages, that is monitor -- monetary policy action. there's no evidence that is happening. growth isn't strong enough to carry the price increase further through other than the exchange rate pass-through. here in the u.s., the exchange rate pass-through is much faster and we have had a 10% depreciation and we should expect moderate increases in prices, but it will not cause monetary policy to react because we are supposed to look through that to see if there's a sign of wage setting or other price setting behavior and right now there isn't. francine: how do you view brexit
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and if you are governor carney kind of stuck between -- weakness in the pound is hurting your account deficit and you don't know how negotiations are going because you are not the one negotiating it. does he actually have the toughest job in central banking right now? bill: i would say so because brexit introduced uncertainty we have never seen anywhere else. political and economic uncertainty has come home to roost. the optimal thing to do is to wait. right now, i think the u.k. people who are thinking of investing in the u.k. and people in the u.k. may be thinking of expanding capacity are all asking themselves what on earth is the u.k. going to be like a year, a year and a half, even three years from now and that is stalling a lot of in -- a lot of decision-making. do we price here or wait and see if the economy will suffer and that depends on the negotiations
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of brexit going on right now. withwe will continue gideon rose and i want to get back to important international relations in comparison to the present day. we will continue to monitor governor carney in london. you can do that across the bloomberg terminal. coming up, a conversation with david calhoun of the blackstone group, a changing blackstone group and their view forward on private equity. governor carney speaking on inflation as mr. lee mentioned -- as dr. lee mentioned. worldwide in london, in new york. this is bloomberg. ♪
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>> governor mark carney talking about the impact of the pound drop on inflation. he's testified in front of the
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treasury select committee. he also repeated previous that thefrom the past economy is post-brexit decline will be up to three years after it happens. he's also being asked whether the boe should have raised, not cut rates. he's implying movements have largely been determined by fluctuations around expectations of a brexit deal with the eu. carney in therk treasury select committee. we will bring you any headlines crossing on the bloomberg terminal. here's taylor riggs. citing kurdish forces in the oil-rich. state-run media says the iraqi army and its allies have taken oil fields and a refinery. bloomberg spoke with the head of the international energy agency. >> it is too early to say what will be the result of this
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development, how they are going to evolve and what will be the implications on the markets. don't seeme being we a major impact on the oil markets. opec's second-largest producer. president trump says he undermined obamacare in order to fix the u.s. health insurance problem. he said his move to cut off government subsidies is forcing republicans and democrats in congress to work together on a solution. he says he still wants a full repeal of obamacare. u.s. has wrapped up the latest round of national talks -- nasa talks. -- nafta talks. canada uses a system of tariffs .nd quotas for dairy products canada has dismissed the u.s. proposal. global news 24 hours a day powered by more than 2700 journalists and analysts in over 120 countries.
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i'm taylor riggs. this is bloomberg. tom: governor carney speaking. looking at those headlines. chart showing the 3% dynamic as well. we chart to the international relations of canada. mexico and the united states. gideon rose with us with foreign affairs. , maybe itthout nafta happens, maybe it doesn't. what the distinction? >> watching mark carney talk about british monetary policy was nostalgic. you had a serious professional making intelligent arguments about an important subject. that's the way these things are supposed to work. that conversation isn't happening about u.s. national policy. the president can't understand and is interested in that kind of stuff. his own comments on his issues don't make any sense.
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everybody is wondering is what does that mean for u.s. foreign policy? nobody other than the president thinks we should blowup nafta which is one of the great integrative acts of the last generation. tom: people disagree with you. what is the power of a combined canada and mexico against president trump? andt's not just canada mexico. it's all the people who benefit from integration in the north american continent which includes the vast majority of people. including the vast majority of professional advisors. the problem we have is we have to act like we are having a real conversation about policy because the president says something and you have to discuss it. there is usually no substantive comment there. whato people figure out u.s. policy is when no one is making up and the statements of u.s. officials are completely different from day-to-day?
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inhave basically never been that situation before and the rest of the world is basically treating the u.s. as an aircraft carrier dead in the water that is drifting while the rest of the world goes about its own way. mark carney is a central banker. you would have this kind of policy argument when janet yellen testifies. the world of central bankers is a little bit different to the world of politicians in 2017. is there not an argument that says, this is what the people wanted? this is why they voted for president trump. this was one of the linchpins of his campaign promises. >> we have no idea why many people voted for president trump. 80,000 people in three different states would have given a different electoral outcome. the idea that a policy agenda as opposed to an emotional reaction against the modernity is what's driving trump is not quite obvious. when you press down to any of the administration's actual proposals they turn into tissue in your head or they turn out to
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ofpernicious like various the legislative agendas. the result is nothing is getting done. no policies are actually happening. you are having is a little bit like obamacare. the trump administration came in trying to overturn it. they didn't like the america's role in the world. they didn't like what obama and other people had done before that. want toe in saying we repeal and replace american foreign-policy. they found out there's no real alternative. just trying to cripple american foreign-policy on the sly through unilateral action to -- actions and walking away from it. great deal of uncertainty. people aren't sure what's going to happen and the guy who was putting it all together is walking away from the project and that's the situation we have now with u.s. foreign policy in the world and known has seen that before and know it has any idea what to do. let's also get jamie
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murray in this conversation. what we are seeing in inflation terms with the boe. january, chief mea economist for bloomberg intelligence. we are listening to the testimony of mark carney. he's as a rate rise in coming months may be appropriate. how difficult is it to raise rates? if the inflation numbers suggest that's what you have to do but you have all this uncertainty surrounding brexit? if you pick through the detail of inflation relief you can see very little evidence of underlying inflationary pressure. all the deviation is explained by pickup and goods inflation, not services. services are the things that you and i produce. that's what's related to wage cost. goods is more the import side of things.
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we think there is a vast bulk of beiation from target can explained just by sterling depreciation. it's a really obvious case for lifting rates just on that. francine: how much worse is it going to get? passed.orst has already when we look at year-over-year inflation statistics they will pick up a bit further in coming months. the big shock to income happened in the first half of the year. the biggest change in the inflation rate. consumers are going to start feeling the pinch less. it's not going to be nearly so painful in the next half of the year of it has been in the first. the squeeze on consumers is coming to an end. has been up-and-down. it has not been moving in the same magnitude as the past. we. we're not expecting a big shock to consumption. tom: nicely explained, jamie. let me bring up a chart quickly. this is u.k. inflation.
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the huge inflation of the early 90's with all sorts of sterling depreciation. 2015 with the brexit move, the currency move up to the 3% level. the united states is down here. william lee, there is a risk overyou get a transitory to structural 3% inflation. is that a tangible risk for the united kingdom? it's not a one-off 3% but it has a greater duration? >> it's unlikely because the uncertainty is keeping people from putting price increases on a more permanent basis. when you don't have service prices going up you are not going to have longer-lasting only prices that are made up by economists. if you look at market prices for services as have not see the same kind of acceleration.
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tom: you really can't say enough about the difference in goods and services sector is totally different. what does it mean for the average person in the united it mean fort does the average person in the united >> a small reversal of the dissolution of stimulus. it's not going to change people's world. it might change people's thinking about the longer-term. a small movement of potentially quite a big shift in this feeling that rates are going to be low forever. that's part of what governor carney is actually aimed for. trying to prevent people from becoming complacent about very low interest rates. making them realize they can go up as well as down. tom: this is important conversation. jamie moran, thank you so much. we will continue with william
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lee. gideon rose as well with us. i want to get back to him and talk about foreign affairs magazine and the idea of fake news. don't forget bloomberg radio your morning briefing in your car. on sirius xm. it is kevin cirilli's washington. this is bloomberg. ♪
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>> this is bloomberg surveillance. i'm taylor riggs. it was the best quarter on record for netflix. video streaming provider added more customers than expected both in the u.s. and abroad.
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netflix will spend $6 billion on programming this year. shares hit a new high in premarket trading. they are up 64% this year. the largest health insurer in the u.s. is raising its full-year forecast. united health reported third-quarter earnings that he estimates. results were posted on the website last night. just breaking now johnson and johnson has reported results. adjusted earnings pressure come in at $1.90. the cousins cousin but he also boosted its revenue yield. that's your bloomberg business flash. i want to show how an actual press release comes to bloomberg surveillance. use the jargon we used in our control room. it shows the leverage where you've got a nice pop in sales. 10 point 3%. it looks like they've got some form of operational sales of just under 10%.
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below to third-quarter etf's. that is the show game of every american corporation. trying to leverage down to a better operating income statement. francine: very interesting. we have to turn to china. caution is spreading through financial markets. rose is in new york. foreign affairs magazine editor. william lee is also with us in washington, d.c. when you look at how you deal two-week knowledge that actually it's much more stable than we thought 18 months -- theyy haven't dealt have a debt problem but it's being dealt with. >> we are on a steady course of
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growth. the real problem with dealing with the u.s. is investors are going all over the place to try to find investments. there are more companies that are not in the public market than there are publicly traded. investors are going toward private venture capital in order to find higher rates of turn. here in the u.s. we have a problem and the milken institute is all about access to capital. the research agenda items we have going forward is to look at what investors will do in a low rate environment. asiaummits in london and are covering these topics as well as our global conference. francine: this is a good point that a lot of people are trying to figure out. if you look at the lack of inflation does it have to come from china?
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clicks china is an interesting example of a place where they tried capitalism and they have to control debt creation. greatestthe opportunity for investors because the private sector in china is going gang busters with entrepreneurs and innovative stuff. more consumer electronic transactions in china in the trillions of dollars than there are in the u.s.. a lot of the innovators are in china. china has represented a lot of uncertainty because the state is trying to preserve state owned enterprises but the private sector is pushing forward. will be important meetings and they have to do with the international relations. gideon rose knows about deterrence. is china on the same page as we are in terms of korea?
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at this congress can you clean a foreign relations? on the same page as we are in not wanting korea to blowup and be a big problem. beyond that there are differences in its. we do share a common goal of keeping the situation stable. the greatest worry that many of us have about the trump administration in regard to korea is it's not clear that the president actually cares about keeping the situation stable. what you had in korea is a gradual increase in korean weapons capabilities that will continue going forward. those aren't really necessary or effective to the strategic beence which has basically a mexican standoff. china has had guns at everybody. nothing is really going to change. why the been a mexican standoff. administration has decided to make this a massive crisis and try to undermine even
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a diplomatic aspect and then go to undermine the iran deal, everybody in foreign policy is looking at this going, you are trying to get north korea to give up its weapons and at the same time your unraveling a deal in which iran agreed to stop its weapons programs. let'sre you doing? tom: assume the president of the united states is not familiar with thomas shillings work. what is deterrence in china? to me they have a huge vested interest to provide this old phrase. chinese deterrence -- the are some is there serious people in this administration. there are actually some policies that are getting done. there has been sanctions progress on north korea. with theking better
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chinese than we have in the past. it's not all crazy. to goal doesn't seem to be calm the situation. you would think if you had one of the world's greatest top spots with the potential for nuclear war and tens of millions of debt -- deaths of the most responsible leaders in the world would be trying to calm the situation rather than expand and escalate it. i know several people who have thinkly told me they trump is spoiling for a fight. the actions that he's doing are so reckless and irresponsible that that could actually be the outcome. when everybody wants is to calm everything down. stop the crazy rhetoric. stop the name-calling. get to something resembling policyl serious discussions which are no longer the thing this administration seems interested in having. francine: william lee, you are basically telling us there is a
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new piece of research which is how do you make money in this low rate environment with lack of volatility. when will volatility come back? talk about monetary policy being normalized. 18 months is not two years away. aref you were a trader you looking for volatility because you are trying to create a trading transaction for the next two minutes or two months. we are looking forward and saying what do we need to get good jobs, good health. that means entrepreneurs have to get access to capital. in a low rate environment access to capital could also be with more leverage. one of the concerns we have had with policymakers is there is a lot of policy concerns of high leverage and trying to say financial stability is at risk. if you believe rates are going to be low for a long time to come and real rates are very near zero and we could have more leverage investment that could be sustainable. that's the pieces we are trying to explore and discuss among
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policymakers and investors out there. mandate,rt of the access to capital with more leverage. lee andith william gideon rose. from new york, this is bloomberg. ♪
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francine: this is bloomberg surveillance. coming up shortly, bloomberg daybreak: americas. david westin, jonathan ferro and alix steel. what do have coming up on the show today? david: we are going to be covering the johnson & johnson earnings we just learned about. we will be looking back at the third quarter and also look forward to what president said yesterday about controlling drug prices. are single best chart dives into how we get our news flow. i'm looking at the u.k. headlines. this is exactly what we see. brexit transition in the interest of both sides. who cares. you've got other news sources
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here as well. our single best chart on fake news. the new edition of foreign affairs magazine. article onbrilliant stalin and hitler's on disinformation. how is that different from trumpian fake news? -- putpresident folks labels on things and doesn't like account ability. when he says fake news he means news he doesn't like. the attempt to delegitimize news he doesn't like can take two forms. one is you simply deny the stuff you don't like and say that's not correct. the other thing you can do is to spread stuff that isn't correct to muddy the waters. go back to what you start the show with. francine: sorry, we have a lot of breaking news. morgan stanley third-quarter earnings per share $.93. the net revenue is a little bit better than expected.
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$9.2 billion for the third quarter. be to beat in every unit. instead of the estimated 1.5 billion. theall wealth management is big elephant driving much of morgan stanley performance each quarter. i haven't seen that yet. the investment bank better than expected and the overall revenue better than expected as well. tom: at first blush it looks better than expected. really see a managed cost control on top of the press release. we'll have much more on this through the morning. we thank gideon rose of foreign affairs magazine this morning. we'll continue on radio. this is bloomberg. ♪
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alix: u.k. inflation climbs to a five-year high and governor carney says a rate hike in the coming months may be appropriate. gilt yields falling by three basis points. the euro is set for its worst run since may after the crisis in catalonia forces spain to cut its growth forecast. rallies after an activist investor calls to break up the banks. morgan stanley beats estimates. goldman sachs is on deck. welcome to bloomberg daybreak: americas. is with me. jonathan ferro is off. alix: futures relatively flat. nowhere aftergoes potentially john taylor catching president trump saw it. check out what's happening with the bank stocks. morgan stanley getting a nice call. i fail to see what was wrong with this report.

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