Transcripts For BLOOMBERG Bloomberg Surveillance 20171010

Conversation with the chairman of estee lauder about sustainability. This is the picture for your markets. Bonds, edging low. The dollar is dipping. Treasury ahead of the federal reserves last meeting. When you look at the euro, its mainly drifting on the back of what investors proceed as a possible risk of catalonia. You can see the common currency in europe gaining for the Third Straight day. Lets get the first word news. The u. S. Has blamed turkey for the instigation of the crisis between the two countries and a resolution will be needed on why americans were detained in this year. The u. S. Ambassador to turkey issued a video statement on youtube. The embassies stop issuing nonimmigrant visas which prompted a metallic terry retaliatory response by turkey. Theresa may has one support. Gois johnson and michael praised her strategy after outlining contingency plans to leave the eu without a deal, asking businesses to prepare for the worst. May said it was in the eus court, although that has been rebutted. As election campaigns get underway in japan, the labour party is not sure if the Donald Trump Administration is stable due to the many personnel changes. The tokyo governor comments came even as she affirmed the importance of the u. S. Japan alliance. She also criticized Prime Minister shinzo abes economic policy. Economics is not sufficient. I believe further boosting the engine of the economy for the private sector standing on our own feet as a much healthy weight rather than relying on extraordinary policies of fiscal packages. Global news 24 hours a day in more than 120 countries. This is bloomberg. Francine thank you. Government determination to break from spain faces its day of reckoning. They need to consider a declaration of independence which make cause backlash and economic isolation. Lets go to barcelona where maria has the latest. Where the possible scenarios today . Maria good morning. Regionalon the catalan president who is meant to address parliament at 6 p. M. He could go for a symbolic declaration of independence where essentially he says the valid and will work towards a republic. However, no deadline, no unilateral declaration. That is what the platform wants because they fear it will create economic chaos. On the other side, we know he can also go and press ahead. The unilateral declaration, catalonia becoming a republican the next 48 hours. Francine what does madrid do after that . Is it a done deal they declare unilateral independence . Maria absolutely. They have made it Crystal Clear from the beginning. Yesterday, the deputy Prime Minister and the Justice Minister said if we get anything that remotely looks like an article of independence, we will invoke the article 55. Its clear that a lot will depend on what is being said here but if they have to invoke the article, they will. Francine thank you so much, maria. Joining us on set in london is the Unicredit Bank head of strategy research. Welcome to the program. How do you trade on the back of catalonia . Do you wait on something to happen or hedge . Guest i think the two messages that the market has sent first of all, i dont think they are perceiving it as a broadbased think that will have any effect. You can actually see that. Outside those in spain have barely been affected. Even spanish assets have not penalized extremely. If you take a look at spanish spreads, they are trading in the middle of this years range. I dont really think there is a i amere other than optimistic that in the end we will not have chaos in catalonia and albert any potential avert any potential independence in which i think spanish bonds will become quite attractive. For the moment, largely because there is a lot of Headline News francine what happens if there is chaos in catalonia, worstcase scenario . Vasileios i think than the natural thing to expect would be significant selloff in spanish bonds. Potentially the periphery will send off, but i think i will expect the spreads not just against germany but also portugal will widen. Francine does it actually impact ecb policies . This is a simple chart looking at the spread between spanish and german bonds. Does the ecb run out of options . Vasileios this is a simple charg i dont think that under reasonable set of assumptions that this will impact ecbs policy. At the end of the day, we had another a number of businesses that have precommitted with i dont movi. In the end, there is likely to be a disruption in the fastestgrowing economy in the eurozone right now, but it is unlikely we will have a meaningful slowdown. Perspective, i dont really see it as a game changer for the ecb. Francine what is a game changer . Is it euro level . Vasileios they look at it, but there are number of things. We have to realize ecb is not potentially glued to the bloomberg screen they should be. Francine that is a mistake right there. Vasileios i think what matters for the ecb is trade with europe. This year, we have seen a significant divergence between gains and trade in bureau and trade in the eurodollar, because of that has depreciated. I dont think 1. 20 represents a line in the sand for the ecb, to the extent that trade euro depreciation does not get out of hand, i think the ecb will remain relatively comfortable. It is about 4 daytoday which is still a but nowhere near the gains we are seeing in the eurodollar. Francine do you think trends in European Growth are Strong Enough to put one side to the populism . I dont know if you call it populism or extreme parties that have not had a huge impact simply because the dont have their economics in line. Vasileios i will take a step back. I think that there has been a rise in what we call either populism or extremism, or far right parties. I dont think it has been such an increase to the extent that it advertisers are communicating the media by analysts. I have think the potential consolidation of the forces that were there in the first place and they simply gathered the forces together. To the extent that this consolidation was the result of growth in the eurozone and to the extent now that we are coming back into far more whichnable growth importantly is the case for pretty much most eurozone countries, i think yes, it does a blowe power to dent into the consolidation of powers. Francine because we are still waiting on the answer from the german finance minister, will you be buying any bonds or is that shaken at the moment . Shortterm, you can stomach some of the volatility, i am still very optimistic in the eurozone and therefore i dont exclude from optimism peripheral bonds. Francine thank you so much. He stays with us. You should also stay with surveillance because we have plenty coming up, including theresa may outlines her contingency plan for brexit. Later, we will go live to johannesburg to speak with a inding candidate to replace the African National congress. This is bloomberg. Francine good morning, this is bloomberg surveillance. Lets get straight to the Bloomberg Business flash. Kobe steel has released an industrial scandal that has reverberated across asias secondlargest economy. Falsifying data related to strengthen durability due to aluminium products used in cars, planes and maybe even a skate space rocket. They used materials from kobe steel that were subject to qualification. Boeing said nothing to date races any safety concerns. Deutsche bank ceo john find is losing the support of some investors seven months into his turnaround plan. Of the banks of three largest stakeholders said they want to see a turnaround in the next three quarters to continue to back cryan. An external candidate may be the best option to replace him. A spokeswoman declined to comment. Sheresa may kicked off thi years luxury rebound is set to continue. Sales grew 10 on an organic bases helped by an increase in leather. News. E on the francine thank you so much. The u. K. Prime minister theresa may will outline contingency plans for leaving the European Union. She made enough overtures to brussels and that the ball is in their court. Referring to the eu demand, the Eu Commission says that the ball is in the eu k court. I dont know how to cut through the noise to try to understand exactly what is going on. Can you . Vasileios i will try. Francine please say yes. Vasileios i can say we are definitely trying to do that. I think at the same time we have to acknowledge that over the past six months that we had a number of backing off as far as the u. K. Is concerned. Initially, we had the acceptance of the sequencing. Right now, may is talking about money settlement, settling the amount of money owed to the eu. I think gradually, potentially at a slow pace, it is becoming clear to the u. K. Government that they will be the one that will have to make potentially all of the concessions as we go forward. I think this is what the market is doing to a certain extent. We have the dollar rebound in the september 7. The only currency that has stayed flat and slightly appreciated has been cable which has been supported by the bank of england expectations for november rate hike. I think from a market perspective, it is very difficult to trade cable, sterling against the dollar. It will be subject to a lot of headlines and it also has a lot buthe dollar attached to it i remain bullish. Thecine this is eurosterling and the money chart we are looking at and you can see that. The question is if theresa may, if she needs to negotiate and actually lose out and give in, does she stay in power . If she does not, what comes after . There seems to be a million scenarios. Vasileios absolutely. You have to ask yourself the lose out,f she does job . Anyone else want the Francine Johnson wants the job. Vasileios it will be an job . Awfully difficult situation and a big burden politically to carry on. Basically being the one that proclaims defeat as you go into negotiations with the eu. I dont know how the Political Landscape is going to pan out. All i do know is i still maintain the view that on one an economic perspective, the u. K. Is the one that will lose eventually at all these negotiations unless we get a second referendum or whatever. Then u. K. Stays within the eu. At the same time, sterling will be subject to a lot of headlines. The problem we have with sterling fundamental models thrown out the window we dont have a fundamental output because we dont know the extent of the damage of the u. K. Economy. Eurosterling will remain appreciating, largely because uncertainty will generate a coming out, close of the u. K. Close to the eurozone. Thecine thank you so much, unicredit head of strategy research. Thank you for being with us. We will bring you an exclusive interview with Charles Evans tomorrow at 1 30 p. M. U. K. Time. Anstill to come, south african secession. The leading at candidate to take over as head of the National Congress. This is bloomberg. Francine this is bloomberg surveillance. Lets turn to south africa and the developing race for head of the countrys ruling African Congress party. The successor will be chosen at the National Congress in september and become the partys president ial candidate in 2019. Joining us live from johannesburg is one of the leading candidates. Thank you so much for joining us today. You have announced you are running for president in december, why . Guest well, i have been indicated theyey want to see me occupying that position. I have to indicate my readiness and acceptance of that. Playieve i have a role to in assisting the organization to rid itself of divisions, infighting and build unity, but the unite everyone about organization so we can deal with problems of irregularities and fight corruption. Ensure there is a clean government and building the economy. I believe there is a huge contribution to be made. Francine your competition includes the current south african deputy president. Who do you think can win . Do you really think you can win . Mr. Mkhize well, i believe that i have the right qualities to be able to make it on the job. I have given the anc the opportunity to select the best amongst us. Francine will you be able to keep the Party Together . Mr. Mkhize i believe so. If you look at my forecast, talking about building unity, stopping the infighting, and also reviving the organization around its founding values of i believe society, that is where we need to forecast quite strongly. If you look at the similar role in the past where i worked with leadership, we were able to take a lot of lessons on how to deal with frictions, divisions and how to tolerance. One around there is vibrancy in the youctures of the anc that can criticize and criticize must be taken seriously. We can renew ourselves with our conduct with our constituents and our people. I think it is possible to do it. I like a speak about what can be done. Anccine do you think the will go on in the National Election of 2019 if you become leader of the anc, what is your mace may message . Is there an angle you need to make sure that people get to vote for you . Mr. Mkhize i think that the African National congress coming from the conference needs to reach out to all the constituents in south africa. The businesspeople, the religious community, the traditional leaders, the youth, the women, civic organizations to say to them we need to bit work together, rebuild of that vision of a broader, United Nation of south africa with a strong and vibrant economy where we can deal with the problems of jobs, unemployment. Grows show our economy but also ensure the people that have been left out, people participating, the industrialists. I think that is what the country needs. To move and ensure all of us moved together. I think we can reach out to the people to build a country through the African National congress. Francine what is the view of the government on businesses . Mr. Mkhize firstly, we want to be able to show strong action on corruption and make sure there is Good Governance in government. Stateso the issue of capture with it has been allegations of undue influence. That needs to be investigated so we can approach it and make legislation to prevent them. Also take action where people punished, punished, investigated, prosecuted. We need to work in that direction both in government and within the party. Many to take a very strong stand against corruption. I also know the anc and all of its members and leaders, everyone is serious about fighting it. We need to be optimistic. There are good people in the organization to approach corruption. Francine the president has been implicated in a multitude of scandals. Do you think he needs to finish his term and how do you rate his leadership overall . Mr. Mkhize look, i think there has been a lot of achievements, a lot of challenges that happens to a person in that position. , the anc will have to take a position on what happens to the president. Of the an course, when the matter arises, it is up for the anc to take deposition. Francine much of the talk has been about redistributing existing wealth. How would you go about it . Mr. Mkhize this is about looking at the history of the country, a lot of have been left out of the economy. Are very scarce among the indigenous people. Their access to finances, opportunities, to market is limited. Me to open that up and make sure our economy is able to grow on the basis of a broader base of ownership so even the peasants of investment must not have a new you look at the procurement reforms, open up new suppliers. That is what we are trying to do because of the stability of the country going into the future will rely on the broad participation, ownership. It will mean a lot of skills transferred, technology transfer, managerial skills transferred all of this is important. I think it is about building a more, much broader base for the economy. There are also areas we believe there have been restrictions people have not been able to participate properly and this needs to be all been up. This is about broadening the participation. Francine im looking at a chart using the bloomberg terminal and we can kind of seeing going in in a zigzag. What do you think investors want from south africa to invest safely, to go back into the country . Investors i think would like to see a stable environment politically, where there is peace, regularity of elections and everyone knows it is stable. Secondly, we need confidence in government in terms of its know whatgime so they to invest in now. The economy will be stable as long as investment lasts. Endings without any undue influence, delays. At the same time, the systems can allocate the Financial Institutions are strong, because it usually a strong. All of these are things we need to build on. What we need to correct there is a sense of. Uncertainty. What do you think needs to happen . Issue, there needs to be the ministry in the private sector, there is a lot of discussion. The idea is the use transformation at the same time they restructure. The industry must he able to manage, that is something possible between them. The courts need to intervene. There must be a cooperative arrangement that gets us to agree on what it should actually be about. Need to facilitate resolution of this matter. Were hoping its time to encourage the Mining Industry to look at. Lets be patient with each other. Much or thank you so your time. General the treasury with the amc Party Congress in africa. Thank you so much. We have some breaking news out of the u. K. Production is a little the other than expected. Construction out but is a little bit better than suspected. This is why we are not much of an impact on the pound. Private and to wait for a trend to emerge and lets get to first word news. Considersia independence spain. They have said the dispute cannot be a basis for secession. Three more companies are leaving the region. They are shifting their legal had orders to madrid. This is the only firm left in the benchmark. The u. S. Is lame turkey for it to get the latest crisis between the countries. At were to turkish employees an american outpost were detained . The white house and state department are silent and the ambassador issued a videos. They stopped issuing visas in turkey that roiled markets and prompted a retaliation. The u. K. Prime minister has one support cap ethics of her brexit policy. Horse johnson praised her strategy after she Boris Johnson praised her strategy. He said the ball is in the use court, though that is then rebuffed. Region of napa and sonoma, wildfires have killed 10 people while 20,000 have been evacuated during the the blazes are sweeping through one of the most scenic and treasured destinations, threatening thousands of people. The Wine Industry through 23 million tourists and sold 30 billion in retail last year. Selection Campaign Gets Underway in japan, she is unsure if Donald Trumps administration is stable due to all of the personnel changes. Said this asernor she affirmed the importance of the u. S. Japan alliance. She criticized shinzo abes economic policy. It is not sufficient. I believe further boosting the engine of the economy, that is the private sector standing on her own the is a much better way then relying on physical packages. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. Francine thank you so much. This is what the biggest Duty Companies in the world with a market cap of 40 billion. It has a wide portfolio of rancid or house hold name spirit. 25thwill have their anniversary of their Breast Cancer campaign. They cocreated the pink ribbon for Breast Cancer awareness. He is the chairman of the company. He also teaches at the wharton business school. Thank you so much for joining us. I see you got dressed or the occasion. Its amazing its been 25 years in your Company Created the ribbon, which is one of the most recognized things were doing good in the world. What have you achieved . Tried raiseago, we the conversation and discussion about Breast Cancer and the impact it has on so many women around the world. That led us to Fund Research to help find a cure. And so, arik divvies have gone from just saying we support the researchers who are helping us find it your. In 25 years, to give you an you what we have accomplished, a 1man diagnosed with stage cancer had a chance of living. They have done an extraordinary job of getting the goal of finding a cure. Just as importantly, the treatments of those who are a intrusivese far less than they used to be. Often a woman wont lose her hair. Instead of it in a life sentence, its something we will find a way to make work. Those are the things we are most proud of. We will talk a little bit about Development Goals in. Francine is this what consumers are asking for . We have to set a direction that motivates our employees to engage our consumers and discussion. Our employees appreciated because 95 of our employees are women. 95 of arc tumors are women and this is it issue they care about. Women andtomers are this is an issue they care about. Francine how do you measure success . Does it impact the tumor behavior . Help you keep your employees because they are part of a company they want to be art of . Everything is inability or csr. Its mostly for your employees in the pride they taken the company they work with as well as how it chooses consumers that makes a huge difference for us to the millennial generation wants to work for a company they are proud of, that has a value system the with. Francine had you measure success with these rings . Its difficult to measure the unmeasurable of happiness. We look at the evidence of great employees, great results, turnover, how often are people we are hiring date in the job and how well are they doing and are we choosing our objectives . Certain things are not measurable, especially in the environmental world. We try to say this is the right link to do, lets do it. We might measure for ourselves when something is tangible, broadcast that achievement during achievement. Leadership, you have to put a stake in the ground. You have to encourage everybody to get to that goal area if you dont set the goal, if you can imagine where you are going, get their area. Francine that is leadership. You teach a class on leadership area. It was a lot of work getting going, to understand how to get the message to the students read students. I found it so stimulating. We have been doing this for six years. Mbas,e these secondtier we spend seven weeks with them in three hour sessions where they get to go with accomplished leaders. Stimulateds come out and excited. We learn as much from them from the questions they ask. For thoses not a way of us with gray hair to those who are young and we learn from the young as well are in. Francine thank you for your many messages. What advice would you give a chief executive or leader in 2017 . Is it different . The fundamental pencils of leadership havent principles of leadership havent changed. How you express it has changed dramatically. Our ability to communicate with our employees is so much more effective because of Tech Knowledge he and programs like bloomberg. Timeshift, they can see what we have to say to them on their time in a way that previously you would have to gather everybody in an auditorium and have a conversation or issue a letter or reclamation and now it can be they can be much more of a dialogue. Social media, public social media, you also have organizational forms of social media and communication. Those are very important to creating a two way dialogue. Its as much about him down with them really and virtually to say what they have to say and give them a voice to leadership. That idea has changed dramatically. Leadership is no longer top down, there is also a bottomup roach. Approach. David your share price is really impressive. Francine do you need morals to be a real leader western mark the value systems are so in orton to what makes important to what makes sustainable success in success. If you look at the most successful companies, they have very strong value systems. Values eat strategy for breck. David francine thank you so much for coming in. Coming up, the Deutsche Bank boss will be losing the support of investors. This is bloomberg. Francine check in on your market now. Mark barton is following the action or the. Mark little change today. After narrowing to the lowest in some number yesterday. This comes after the point widening last week. They will address lawmakers in barcelona tonight on the out, was ruledendum, that illegal by the spanish court. Unless he backs away from the words hes in using from a unilateral, independent declaration, the Prime Minister has made it clear catalonia intervention by security forces. Thats the difference. This is a lovely chart. Games gains. Portugal csi 20 is up percent. This is the sixth biggest gainer among developed gauges. These adding to his holdings portugal. This is powered by wards and the surgeon tourism. It will continue to holster shares in the portuguese stock market. It is rebounding after monday slump. The dollar rising as much as x percent. 6 . Ent to ofterdays close, the upside 2. 4 . Months. The biggest in record to nearing a 38. 10, its the biggest luxury goods company. Sales growth boosted confidence. The rebound is set to continue. There is a rebound in the mind for luxury demand for luxury items. They are selling more online. That would signify a record herein. Thank you so much. Francine john kline is losing these sort of some investors. They want to see a turnaround in the next two quarters, especially in the trading business. A spokesman declined to comment. Its great to have you on the program. It doesnt look great. Does he risked losing the support of the shareholders . That one more time mark. Francine i was wondering how bad this look . It does look that. He does not have the shareholders against him. The situation is a little bit tense. Results are not improving area he has three of the largest shareholders against you, its not a great situation. Still shareholders support him, still think he is the right man to restructure the bank. That does not answer the question do those investors think he is the right man to bring the bank lowered and make it grow again. The overall picture is grim. It feels like the clock is for him to show result or face intense pressure next year. Francine its the agm next year that seems to be it. Always a very interesting time for Deutsche Bank. , both got poorrs approval rates. Even though it is a symbolic vote in germany, it is still, if management doesnt get good approval rates, it is a slap in the face. Theyremember correctly, got percent support. They were all gone. Francine thank you so much. You are following all the banks in frankfurt. Up next, we will go out to tokyo the latest. This is bloomberg. Francine shares have dropped more than 20 after the Japanese Company reported. There are fresh concerns about the integrity of japans annual back hers. Manufacturers. Lets get to our reporter in tokyo. Provide us with some context as to this. Wereat was falsified thatts that the customers, the they werered, of certain strengthened us occasion. Strength and specification. They did this to over 200 companies are in a ineffective 4 of their but. Output. More, this ist not the first time where japan has been embroiled in a scandal like this. Deal,was the airbag board when they said they were up to a certain standard. There was a large role back and had to call back many of their vehicles last week. In that context, the third scandal to hit japan. Companies areese affected. Francine what may be impacted . That is what the company is looking at. When you look at toyota or honda, some of their passenger vehicles, maybe the front of the doors,the sides or the they have other Companies Looking at i have a list of all the companies. Used inhi, aluminum was some of their regional jets. Subaru produced training planes. Some of the wings are acted. Some boeing jets were affect as well. Its not just cars, but airplanes and rockets. Francine thank you so much. Bloomberg surveillance continues in the next hour. Your. Ene joins me out of we will be talking about catalonia. That authorities are giving a News Conference at 6 00. This is the day of reckoning to see whether catalonia will call for independence. The euro is drifting a touch lower. Bloomberg. Francine catalan countdown. The regions president will address lawmakers today. And japans political scandals make way for a corporate one. Doubting Deutsche Bank. Ceo john cryan is losing the support of investors. We are live in frankfurt. This is bloomberg surveillance and im Francine Lacqua in london and tom keene is in new york. Tom they are waiting for the Bank Earnings to come out this week. Today on cryan bloomberg, you begin to see the impatience happening in european banking. Francine i am led are covering extensively some of the european banks, but lets get to the bloomberg first word news. Reporter as you mentioned, we are starting in spain. The moment of truth for the government of catalonia. The original parliament meets today to consider the independence. The catalan president addresses lawmakers in barcelona tonight. He will discuss the referendum ruled illegal by spanish lawmakers. Fastmoving fires have damaged a number of vineyards and wineries 10 people at least and 20,000 people have been forced to evacuate. The u. S. Is blaming turkey for the latest crisis between the two countries. The american investors says he an not been told why ambassador was arrested. The u. S. Responded by refusing to issue visas in turkey. Of puerto rico is still in the dark three weeks after the island was hit by a hurricane. 85 of customers do not have electricity. Puerto rico said it could take months to restart everyones power. Months to restore everyones power. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im taylor riggs. This is bloomberg. Tom equities, bonds, currencies, commodities. Ae euro advances, 1. 1881, decidedly stronger euro over the last two days. 49. 81. Il, francine this is what i am looking at overall. European stocks are slipping a little bit. They are not sure what to do about spain. We look at the dollar weakening a touch, treasuries nudging higher. What President Trump does next with his tax reform, the overhaul effort, and they want to know more about his feud with the republican senator. Tom away from all that, lets do a chart where the president says, i was elected and things are better. And everybody says, yea, yeah, yeah. Guess what . Hes got a case. 1989s the ugly times, the recession, the 1992 recession. And of course, the great financial crisis. Heres the election of President Trump. We are up out two standard deviations. In businessig jump optimism of the 20 year trend of a decade ago. Francine tom, i really liked your chart. I did something a little different on the back of those outstanding lvmh figures. I know you love luxury things. This is the msci country world index. I will push it out for radio listeners. The luxury top good here, which basically means things that are selling good, so much better than the old country world index. And then you have organic u tom. H growth up 12 , tom that is amazing. Francine global stocks are trading a record highs. Traders are betting the fed will lift rates in december as markets turned their attention to the release of the fomc minutes tomorrow and the start of the Third Quarter earnings season with a lot of big banks reporting as well. Joining us as our guest host is geoffrey yu. Geoffrey, as always, thank you for coming on. Will we see record high after record high . At this point, i still think things will be getting higher. We dont have to like it all that much. At this point, if we go around looking for risks or downside triggers, we cant really find them. Francine the political noise, how do you price that in . How do you implement that in a portfolio for our clients on a consistent basis . And i cannot justify going to the clients in case something happens with north korea because something could happen with a nywhere. Tom when you look at the correlations of the market, are the markets hinged to the fixed income market . Is there a distortion between everything else, fixed income, negative rates and all of that, or is it normal . Well it is dangerous to use the phrase new normal. Our clients are more worried about a fixed income market facing a big correction. Or is it equity markets correcting far more on the equities . Talk iswhere bubble far stronger than the fixed incomes . Given Central Banks influencing the price action there, this is being accepted. It is becoming the new normal. Tom this is the chart for geoffrey yu. This is eurosterling, the way francine looks at sterling versus the way i look at it. A lot ofoffrey yu credit for getting this right in strong sterling. Can you reaffirm strong sterling . So, firm sterling strong might be a bit too strong a word. At the moment, most of the downside has been priced in. There have been some correction for sterling, but most of that is driven by politics. Francine they think the next level is what . What is your target . It still centers around 1. 36. Sterling has found a level that most are comfortable with right now. We need to see a material break in one direction or the other, but if it is a lower break due to brexit fears or anything else, that is more skewed towards the buying opportunity. Francine what i cannot figure out is whats going on with brexit. One day we are hardline in, one day we are crashing out and one day we have it together. Weakened, isy is it Boris Johnson that takes he hher place . Is it Jeremy Corbyn . We need to see a Material Change for that next leg. Thehis point, you can say portfolios reflect the fact that they are positioned for a not so great outcome, but at the same time, if you are investing on a non hedge basis. Tom what a wonderful day yesterday to see mr. Thaler from chicago take the nobel prize. Thaleryou use richard within the geoff yu world . For example, in terms of the resale market, what he has hypothesized, that is applied by a lot of our clients in this space, Wealth Management. Powerful. Ry i think we in finance have a lot to learn from this. Fx, it is a theme. Tom and it goes back to the alers endowment effect. Once you are deal, committed to the trade, you think it is the best thing going, right . Your risk pay off does become asymmetric. That is term by psychology at the end of the day. If anything, it is not applied enough. Tom is this great or what . We have geoffrey yu to start us off here with ubs in london. Later on, the former economic director of the International Monetary fund to begin our imf coverage for the next four days professor olivier bland chard. Francine this is bloomberg surveillance with tom and francine. It is a game of reckoning for catalonia as the government needs to consider independence. Lawmakers will be addre ssed in a move that risks a backlash from madrid. Joining us now is charles lichfield. And still with us is geoffrey yu charles, welcome to the program. We know that the madrid government has been quite hardline. What are the chances of catalonia declaring unilateral independence . We think they are quite high, actually. Despite the fact that there have been various warnings, we think the internal pressure within the coalition is so high the president of this coalition will have to Say Something that paves the way towards the independence, or recognizing the vote that took place. However, we do not think he will instruct his administration to take steps to prepare for that independence. The question is how will madrid respond to the symbolic, but not the concrete independence . Francine if catalonia do does declare independence, they might not have the support of the people. The madrid government could invoke article 155, and it could become ugly. That is the risk. The madrid government has, i think, learned from the day of the referendum vote and will tr y to skirt away from that. They will also be reassured by the demonstration in favor of unity that took place yesterday. 55. Y probably skirt article 1 tom is this a show . Is this a ballet or charles, is it for real . It is already for real, tom. You have seen it escalate much faster than anyone would have expected. Now this is a real crisis for spain, and also i suppose, for europe in general. It seems to have fizzled out slightly after everybody was taken by surprise by the violent show on the day of the referendum. One has to hope that actually, ockeveryones surprise and sh after the developments of that day, that we found a solution that is desirable for all the parties. Tom what is your most likely tomorrow . What happens next . Really depends on madrid. I wish i knew how they would respond. Tom we dont know. Francine geoffrey, the concern is that it is difficult to attach a price to it, which is why investors have largely been ignoring it, aside from a Little Movement on catalonia bonds. If you want to take steps towards statehood, oyou need established institutions. Within the eurozone this becomes interesting because there is no monetary independence. On the monetary side, you are constrained. But what exactly is the risk . Is it that other countries in europe follow suit . Could impact this gdp significantly question mark . Well, both. For a country that is reformed and recovering and is looking toward the future, but also europe looks at it as creating all sorts of uncertainties, were the eu to tacitly accept a country can secede from a number state. There are several Member States already and there are countries that are in the process of joining the European Union that have more unstable situations. I think the eu really does not want to touch this. Tom how alone is catalonia . Is there anybody screaming give them their independence . Is there anybody out there . Even i thiknk some regions with their own independence dont want to get involved in what they see as an erratic process. Today the leader of the Scottish Nationalist Party is making a speech at her party conference. She could make a big statement that she could make a she could make a vague statement of th solidarity. Ant, i think, regions with aspiration of independence month this to be done through a due process and if they are associated with catalonia, it makes their own independence less desirable. Russian me go to your expertise. How is putin doing . Give us an update . It was his birthday, so we have to congratulate him for that. Hes also heading towards what is his reelection. Circlesian authorities around adhoc policies and some longterm investments and concentration on russias future, some interesting policy ideas,w hich i think your viewers will find admirable. Tom thank you so much for the update, particularly on catalonia. We will continue with geoffrey yu. Radio,up on bloomberg what a joyous celebration yesterday. Hundreds, even thousands, in their auditorium in celebration. This is bloomberg. Taylor this is bloomberg surveillance. Im taylor riggs. The biggest contractor in the u. K. The company also will reduce the jet. T of its eurofighter in japan, a scandal has erupted that has reverberated across the nations economy. Relating tota cars, planes and a possible rocket. Boeing said they got some parts from subaru, but is not see any safety issue. Thats your Bloomberg Business flash. Francine now on to japan and shares in kobe steel have slumped on the back of this news. Lets get more on this story from our reporter. What are the implications for some of the people they supplied, including toyota and honda . Reporter right, so what happened is they forged aluminum and copper parts that were sent to companies. 200 companies were affected. This was between the september 2016 and august 2017 period. So, a one year window. As you mentioned, there were some big players affected, toyota, honda now we are getting word there were some trains affected in england, and also planes by boeing. With a wide range of different vehicles and we are also hearing it might have gone back for 10 years with different cover ups that happened year after year with a few dizozen staff members. This is just unwinding right now and we are waiting to hear what kind of impact these companies will face. Tom here is a chart, folks, back 40 years. I will put this on social. This is the ugly chart of mediocrity. We have the china commodity boom, and this horrific performance. Does the japan government, the society, did they put these people out of their mystery . Reporter did they put these people out of their misery . I guess for japan and the industry, this is a big deal for them. These are Big Companies and they mean a a lot. There is a lot of respect and honor that comes with these metal makers. They are Old Companies that have existed for a long time and maybe their stock portfolio does not perform as well as apple, but they are the bedrock of the japanese economy, to many of those in the leadership here and also, the citizens. Putting them out of their misery, i dont think that is something the japanese government really does. Francine thank you, stephen, for the great briefing. Geoffrey yu stays with us. Coming up tomorrow, we have some great exclusive interviews, with the chicago fed president. Really, it could not be more timely because if you look at what is happening in the markets today, they want to know what will happen with the minutes released tomorrow. Then we have a lew of earnings then we have a slew of earnings released from the banking world. Then, we look at the tax overhaul effort. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Whentertaining us,es getting us back on track,hing . And finding us dates. Phones really have changed. So why hasnt the way we pay for them . Introducing xfinity mobile. You only pay for data and can easily switch between pay per gig and unlimited. No one else lets you do that. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit or go to xfinitymobile. Com. Tom bloomberg surveillance from london and new york. To our first word news on the fires in california, heres taylor riggs. Wildfires have gone through californias wine country. Buildings have been destroyed or damaged. 20,000 people have been forced to flee their homes. Estimate early to losses, but they say wineries and vineyards have been damaged. Texas techtudent at has been accused of fatally shooting a University Police officer at a Campus Police station. The student have been taken there after there was evidence of drugs and his system. The student was later caught. The head of the Environment Protection agency is calling for the end of protections for the wind industry. Tax credits are winding down this year and will expire in 2020. Theresa may has up the stakes with exit talks with the European Union. They want hard support over contingency plans for leaving without a deal. The u. K. Still wants to reach a deal so toxic and proceed to come up with a new trade agreement. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, i am taylor riggs. This is bloomberg. Francine campaign for the todayse election begins and we are two weeks from the vote. Shinzo abes main challenger is end poll. N a week and we need to talk about political scandals and economics and the impact of these elections will have, but we also need to talk about equities when it comes to kobe steel and forgery. Doesnt taint it . Geoffrey talked about japanese industrials and these longstanding names, but thats where the story is. Andtopic of like 1700 we are struggling to break this correlation with dollaryen no matter how much we try. When expectations of the lowest, thats what they are the highest. The street has been looking at it closely as well, but no ones putting that money. Francine what are you waiting for . Do you pick equities or you wait for catalysts and would it be in the political sphere or Something Else . Geoffrey as we know about japanese politics, you have different shades of gray almost literally in some sense. Ultimately what changes their is withealing o demographics and retirement age. Lets look at productivity. If we can get growth close to two rather than one or zero, the Japanese Equities will be priced right and finally can break away that link with dollaryen. Thee three markets three continents markets are really something. This is a really great chart. We are normalized back to the financial crisis of august of 2007. Up we go with standard enforced 500 excellence. Japan lagging down a little bit better than europe all in all. Do you stay with a growth machine america or do you pick up the value of japan in red . ,eoffrey ultimately right now the growth is where you want to look at it. It will be the growth forecast actually next year. Theres an environment for growth. Expectations are still relatively mediocre on fiscal changes in the u. S. And the like and thats why we think it could be more catalysts. Having said that, europe is the laggards. I think that speaks volumes about the eurozone. Tom how badly does japan need a resilient and better china . Are they linked to china in a way more so than the United States . Geoffrey not sure they are going to admit that, but these are two complementary economies. Goodnk thats a environment for asia in general. Lets say you are an asian idealist and youre are hoping with where the u. S. Is going right now, can there be a comprehensive trade agreement in the Pacific Region with china and japan, too profree trade nations leading the charge . Thats an interesting proposition. Francine the governor has made fresh calls to open up the nations financial sector. He warned reform would be more difficult the window of opportunity is missed. Chinese state backed funds intervene to limit games of the nation stock market, part of the governments efforts to restrain market swings. If you look at some of the restraints, the chinese authorities are putting in place whether in regulation or on the thatnment, is there worry their something ugly bubbling that will resurface after the peoples Party Congress . Geoffrey the gray rhinos that china likes to call them there seems to be no well lagging on the regulatory side. Going back to the governors comments, if yet actually said this around 10 years ago whether the reserves were building and capital inflows and the euro view was undervalued, that is one the listing of caps controls is the smoothest. Now things have gotten better over the last two or three quarters or so. Youre scratching the surface and you dont know what youre going to find. I think of lately game, but it never hurts to try. Francine literally tom sent me an awesome chart. I dont know if you want to show it, but i will show it for you. This is 100 toms doing. Im stealing it and youre not even getting royalties for a it. This is the yen versus redman renminbi. Do want to talk about it . Its beautiful. Hes crying. A regular listeners are likewise their silence . Reallyis is a interesting historical geopolitical play. Ics the power of abenom overpower . Lets go back to the chart. Yellow is the massive moves with renminbi. Nant o abenomics was after shadowing a japanese forget for a long time. In some sense, it couldve been launched as a response to chinas ascendancy. Conflict . These be in there somebody symmetries with these economies. They should actually accept a framework to drive growth in asia. Tom what is the generational shift that will allow that with all the ugliness of the 20th century, this may meeting in china that will reaffirm the leadership at a federal beijing level . Is that enough to rekindle a dialogue between tokyo and beijing . Geoffrey ultimately right now china is focused on its own economic development. That takes priority on a social level. The china japan relationship will still pale somewhat in comparison with the china u. S. Relationship. As below, President Trump is heading to beijing in november as well. Thats the other key event in geopolitics over the next few months or so. Both generations certain realize theres more to gain by pursuing freetrade and leaving antifree trade regions behind. Japan also showed for its own sake focus on domestic reform and pursue lifting productivity and managing demographics. Francine jeffrey yu stays with us and we should stay with us for the upcoming coverage on the latest elections. Analysisl be extensive and a lineup of great newsmakers. On your commute, tune in on the radio. Bloomberg daybreak to be heard in new york, boston, the d. C. Area, and in europe on sirius xm. This is bloomberg. Francine coming up later today, exclusive conversation with the ups had at 7 00 in london. Lets get more on Deutsche Bank. John cryan appears to be losing the support of some investors com. Speaking on condition of anonymity, three of the largest 10 shareholder say they want to see a turnaround in the next few quarters, particularly in the trading business. Very. Bring in our shoul arjun the concern is that management has come under a lot of pressure. This is an to the turnaround plan that john cryan has put. How much should we know that shareholders are not happy about this . Has been know is what reported in the press today and stories from bloomberg say that three of the top 10 stakeholders are unhappy with the progress that has been made so far on the strategy, particularly in the investment bank. Problem for john cryan is that we are expecting another weak quarter in terms of Investment Banking revenues this quarter coming up. The fact is that there other businesses, particularly german retail banking, thats a low profitability margin business because of the fragmented nature of that banking system. Theres not berlin much good news on the horizon for john cryan. Francine what does it mean for john cryan Going Forward . Does he get under significant pressure and as you just need to go or can he convince investors hes the right guy for the job . Arjun hes actually made some progress. Yes taken up some costs and is making Good Progress on the cost front and they have settled on a number of legal issues facing the bank. However Going Forward, i think he will be granted some time, but he really needs to kind of show that they are beginning some market share, particularly in the fixedincome business. In terms of Investment Banking, the studio top the institution and now theyre back in the 46 bracket. Tom thats exactly where i wanted to go. Lets bring up the chart. Heres jpmorgan off the financial crisis. They are all together here in 2012. Barclays will you will talk in the next hour. Heres Deutsche Bank down here with 18 months of miserable performance versus fortress jamie dimon with jpmorgan. Youve got to do it with cash flow. Does he have the cash flow to move forward quicker and at the same time deploy cash to shareholders . Arjun i think after the 8 earliereuro cap raise this year, they are amongst the best capitalized ranks in europe with a ratio of 14 now on a fully loaded basis. This is where you will see investors questioning him about the returns in the Investment Banking business. They do have more cap alone now to deploy. Certainly he is going to be asked questions about that. Tom what are the sell side Strategic Options here . Is it to further cost control the margin . Is it to finally make selloffs to soft different divisions at Deutsche Bank . Whats the strategic guess as to what mr. Cryan will do . Arjun they have already got plans to partially ipo their Asset Management business. That will probably come sometime next year. In terms of the Investment Banking business, they have shifted to a more corporate led strategy. It still remains to be seen whether thats the right move, but we have certainly seen for example goldman struggling because of their exposure to hedge funds and their Financial Institutions and their shifted to a corporate climate strategy. But it stille, remains to be seen whether they are making progress. Francine how can ecb policy normalization help . Is Deutsche Bank a structural problem as you laid out or with a benefit as others from ecb policy . Arjun it certainly would help yo,. One of the other important things is that we saw funding costs go up significantly, particularly related to market concerns about their liquidity. That should normalize this year. That will be a boost for them. Open to Rising Interest Rates and ecb normalization will certainly help them. Francine thank you so much, arjun. Eoffrey stays with us. The angry spanish divide is this weeks International Cover story. It takes an indepth look at the political unrest and catalonia. Very interesting ahead of that much expected speech from catalonia later today. What you do is also look at us via tv and you can steal the chart that tom keene sent me by mistake, which i showed a got credit for. It looks at the yen versus renminbi. You can also directly message tom and i for questions coming up. This is bloomberg. Taylor this is bloomberg surveillance. I am taylor riggs and lets get to the Bloomberg Business flash. The and American International group ones that the third couldr disaster cost be in the billions of dollars. Aig will pay out claims for earthquake that struck mexico. Bill ackman says a settlement with automated Data Processing is unlikely. Shareholders of the Human Resources will be next month. Ackman has an 8 stake in the company and is demanding changes. Shares of the largest world luxury goods maker are approaching a record in europe. The report of thirst Quarter Sales growth boosted confidence that the luxury rebound will continue. The brands include louis vuitton, dior, and champagne. The company has been targeting online sales and younger consumers. That is your Bloomberg Business flash. Tom, francine . Tom we now digress to the idea of what is going to happen. Yu from ubseoffrey Wealth Management and someone who is very smart with his investment and finance. This is the qt thats happening after the qe. The white line is the u. S. , the blue line is europe, and the red line is japan. Going to beide path stable as we shift from tv over to quantitative tightening . Geoffrey they will be stable. If we really do want to use this chart terms of ratio, as a going to be a numerator story or denominator story . If the fed can just do nothing with the Balance Sheet, then trend growth this to 6 or 8 nominal, then i think thats an environment that the fed would be very happy with. However its going to be a numerator driven process. Have youould love to on as you go to the nominal space and the animal spirit. Explain to the audience why youre looking at the animal spirit of the economy when they adjust their fed Balance Sheet versus the real coming. Economy. Geoffrey because that is what ultimately every economy should focus on. It is about the portal problems we are seeing right now. Its about redistribution and some sense. Theave lessened productivity side of things and that is where the fed really wants to be careful. To kickstart the process and get tightening going and maybe ever retained the notion of some degree of overheating. Organically the economies can catch up to that and the trend growth up and then the tightening will happen by itself. Theyre looking at the initiation of this process, but macros do no harm. We are not concerned about the qt process from the fed. Ofthe european side because the fragmentation issues, its a different process, but i think you want to have is why the gap as possible with the fed and let the u. S. And the world reflate europe and will make its job much easier for them as well. Francine but will come naturally or something broken in the process . Geoffrey thats the issue. Productivity has been hard to measure and given the u. S. With that stronger demographics, wise trend growth not hire . Is it regulatory or fiscal or the lack of investment . I think that is the policy challenge of our day right after central bankers. Francine lets say you are charge of policy. What you look at . Geoffrey investment strategy. You start with the grassroots and education. Was ported to nasa education and 1970s during the space race . That was because there was a sense of urgency. That reaped dividends for decades to come. We need politicians to think longterm. Tom does germany have an industrial strategy . Should that be the model for Continental Europe or should we look at the eight other models that are out there . Geoffrey i think the problem for germany is an something that had worked for them in the past, is it going to work in the future when they will have an elderly ratio worse than japan . I think a new strategy is needed and germany should not say tom whats your optimal strategy for europe and for that matter england . Some would say its to go over to the angloamerican strategy. A lot of our guest dont buy that idea. Geoffrey massive investment in grassroots and combined with an infrastructure push to get productivity for the last decade and not the electoral cycle. Francine what is the one thing that markets are mispricing . Geoffrey i think they are mispricing the upside risk. If you look at the treasury market and look at where the breakevens are, for example, i think there are good things coming up and attacks run. In the tax run. Theres also the american taxpayer to unleash their spending animal. Tax reform is not enough. They need something sustained. If you look in traditional series, as taxes go down in the shortterm, households will think they will go up and you need something more sustained. I think something more permanent be on the income tax side. I think real incomes and wage growth, thats what the fed is targeting. Tom thank you so much. Greatly appreciate that this morning. Don forget later this morning, i coul our conversation with olivia blanche hard to kick off our ims and world bank coverage. Also in equity markets, the whole battle are you in cash or not cash . Had you allocate how the do you allocate . Lisa shalit joins us as well. We will also have a Nobel Prize Winner with us throughout the morning. Futures are up three. Dow futures advance. The euro is the really the story. Strongo dollar is at a 1. 1797. Stay with us. This is bloomberg. This morning, a stronger euro and Bank Earnings season. Look for jpmorgan thursday surveillance time. Count the senators and you can count senator corker as President Trumps tax reform is doomed to failure. Insulted senators just say no. Go to cash. Shalit ofur, lisa morgan stanley. This is bloomberg surveillance. We are live from our World Headquarters in new york. Im tom keene as always with Francine Lacqua. Today is a big day for barcelona. Francine it could be a big day and authorities in barcelona are giving a big speech and this is a day of reckoning where they independence or they could say they are thinking about it and delay it for a couple of days or never declare independence. We dont know, but it definitely could be a day of reckoning. Tom lets get to our bloomberg first word news. Heres taylor riggs. Taylor we are starting with that story in spain. Its the moment of truth for the government of catalonia. The Regional Parliament meets today to consider a declaration of independence that would likely lead to a tough backlash from the dread. The catalan president addresses lawmakers in barcelona tonight. He will discuss the outcome of that referendum. Earlier this month that was ruled illegal by spanish courts. Californias napa and sonoma wine country, fastmoving wildfires have killed at least 10 people and damaged a number of vineyards and wineries. At least 1500 buildings have been damaged or destroyed and 20,000 people have been forced to evacuate. Many winemakers say it is too early still to calculate their losses. The u. S. Is blaming turkey for the latest crisis between the two countries. The American Ambassador said he has not been told why president and wants government arrested turkish employees working for the u. S. Reports implicated the employee worked in the failed coup. That rocked turkish market and led turkey to stop issuing visas to americans. The Demilitarized Zone separating north korea and south korea next month is being visited next month according to a south korean news agency. The president is significantly expected to send a message during the visit. The white house announced a trip to asia but gave few details. Mormost of puerto rico still in the dark three weeks after the island was hit by the hurricane. 85 of customers in the u. S. , while dont have electricity. Said it could take months to restore everyones power. Global news 20 for hours a day powered by more than 2700 list and analysts in more than 120 countries, im taylor riggs. This is bloomberg. Tom lets get right to the data check. Currencies,nds, commodities the euro stronger. Futures slightly elevated. Dow futures right now up 33 points. Oil getting back at over 50 a barrel. The vix from a nine handle really diminishing quiet up to a 10. 15, showing a little bit of a pullback the last few days. I know with that strong euro and week swiss out to a 1. 15 shows a strong euro over the last few days. Francine this is what im looking at. European stocks seemed to be slipping and theyre looking at spain and the doma how to figure out what the next step is. Politics is dominating the markets once again. You can see the ibex down. The euro is rising before that little pivotal weakening of the government. Sterling rising as theresa may today win support for her brexit stance, but seems to be changing on a daily basis. Tom how about a chart on optimism . For detractors of the present, he said i got elected and things got better. Heres the trend of the center tendency from 1987 to 2007. The election of donald trump after all this gloom, the Small Business move takes off and we out almost two standard deviations that maybe 1. 4 stephe standard deviation. Thats the most optimistic chart on the bloomberg services. Francine i have a couple of other ones, but they are related to lecturing on stocks. This is a great chart that was dug up for us. This is looking at labor cost pressures in the u. K. For our regular stress, we will push it out on social media, but basically the blue line is previous data. This is a revised unit labor costs growth. What this points to is that u. K. Labor cost pressures are stronger than the bank of england anticipated. What it means is that against policymakers extra incentive to begin raising Interest Rates for the first time in a decade. Its just another way of looking at why they want to hike soon. Tom very good and now we turn away from the optimism of the survey to the gloom of Kevin Cirillis world. He is our chief washington correspondent. Are there any senators left if the president wants to affect legislation to the senate of the United States can he do it . Kevin it will be an uphill uptle and is not many people on capitol hill yesterday because of the holiday, but theres concern of the growing ill will and the public display of disunity from center corker and the president could have implications ranging from tax reform to hurricane funding as well. Tom is there a plan of recovery for the white house . I have not seen that yet. It really began with mike allens article 304 days ago on the general kelly. Is there a plan on a regroup by the white house . Kevin i thought two things were interesting yesterday. Senate Majority Leader Mitch Mcconnell same publicly, really dodging questions on whether or not he thought senator corker was out of line. He was asked repeatedly and he dodged repeatedly, not taking the defense of the ministration. The other thing that was notable yesterday was senator Lindsey Graham on the golf course with President Trump. He is not necessarily the president s biggest political cheerleader. I thought that was notable that these two folks were golfing yesterday. Tom where are we on tax reform . Forget about the gossip and innuendo and all that. Its october and theyve got like 12 more days in session until the end of the year. Where are we on tax reform right now . Kevin they say theyre moving along. They clear the procedural hurdle to keep on pace by the end of the year, but they india that there will be ambitious tax reform by the end of the year, it is becoming increasingly unlikely. And just a couple weeks, they have to raise the debt limit. A lot of fiscal conservatives in the senate and the house have started to become more vocal, people like senator corker and rand paul and the Freedom Caucus as well. Their cries for fiscal restraint are growing louder. Francine how much talk is there about turkey . We covered it quite extensively yesterday. We understand there are signals that this could actually drag on. Is the white house talking about this . Kevin not as much as he would think, francine. That sort of cut everybody by surprise over the weekend. It does look like its going to continue to drag on. I think thats a great assessment. That caught everybody by surprise and i think theres still a sense of people trying to sort out what all that means. Francine anything else on north korea . I know we kind of talk about it every day, but are you hearing anything in the washington corridors . Interesting about north korea is the sense of where congress will start to play a role of this. Interesting its because someone like senator corker very much speaking out against the president and the fallout coming yesterday, i as chairmanote that of the Foreign Relations committee, he is someone who is very much in line with the military community. Theres a lot of talk that yes, maybe the tweet is what sparked all this, but it really could be his concerns about the administrations view on foreign policy. Tom i just had a nightm are of Kevin Cirilli play golf at the president. Kevin cirillis dont play golf. [laughter] tom coming up later on Bloomberg Television and bloomberg radio, a conversation with olivia blanchard. He had the speech of the summer in economics, a wonderful speech in italy. I want to touch on labor dynamics. This is bloomberg. Taylor this is bloomberg surveillance. Im taylor riggs. Lets get the Bloomberg Business flash. Job cuts are on the way for the biggest defense contractor in the uks as it will come up to 1900 jobs. They will reduce the output of their typhoon jet and fighter aircraft. Deutsche bank is losing the support of some investors. John cryan is seven months into a turnaround plan. Three of the largest shareholder say they want to see a change in the next few quarters, especially in the trading business. He is not delivered on the pledge he made in march to resurrect growth at june Deutsche Bank. A scandal has reverberated across the japanese economy could kob. Kobe steel falsified data. Subaru and toyota used some parts of this kobe products. Subaru said they did not see any safety issues. That is your Bloomberg Business flash. Tom i want to bring in a bloomberg chart before we introduce our esteemed guest as to why am 100 some of the double leveraged cash fund. Heres the lehman low on the bull market. No one predicted this. You have the courage to get on board and up we went and now we really extended ourselves well out past two standard deviations to almost three standard deviations on this mother of all unloved old markets. Ett, the head of investment portfolio solutions. Whats wonderful about lee says that she has seen it all and has enjoyed losing money. I want to cut right to the chase. The gloom on this great bull market you and i have never seen this. What do you say to the go to cash crowd . Lisa its still too early to go to cash. What we always see of these Capital Markets is that when there is still cash on the sidelines, we believe there is. When we see the hedge funds that position short, when we see very long positions in the futures market and the 10 year bond and 30 year bond, that is called defense. That means it is far from over. We always tend to get this last verse. You do not get this last burst until the Economic Data rolls over. You do not get the last first until you get people investing. Tom what a joy yesterday to speak to Robert Shiller of the only university of yale university. We have exuberance and that irrational exuberance. And then we have the models that really dont work. Are you using the models now to search for schillers exuberance . Lisa no, we are looking at the entire mosaic of all the data. Tom i agree. Its a mosaic could thats beautiful. Beautiful. Can i steal it . Continue. Lisa fundamentals are just too strong. We can talk about valuation all day long, but if we are in a lower for longer Interest Rate environment, higher p e ratios are sustainable. We know that. The fact that we have pmis around the world and virtually every major region, were above that 50 level marked and the trend is improving. Good fundamentals and we have earnings revisions coming into this corridor that are just about to be reported. The expectations for the s p 500 Earnings Growth is 4. 5 . That is going to be nominal gdp growth this quarter in terms of global gdp growth, so we are going to be those numbers. When you have positive economics and positive earnings, that market will continue to go up and it will be supported by the fundamentals. This is not about pe multiple expansion. I guess the concern is that theres also some much unknown out there. Whatid the models not work you look at the phillips curves models for example . This is something that we used to measure the cycle in the economy and geopolitics. There are risks that are almost unquantifiable in these markets. Lisa theres always risk. We know that. One of the things we have been encouraged by is the inflation data last friday actually suggests that the phillips curve is alive and well. We just had to hit the elbow of it. We think we are right about there with unemployment down around for or 2 4. 2 . We will not be surprised if we saw which growth get over 3 . This is classic cycle, late cycle stuff. It is just beginning. Francine it is just beginning. Is there a catalyst for a correction . Is there an endpoint to this . Lisa look, i think we have not have a correction. We know that roughly every 12 months we do have corrections as much as five to 10 . Would not be shocked or surprised in the Fourth Quarter here that we actually did get a correction as folks say. I went to profit take your. We are on our way. Tom bring up the mosaic chart here right now. S p is up. Here is the u. S. Pmi index that michelle just spoke of. Put your hand over the right side. What would you do right here go to cash . The world is coming to an end and there was an election. Up we go with this man shot. Index pmi a coincident and does it extrapolate out front or is it a look back . And thats the worry . Lisa whats great about these numbers as you look underneath them and you look underneath him any see whats going on with the incoming orders. Tom its almost spanish. We have fantastic numbers underneath those manufacturing numbers for forward orders. It suggests to us that we have three to six months of momentum here. Tom lisa will be discussing the mosaic of economics, finance investment, international relations. Richard thaler, what a celebration yesterday. Ofwill be joined by giant american and italian capitalism. Stay with us. Worldwide, this is bloomberg. Francine breaking news out of catalonia the president calling for a News Conference and that is about 40 or 38 minutes from now. I guess was also important is that a lot of people spoke to insiders and this is a bloomberg skip saying that spain is ready. O act from sources familiar with the story, while a final decision on whether to act has not yet been taken, we understand for our reporting on the ground that Spains National police force has a lead officers deployed in prepared if the police tried to shield the leader. The more measured is seen to be cracking down on catalonia, the more i can actually explain some of the anger and the catalonia region and the high potential of this turning ugly. It is something we will keep an eye on, especially on the business side through catalonia bonds. In the meantime, lets turn to oil. Opec secretarygeneral says north american show producers should take responsibility. He says the market is a shared responsibility of all producers be a conventional or nonconventional players. Joining us now is bloombergs executive editor for energy and commodities. Basically the opec secretarygeneral is saying now that saudi and russia are getting along, lets get this show producers to join in this production cut. It is somewhat wishful thinking. If you are show producer, you are not interested because its illegal to collude and manipulate the market unlike opec itself. I dont think he is really asking them to join opec although im sure he would not say no whether they are. Its more about opec understanding how shell operates and how shall things. That has been by far the biggest order in the oil market the last couple years. We move from something that takes a couple of years to happen to a couple of quarters and opec is not come up with that new thinking. Francine we heard from Vladimir Putin over and russia last week could whats the likelihood of production cuts being extent . Stuart all the signs are that they will keep rolling until possibly the end of next year and thats something a signal to the markets that they can expect stability and a supply from the opec agreement. Am i know youre doing commodities study, but we have killing it and the buy side space. Mr. Hebert told another source that he likes south america. Help me with the commodity som cycle. He bought it down here on the bottom as only he could do. It goes six to nine year, which is pretty darn good. Are we at the bottom of the come on the trough . Stuart no, it is definitely coming off and we are back into the 50s and there is a sense we can go in little bit lower. Remind everyone that even at all these prices, they are insanely profitable. Iron ores not that expensive to get out of the ground. Think abouting to is the play on the global economy. Among the most read topics on the terminal is iron ore, way more than you would expect because people think its a proxy for Global Growth. Tom stuart wallace, thank you for the quick update. We will continue with lisa from morgan stanley. A great shout out to the legend of boston for doing better than good. Heres a note for you. Coming up, the gentleman from carnegie mellon, Charles Evans of chicago. Look for that in the 8 00 hour. This is bloomberg. Tom bloomberg surveillance. If you are in the equity markets, do not turn the channel. This is going to be wonderful. Right now with the news, heres taylor riggs. Come intom and francine spain, its the moment of truth for the government of catalonia. The Regional Parliament meets today to consider a declaration of independence. Are said to be willing to seize the Catalan Leader if he declares independence. He is reportedly holding a News Conference in about 30 minutes. Deadly wildfires are ravaging northern californias one country. At least 10 people have been killed and 15 tilde hes have been destroyed or damaged. Reportedngs have been destroyed or damaged. It is too early to estimate losses, but they say wanderings and vineyards have been damaged. At texas technt has been accused of fatally shooting a University Police officer at the Campus Police station. The student had been taken thereafter at th after evidencef drugs was found in his residence. The student escaped, but was later caught. The head of the epa is calling for the end of tax incentives for the wind industry. Scott pruitt says it should be of the compete on its own coal and gas. Theresa may has upped the stakes with exit talks from the European Union. She wants supporters from her unit on her contingency plan. Dk wants a deal so talks can proceed to come up with a new trade agreement. Global news 24 hours a day powered by 2700 list and analyst in 120 countries, i am taylor riggs. This is bloomberg. Doom dimming going and gloom crew, we are joined on midcap and smallcap. Lisa only looks apple im kidding. The optimismk at of the market and they both decidedly feel the glass is halffull. Lets get to the chart that we are shown a million times. And world warower ii, i call this a depth chart in order of the dumb death cross. Let me go to you first. You are so optimistic that you are in the growth bucket. Most people would think you are in the value bucket. Why are you growth and not value . David as an investor, and the more value, but in total portfolio construction, leaving growth meeting overweighted and u. S. Equities and small and midcap stocks come and private credit, those are the growth bucket. I pay great heat to Free Cash Flow and it compels me to lean more value. ,om when i look at this chart it is the mosaic of optimism we have been talking about. You go as does david to international stocks. Are you going to international because theyre good or because theres no value in the u. S. . Lisa i would not put it that way. The u. S. K right now market is being fundamentally powered by earnings. This is not about pe multiples. Tom its not about the president . Lisa its about earnings. If we look at this, the market 14. 5 50 t 1 yeartodate and so are s p 500 earnings. We are late in economic cycle. If you think about Business Cycles right now and the u. S. , but u. S. Gdp is about 14 higher than it was in 2007. Outside the United States and emerging markets and japan and , there are only 3 4 higher. The have a long way to go in their business cycle. Tom compare and contrast the big man bluechip with the midcap of the same industry. A wellknown bluechip versus something i dont know. David honeywell will have a big announcement today as they will spin off some of their businesses. Yhis is a large companie stock and their growing the dividend at 13 , squarely in the largecap space. Lets look at an industrial like vers imaging. 2y are about a billion market capitalization and they supply product to Magnetic Resonance imaging. They are spin out at a varian medical earlier this year. It is up 20 this year and thats a great longterm Capital Allocation for wealth creation. Francine im just looking at breaking news on the bloomberg terminal and this is honeywell reported plans for a spin off at the corning earningspershare at one dollars of the five cents. 1. 75. Why honeywell and not anywhere else . David if you compare it to United Technology and general electric, they have been an absolute wealth creator. Maybe one yellow flag is the ceo retiring, but this has been a great Free Cash Flow generator. Tom we are going to rip up the script here. This is too good to be true. This is called surveillance luck when you have lisa and david with you. Bring up the screen here. This is what i look at. This is the sausage making of the famed bloomberg headlines and i have been personally colorcoded. I know you cannot talk individual stocks and i do not want you to get in trouble. General electric is going down in flames, so honeywell is going. This is what i see. Alett world lisa sh of organic sales up around 5 . This doesnt get it done, does it . Lisa i think it does get it done. Tom coming why. Lisa you are talking Industrial Companies with leverage. We are probably doing something close to 7 and 12 on the bottom line. Those of the kind of double digit more numbers supporting this market. That honeywell number makes me very happy, super healthy. Are they spinoffs good idea in general or a sign of desperation . David i think print only a good idea over the longer term. When a Company Changes its capital structure and very often spends off a smaller division, they are unlocking value to the shareholder. Often the Small Company is speeding up the cash flow to the largecompany beasts. If you look over the longterm, spinouts or special situations have been a key ingredient to making money in the small and midcap area. Look at your bloomberg spent out index of 28 this year. This is been well known on the street for a long time, but it continues to be a good source of value add in that part about the market. Francine is it shareholders that want a new tremor slimmeddown version of companies because they are easier to value . David there are easier to value and a largecompany shareholder and harri inherits the smaller stuff. It creates a valuation opportunity. From names like sally beauty over the years, all the liberty spinouts outside of tci and john malone, these have been great wealth creators. Tom lets go to the bloomberg and bring up the wall again here. I have to be careful because i know you dont do this with a lot of numbers. This is their market at either the. Tda. A this is the ged equivalent over here and this is the heart of your thesis, which is industrial people are going to act away from washington and the president and this distraction, away from whether the yankees can beat the cleveland indians. Lisa they will. Tom i love this. Its a surveillance debate. I am with you. David its the midwest through and through. Tom the yankees will do it tonight. Go, mr. Judge. This is serious here. They are under a lot of pressure at ge to become honeywellesque. Lisa they absolutely are and one of the opportunities is as we get to the last part of the cycle, how do they think about cash deployment . How do they think about m a . Get in a position where they can drive those margins and drive some productivity and drive that organic growth . David if you look at the with two important metrics the Free Cash Flow yield is better than the 5 and going to dividend at 14 when you combine the two and a name like honeywell, thats a pretty darn good formula for finding a longterm hold. Tom this has been fabulous. Thank you for going with us on the news from honeywell. It looks that it will spin off to divisions. We will have much more on this through the day as well. We will continue with david and lisa with enthusiasm for the market as so many others say go to cash. Dont forget as you get briefed here on Bloomberg Television, when you migrate to your car, bloomberg daybreak worldwide. Really a great news briefing and smart conversation. Stay with us. From london and new york worldwide, this is bloomberg. Tom francine is watching catalonia. We are watching for president ial tweets. Hat trick of tweets this morning on immigration and the nfl and on health care. Since congress cant get its health care together, i will give the power of the pen to great many people. The president i believe alluding to executive orders. I guess i would do that as well. Here we are. Francine . Francine this is what am looking at. Coming up shortly, it is bloomberg daybreak americas and jonathan joins us. I know you will be all over catalonia. Jonathan the backdrop to all this is that we finally have Global Growth and if you are a politician or policymaker and you are tempted on to embark on a bit of victory laps, i would say be cautious about that. You have the politics of brexit far from being addressed and you have the divide between madrid and barcelona. We will cover these stories with the former imf chief economist. I will do his best to do a better interview on bloomberg radio. Tom always tries his best. Ill it says he needs to succeed because hes my on her husband. Jonathan ferro with a sense of competition. Deutsche bank Ceo John Cryan seems to be losing the support of some investors. That is what we seem to understand by speaking to some of our sources. Speaking on condition of anonymity, three largest stakeholders say they want to see a turnaround in the trading business. A spokesperson for the bank declined to comment while the bloomberg managing editor for finance and the europe in europe, the middle east, and asia joins us now. When you look in john cryan, he is not had great news for a while. The is seven months into new plan and your hearing shareholders are just not happy. What were seeing is the return to growth, which john cryan spoke about earlier on in the year as being an objective. Certainly for 2017 has not come through yet. And thewinds remain plan is obviously in its infancy. Its in the very early days of seeing the results of that execution. Francine what does that mean for john cryan . Is his job at stake and is theres anything he can do to convince investors hes the right guy at the top . Showdown will be at agm next year. Elisa thats right. Part of the issue is that he has been described as a bit of a fireman. He is come in and put the fire out, which is what Deutsche Bank needed. Now you knew that shift toward the growth phase. Yes, maybe these investors are not seeing him as that figure for that move ahead and to a more expansionary phase. Francine is this a strategy problem . First of all, you have to deal with fire to rebuild. Is it a lack of vision or the economy . Elisa its a very tough market. Every day we are picking up news. Ii coming next year because there have leaks they are heavily exposed to the european trading market, analyst say this will hit the more than others. Its a difficult to get that bank growing again. Tom i want to look at the timeline and the x axis that mr. Staley has at barclays and mr. Cryan has a Deutsche Bank. This is a painful chart. Theres this mess of jpmorgan, barclays, and Deutsche Bank. As you mentioned with Deutsche Bank yesterday and barclays, we have this chronic 18 month glide path for these european banks. Catalyst at the revenue line or can they do it at the income statement to become jpmorgan like . Elisa theres a lot of different circumstances between the u. S. And european banks as you well know. I think theres obviously revenue that would help and both banks at barclays and Deutsche Bank have taken strong measures to improve the bottom line through costcutting. Ultimately they are not helped by market that they are exposed to. Tom very good. Greatly appreciated. Two short of time with you today. Breaking news on a pharmaceutical were seeing a lot of this restructuring and the idea of cost control. Ford motor among others and the honeywell spinoff announced moments ago. Heres pfizer reviewing options further Consumer Health care business. A mosaic of Strategic Alternatives as well. Heres the pfizer note. Halettl pen down lisa s right now. You are getting in front of your yearend planning. Company after company after company. Lisa its also again part of this idea of what types of behavior do we see late in the cycle . As the cycle matures, we begin to see m a and we begin to see restructuring. We begin to see people saying how my going to get myself another year or two of momentum . Tom the critical distinction is that cfos are getting out ahead of money for free being over. Is the party about over where its accretive on day one . David the cost of capital is probably headed higher for the treacherous Interest Rate forecast. Cfos recognize that and they have to be smarter at Capital Allocation. Lisas right. We are not in the ninth inning of the cycle, but we are and about the seventh inning of the cycle. Tom heres the bloomberg function here. It is the function very quickly with the weighted average cost of capital. This is a quick way to go w acc to go right to wear you want to go. This is what david and i are talking about. Maybe your debt cost starts to lift. We will follow this. We come back, maybe i will interrupt francine again. This is bloomberg. Francine this is bloomberg surveillance. On, we need to focus catalonia where the parliament meets today to consider a declaration of independence. Spanish forces are willing to seize the Catalan Leader today if he declares independence. Is reportedly holding a News Conference today. We are joined in front of the parliament and barcelona. What we know is confirmed . We know there is conflicting reports on whether we get a conference from him or not. Thats right. What we know for sure is that he will speak before parliament at 6 00 p. M. The rest is for a much all of the near. Theres a lot of confusion here. We have not been able to confirm this and we have a story that we are breaking and you can find it on the terminal that essentially says the Spanish Police already to arrest him if we get a declaration of independence. They are handling the security around the parliament. Francine what is that mean for the anger that we see in catalonia . If there was a legal referendum, do we know the way that the pendulum would swing . Arepeople against it people against it or for independence . Maria you would get all caps of opinions, but madrid would tell you thats kind of the relevant. All that matters is that the rule of law has to be sustained and preserved. Theres a range of possibilities we could get. You could say this is more of a symbolic speculation of independence and not actually trigger the law that would create a hypothetical unilateral or say thisatalonia could happen with the next few days. Madrid will tell you that if theres anything remotely like a unilateral declaration of independence that they will act and trigger the article to dismiss them. There are two people familiar with the story that say there are two people with the Spanish Police force ready to arrest him. Tom we will continue with our review of catalonia through the morning. Final thoughts with lisa and david this morning. Im not going to bring it up now because we dont have time, but its amazing to see what we are seeing with honeywell advisor as well. One of my things for next year is the decline of Pricing Power. Are we going to see that at the revenue line . Are we going to see a lack of Pricing Power that really puts pressure on Corporate Officers . Lisa i think we have seen it for the past 10 years. We have been in this age of deflation and technology and globalization. Yes, absolutely. I think the issue that you alluded to earlier is why are we seeing these corporate actions . We are at the end of the cycle and the weighted average cost of capital may be going up. Tom how do you play that . What is the sowerby script given the set of cards . David i wish i knew for sure. Who is the key player in the industry . Who has value to add to the shareholder . You will always have the amazon affect. I do think next year you might see a little bit of Pricing Power if inflation goes from the 2 range to maybe the 2. 5 range because i do think all this monetary ease will eventually be inflationary. It always has been. Francine what is the amazon affect that amazon wins the day or everyone loses . David i think amazon has been winning for a number of years. It is hard to see where that and will take place. But i do think there will be pressing power again because inflation will begin to pick up. Portfolios if you take it back, i think it makes the case for real assets to be a bigger pc or portfolio. Real stake, commodities, or infrastructure, thats a place you can be hunting for return and yielded tom. Tom thank you very much as we ripped up the script about four times, especially with the honeywell announcement. Lisa and david will continue with us unlimited radio. On bloomberg radio. Kevin hassett from his years at aei, he is the chairman of the president s council of economic advisers. Really looking forward to speaking to kevin. We will go to barcelona and to catalonia for this Important News for spain. Stay with us. This is bloomberg. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Jonathan it is the moment of truth for the independence push. A News Conference with the catalan president is imminent. The feud with a republican senator is unraveling the tax overhaul effort and several months into the latest turnaround plan, Deutsche Bank ceo is said to be losing support of top shareholders. From new york city for our audience worldwide, good morning and a warm welcome to bloomberg daybreak. Lets get you set up for Market Action this tuesday. Losses onbacktoback the s p 500 on the close yesterday in about a month. This morning, futures up by four plates. The story in the bond market as the treasury market reopens. Yields unchanged. In fx market, the price action is not muted. It is dollar weakness against anything including g10. Alix if you are an investor looking to protect yourself against a political crash with madrid and parcel