Transcripts For BLOOMBERG Bloomberg Surveillance 20171011

Everyone. This is bloomberg surveillance and im Francine Lacqua in london. We will be speaking to jack straw, one of the three people serving in the candidate from 1997 to 2010. We talk brexit and trade. Youre meantime, this is market. Equities seem to be on a tear. Stocks in europe are a little bit mixed, but the euro holding onto gains. We saw catalonias president stepping down from the immediate declaration of independence in spain. The dollar, drifting down a little bit. Oil rising above 51 a barrel, as opec pretty good. The nikkei 225 rising to the highest in almost 21 years, following the Dow Jones Industrial average, that touched a fresh record high yesterday. Lets get straight to the bloomberg first word news. Plans to donald trump make changes to his tax plan within the next few weeks without giving any details. At the same time, he dismissed concerns that his public spat would dismiss an overhaul. Independent analysts suggest it would raise taxes for 30 of people, making between 50,000 and 150,000 a year. North korea reportedly appears to be firing to multiple scud missiles. South korea and u. S. Military authorities have detected north korea is transferring about 30 scud missiles to a Maintenance Facility on the west coast. The movement is similar to an incident in march 2014. She u. K. s Prime Minister ha said the Iran Nuclear Deal is vital for regional security. The two leaders spoke on the phone yesterday with theresa may reaffirming the accord. Back in britain, theresa may has risked think we brexit supporters. She refused to say she would vote to leave the European Union in an another referendum, saying, i voted for good reasons later on. I would do exactly the same this time round. Damian green told channel 4 news he Still Believes the country is better off inside the eu. The ceo of ubs said the wealthiest individuals are remaining on the sidelines. Are waiting to invest. Reporter in Northern California, at least 15 people have now died in the wildfires ravaging parts of the region. That is as 2000 homes, businesses and other businesses have been destroyed. The blazes are likely to have a longterm impact on the states wine industry. The damage might be even worse in sonoma county. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im nejra cehic. This is bloomberg. Francine catalonias president says he will seek talks in madrid. s announcementnt pulls back from the immediate declaration of independence that threaten to turn a constitutional crisis into an economic one. So, theres a call for dialogue. You are always afraid of the outcome if there is not dialogue. Those calls should be heated. So, we need to open up a time period for dialogue with spain. Tadeo has thea latest. Will spain actually accept the offer . With will they sit down and negotiate . Absolutely not. Essentially just to recap what we got yesterday out of the catalonian president was the declaration of independence that lasted for 10 seconds. Afterwards, he said i will suspend the process by which this will take place because they want to talk with madrid. Madrid immediately came out and said, there is nothing to talk about. This is irresponsible and reckless. We know there is a Cabinet Meeting take place as we speak and rajoy will deliver a speech to congress today. The question is if he will invoke article 155. Francine maria, if there are no negotiations, no talks, no phone calls, what does that mean for Carles Puigdemont and the catalonian . Maria that is a great question because we know that puigdemont is under pressure. He was never elected. I was at the Cabinet Parliament yesterday. And when he said the word suspended, they dropped the more radical side of the coalition. They were incredibly angry. This is a catalonian newspaper that initially said, here is independence, now you see it, no you dont. It was complete euphoria. And people initially said, this is not what you promised. This is frauid. Again, a lot of pressure on both sides. Madrid, but also people in barcelona, they were not receiving what they were promised. Francine thank you, maria tadeo. Now is patrick armstrong. Thank you for joining us. The cataloniaat actually, i have a great chart looking at catalonian bonds. Overall, what does it mean for the regional action . Does this mean that investors can forget about it . Or does this mean it will come back to bite them in two weeks . This is a special case. Initially markets reacted negatively to the news, but increasingly, markets became immune to the headlines. The outcome yesterday was perhaps one of the best possible scenarios, given the situation. The market believes there are no broad implications at this stage. That the majority of the people in catalonia were not happy with the way this has unfolded and most importantly, they called on the private sector and the banks. They pushed against the decision on this subject. Given everything, i think we found a temporary equilibrium. Francine this is a catalonian bond chart we are looking at. You can see this huge drop in yield is down some 20 basis points. What does this tell us about how markets are reacting . Yesterday, he diffused things somewhat, hoping for a face saving agreement. Anyink rajoy has not got intent to negotiate. Formal getting independence is very unlikely at this point. The risks are there, but very small. If this is a facesaving agreement from both sides, that might be the best scenario. And i think that is what puigdemont is looking for. Francine how should investors view this . We had concerns over italy. This something that investors need to keep an eye on . The politics are not that clear, where they go next. It is across the whole world. There is a lot of disharmony around the world where people are not participating in the economic recovery around the world. Coefficients around the world are getting very stretched and this is symptomatically that. I dont think the catalonian recession is predicting more around the world. It is an event. It is topical right now, but i dont think it is a game changer in terms of Broader Market risks. It should not be ignored, but it should not make changes either. Francine what does it mean for ecb policy . Should they ignore it, because the need to focus on other issues, such as inflation . I think so, the ecb is not focusing on regional politics. They have a very difficult job next week. They know they have to announce less qe, but they have to do it in a way that will not be seen by markets as hawkish. And they have to avoid the euro overshooting. This is where they will focus on communication, and i do not think they will be focusing on these developments. Francine thank you very much, Athanasios Vamvakidis and patrick armstrong. Stay with surveillance. Plenty coming up, including our exclusive interview with sergio ermotti. And later, theresa may risks the wrath of brexiteers. We will discuss the latest comments. This is bloomberg. Francine we have some breaking news out of the u. S. And out of uber. Uber will face two additional u. S. Criminal probes. If you look at uber, and its dealings with the law, it seems to be reckoning day. The ride hailing firm places two u. S. Probes and you have a couple of allegations from engineers that built the surfcam tool. They were gathering intel on rival grab. It seems they will have to face, i dont know if it is lawyers, but certainly face justice. There is the ongoing probe in the u. K. Regarding their appeal to the highest court, whether they can keep their license, or whether it will be taken away. We will continue keeping an eye on uber. It affects all of our lives every day almost, as it is one of the most useful, in certain cases, apps. Heres nejra cehic. Nejra we are watching kobe steel, which has plunged again after admitting data was falsified on iron ore powder. The products have been used in cars, planes, rockets and trains. 1 3 of the value of the company was wiped away. It might also play a role in the countrys elections. Will be sold to a private equity firm. The company is valued at 2. 6 billion euros. According to people familiar with the matter, there are bits from other firms. Management has built a stake in smith nephew. Its not clear how much the activist investor owns. A representative for elliott declined to comment. A spokesperson for smith and nephew says it does not comment on the identity of our investors, other than those publicly disclosed. That is the bloomberg . Francine the minutes of septembers fomc meeting will shed light on raising Interest Rates again this year. We spoke with sergio ermotti. The market is already pricing the probability that you might see a point or a 3 4 point hike in the future. I will say that probably equity markets have probable hikes. I do not expect the fed to move aggressively. Are able to exit with a lots of the bonds they own expiring. Francine what are the wild cards here . A u. S. President that is not shy on sharing his views on Monetary Policy as well. Are you worried about the independence of this fed Going Forward . That usuallyink when you look at this kind of political intervention, not only in this country, but generally in the world, they may attract the contrary reaction of people showing they are independent. Therefore, i dont think it is a smart move for politicians to interfere in Monetary Policy. Reporter when you think about the policies specifically, is there anything that excites you . How would it benefit your business . No, we are not overly focused on those kinds of leadership changes. Ngle that matters for us is not necessarily Monetary Policy. It is mark, if there is any implication to the oversight of the prudential part of what the fed or any Central Banks is doing to our industry. I think its the path that seems to be taken, and therefore, i dont expect any major changes. Francine still with us, Athanasios Vamvakidis and patrick armstrong. What will you be scouring the minutes of the fomc to try to understand . Whether they value stability over inflation . I dont expect any surprises from the minutes. I think the message will be consistent, but the fed wants to normalize monetary policies. The december hike is fully priced in, but the market is pricing only one hike for next year. Market the question the is asking is wrong. The question is, why is the fed hiking when inflation is low . Factnswer to this is the they are already behind the curve. Full are low at employment. The fed is taking advantage of the good times to normalize policies and the fed is also content about asset prices. If they stay behind the curve for too long, the feds credibility will be at risk. Francine patrick, we have had these conversations in the past, saying, the market is wrong, look at the dots. But the market has been right. I dont think so, they will hike three times this year. We are now at the point where we are at 75 to 80 pricing in the third one. I think the fed has been right and the market has been wrong this year. The market is still overestimating how low the bar is for the fed to be hiking. They dont have a way to fight the recession with rates as low as they are. For me, the most important part will be about how much discussion was around the elevating of assets. I think this is a warning the fed is putting that as part of their hiking plan and one of the measures they will be considering. Francine patrick, talk to me about this chart, which tracks the federal funds rate with the treasury 10 year yields. Yeared funds peak with 10 yields. What does this chart tell us . Do you look at this kind of thing . Definitely and i think they look at close to each other. I think we look at them close to 3 by the end of 2019. Its a sign that the fed has got Interest Rates below inflation, and that is still accommodative. They want to get to a point with that is neutral. You have some signs that there will be wage increases, and that will create the inflation that is missing right now. Francine we will be back with Athanasios Vamvakidis and patrick armstrong. Up next, we check in on the markets after the dow set another record high and the nikkei rose to the highest in almost 21 years. This is bloomberg. Francine this is bloomberg surveillance and im Francine Lacqua in london. Mark barton been following all of the action. Byk the stoxx 600 is down 0. 01 . This is the ibex since the results of the referendum in the eight days since. We are down by 0. 8 . Gauge, by the way, is sitting on a threeday loss of 4 , the most since august. President stepping back from that immediate declaration of independence from spain. This is the euro against the dollar, rising for a fourth day, the highest in two weeks after the president stepped back from that immediate declaration of independence from spain while waiting for rajoy. 1. 1839 is where we are. The forecast for the end of the year eurodollar is 1. 18, so pretty close to where we are. Mostgermany spread, the since september. A week ago last wednesday closed 19 basis points higher, as in the three day period since the referendum push the spread out. Post referendum, the spread is out just five basis points. The fear post referendum, francine, definitely dissipating. Francine thank you, mark barton. Up next, theresa may risks angering brexiteers in a radio interview. We will be joined by the former u. K. Secretary, jack straw. We talked to him about brexit, negotiation tactics and what labour can do in all of this. This is bloomberg. Francine this is bloomberg surveillance. Lets get to the first word news. s president onia says he will seek talks with the government and matured over the future of his region. Ed backouncement roll from an immediate declaration of independence. Forhis calls dialogue because europe is afraid of the outcome if there is not dialogue. Calls should be heeded. We need to open up a time period to have a dialogue with spain. Nejra north korea is preparing to fire multiple short range rockets around the opening of the Chinese Communist partys Congress Next wednesday. According to the Asia Business daily, south korea and the u. S. 30 rockets being most. The movements and my twin incident and march 2014 in which north korea fired 71 rockets. In Northern California, 15 people have now died in a wildfires ravaging part of the regions. The blazes are likely to have a longterm impact on the states wine industry. Four Napa Valley Vineyards have been damaged. The damage may be worse in sonoma county. Global news 24 hours a day powered by 2700 journalists and analysts in 120 countries. This is bloomberg. Francine now lets focus on theresa may. She risked angering brexit supporters and an interview on radio she refused to say if she would vote to leave the European Union. Goodg, i voted remain for reasons at the time but circumstances moved on. I looked at everything and came to a judgment and id do exactly the same this time around. Meanwhile her deputy told channel 4, he Still Believes the country is better off inside the e. U. Where does this leave the u. K. , leaking every day. Does it make it more difficult for her to negotiate with the e. U. Answer those questions is jack straw, one of three people to have served in the cabinet continuously from 19972010. The cochairman of the british turkish forum. Thank you so much for joining us on bloomberg surveillance. Do you miss being part of the cabinet . With this have been fine negotiating brexit . Mr. Straw i was very lucky because i was there for 30 years and i could not go on forever. Themore fun being in heart of government and opposition. It is frustrating at the moment theuse unusually for conservative party, although they have been in power for more of my life than we have been in say, normally you could they were competent people. The cabinet was broadly united. There are individual people in this cabinet who are competent. Philip hammond, david davis. Is ofe impression given a conservative party that is deeply divided. Francine is it bad for the working cabinet . When you are in office, did people have to defend . Was it a united front . Mr. Straw they were not in agreement, for sure. Tony blair, who is their for 13 years, was criticized for being a control freak. He was able to do that because he was such a dominant figure. Hed won three times. If you have a captain they keep scoring goals, you are going to follow him. Sure, there were disagreements, but there was and sometimes they spilled out into the not least between tony blair and gordon brown. But they were not on this level. There were disagreements in margaret thatchers early theyet, but until 1999, did not spill over into political difficulty. Theresa may is a decent person this general june, think this would lead to greatly increase support. Its undermined her and given weak. And its appears it is bad for the country. Francine do think if we were to go to elections, that Jeremy Corbyn what win . Would that be a good thing . Mr. Straw ive never taken an election for granted ever, but Jeremy Corbyn is better placed to win than he thought possible or anybody thought possible. I remember the labour party. A fairly elected leader. What i rather have a Labour Government with Jeremy Corbyn than anyone else . Of course i would. Francine what would mean for brexit negotiations . Would the tone or content change . Mr. Straw i think both was change. Ist labour does have somebody that is top of this game. A very distinguished lawyer and good legal brain. There would be a much greater effort put in to trying to get a deal. I think the other thing that uldld happen and it co still happen, once the turns a been agreed, there would be pressure from the general labour party for a second referendum. Because one of the fundamental flaws about the referendum last year was people were offered a its gottween, flaws, the alternative is a fantasyland. Wordsin Boris Johnsons britain could have its cake and ieat it. Francine you think there should be a second referendum . Mr. Straw i think there is a strong case. When we look at the deal, which is not what people wanted. There will be a physical price, a monetary price to pray. Then other prices to pay in terms of loss of influence. I think its fairly risible to say to the public, do you want this . It behooves those strongly in favor of leaving to have the confidence in the future they have charted to say, yes, we will put a politicalgiven the fear, can only be a prob brexit cabinet minister that can call a second referendum . Mr. Straw no. Before the deal is finally struck in march or april 2019, there could be a majority inside the house of commons of people on the opposition, labour, libd ems, scottish nationalists, plus remain conservative mps. They are thinking about this. They are keeping their head down and they are right to do it. They are waiting until the deal is there. A candidate for the conservative leadership and concerned about the conservatives winning the election in 21 and 22, i wa ould be in favor of have a written a referendum. If the conservatives think about this carefully, lets say they do the deal, they refuse the second referendum, the deal starts to be implemented in 2021, people will discover it is not what they thought. And they could go into the general election in 2022 with brexit hanging around their next far better to give all the details to the public and 2019 and let the public decide between the brexit terms and conservatives chances. Francine do think we will have a deal by 2019 . What are the percentage chances of a no deal . Mr. Straw i put them low. I could be wrong about this. I am wrong about plenty of things. The chances of a no deal are 20 10 . People who may be watch your program are people used to making deals. And one of the truths about negotiations is that theres a deadline and theres the psychodrama. And people, they spend nights working to the deadline. Sometimes the deals fall apart, often through that psychodrama. Youre able to deal with the difficult issues and you end up with the deal. Francine but this is not only a business deal. You do not want to give the the reason for other countries to do the same thing. Mr. Straw of course. The interest of brussels as well as the u. K. For there to be a deal. Inown sense is that sometime march, 2019, there will be a deal of some sort. By which wedeal carry on in existing terms, and transitional deal for another two years and we carry on negotiations, but i think there will be a deal. Francine has Boris Johnson change the language of diplomacy . You were a foreign secretary. Does it change the way country speak to each other . Mr. Straw no, i dont think he has. Ithink he has interrupted the language of diplomacy. Given his considerable and justifiable expertise in diplomatic and military history, he needs to think more about how its best to persuade people. And diplomacy is about persuading people that do not necessarily agree with you. From a different perspective and different context. That your interest and your interests can coincide. You need to be very careful in your language and very careful in understanding the background of the people across the table. Im sure mr. Johnson on one level does that. Hes also too kee o advertising onsen too kneeeen advertising himself. Francine are you involved with brexit . You are looking a possible trade deals not officially. Official not in an capacity. I am cochairman of the britishturkish forum. Turkey is a very important trading partner with the u. K. Really important. Turkey is not a member of the European Union, but is a member of the customs union. So, they are very concerned, the turks are, that we end up with similar arrangements. We dont have trade between turkey and the u. K. Disrupted. Francine i know you have to get on the panel, but given the diplomatic spat between the u. S. And turkey over the last several days, should that change the relationship the u. K. Has with turkey . Mr. Straw no. I mean, look, there seems to me in the trump era, we cant gain anything from previous history. This is new territory. Mp, theyrer. Tru going to be also as of difficulties with its allies as well as with its adversaries. So, we have to work the turkey account and maintain good relations with turkey. And im would also try to persuade the u. S. It is not sensible of them to push turkey into the arms of vladimir putin. Ago, that they were having a standup because the turks had shot down a Russian Military plane, but look at them now. Francine you must come back. Thank you very much. Now, hes here at bloomberg for the 2017 sterling conference. We will bring a highlights from the conference down stairs. The u. S. President has the right to sell his tax reform plan. This is bloomberg. Francine good morning. This is bloomberg surveillance. Now lets turn to the u. S. And the chances of the Trump Administration making progress on tax reform to President Trump heads to pennsylvania for a speech. Economist paul krugman questioned the impact that tax cuts have fun growth and doubted the republicans ability to make good on their proposals. We already saw Obamacare Repeal crash and burn. Tax reform or whatever it is they are trying to do on taxes is in big trouble. Its quite possible they will have a completely sterile legislative agenda. Francine for more we are joined by the bloomberg managing editor and with us our guest host. Jim, does trump actually have a real strategy for tax reform he can push through . Jim does he have a strategy for tax reform . It is not immediately apparent. I guess what you could say he has had probably a plan b and that is instead of tax reform some sort of tax cut. The republicans have made pretty playing that their talk about deficits and debt blown out under obama was just, you know, just purely political. And you know, he has a very narrow window in the senate, you know, given that hes at war with a number of influential republican senators. So, probably for them, worst Case Scenario is not passing anything. Thats pretty tough to see with the republicans controlling all the levers of government. Worse comes to worse for him, they will probably do some sort of tax cut. Francine at the same time, he is in fighting with senators. Does that diminish the chances . Jim absolutely. As you saw with health care, if he loses three republicans, you know, hes not going to be able to get a bill through. Rand paul has indicated he is a no. John mccain and bob corker are two Republican Committee chairman who have already, who dont have the best relations with trump. So, it will be tough to get a Company Answer package the. Through. Francine still with us is the head of g10 currency strategy at bank of america lynch. When you look at tax reform, does it help with inflation or help with gdp, or is it too late . Were still, there are a lot of things we still dont know. Perhaps the most important where will the money come from . We know where they want to spend the money in tax cuts. We dont know where they are going to find the money and that is important. If there is a fiscal stimulus, that would be good for growth. If the reform is deficit neutral which is what it is supposed to be, then the devil will be in the details and the growth will depend to the extent to which the reform improves the efficiency of the system. Something also very important, which is is repatriation of profits. Thats a big deal for the of moneyecause a lot abroad and a lot of this is in nondollars. Francine as months go on, do the market stop thinking this will happen because the Trump Administration and a lot of cases seems to be distracted elsewhere . Very much so. There is a very low probability everything gets through this year. I think next year something gets through but it will be water down. Trump has not, with the company has a proposal. He has come out with a few headlines. There are no offsetting mathematics. Francine lets go back to the fed, because everything is kind of linked. First of all, we need to see who the next fed ahchair is. Let me bring you over to what we see as the taylor rule versus the fed target. The real date for this data is at 2 . You look to this on a daily basis. Important chart, not only today, but after the crisis and what is interesting. In recent years, Monetary Policy is very loose, not only in the u. S. But in all of the advanced economies. Actually, if you look at the g10 group of countries, monetary policies have never been as accommodative as they are today. Not only compared to the actual spread that even if you look at the spread compared to its history. So, definitely and there are some changes you can make, but no matter how you see it, Monetary Policy is very loose. Why is inflation very low . There are other reasons for that. The reason is exactly this chart. Agree 100 . I think Monetary Policy, you can say is near emergency levels. A a few timesd but given where inflation rates and Interest Rates below current inflation, it is still accommodative. 5 trillion balance sheet, you have got very loose policy and the fed needs to normalize. If you look at where we are with economic growth, unemployment and wage growth, you do not need emergency Monetary Policy. I think you can characterize what we have is at those levels. Francine lets say this is the view of the fed. They value stability more than inflation. They hike. What is your favorite currency pairing . We still like the dollar. We believe the dollar value in so will month or continue towards the end of the year because the fed will continue normalizing policy. We believe the ecgb will come up with lavish communication in its october meeting. We expect eurodollar at 1. 15 by the end of the year. Long dollar and short stealing is our favorite. I think the fed is hiking for the right reasons and bank of england is not doing it for the right reasons. They are going to have weakness of the u. K. Going forward, while the u. S. Is going to continue to normalize. Hiking policy will continue in the u. S. Come because i think it may be similar to what trichet did in 2011. Francine what happens to euro . In the next six months . We believe it will weaken. Of5 perhaps lower by the end this year but next year we are going back to 1. 19 because the ecb will end the program by the end of next year. And we believe the market this year will prize the fed hikes for next year. Euro we will see the going back to equilibrium well see the euro going back to easil quilibrium. Francine we spoke to jack straw. Where do you see brexit going . There is so much noise we may get a second referendum. What do you believe and how do you cut the noise out . I think it is difficult to get past the noise. If youre a politician it is a no win situation, theresa may has half of her party wants brexit and have doesnt. You do not have a Strong Majority even with the coalition. And there is no right answer to things. A goodnsition period is shortterm solution but it is going to curtail investments into this economy. Andou have millions billions to invest, it is easy to make that decision outside of the u. K. Were you know the rules. Francine what about you . I think if we try to determine what are the final there are two scenarios. Gither the u. K. Are on a lon extension period. Or the negotiations will go out. There is no middle ground. There is no way you can have a plan b by march of 2019 or even within a twoyear transition period. Francine do you believe in a second referendum, if you do, how can we be so sure the vote does not go like it went last time . What does that mean for pound . We will get a long extension period. We will see that the Public Opinion is changing. A secondcould have referendum. I think it is too early at this stage. A second referendum, no idea how it will go. And maybe well have something more clear, a referendum will take place under these terms. A 50 billion payment to the e. U. Nhs is not going to get more money. People are more informed than the emotional responses that led in the first referendum. It is still 5050. Francine is there anything if you are buying in the u. K. . Consumer, brokerage, houses would be a good bet in this environment. In the u. K. , we do not like many things. The large cap multinationals will be beneficiaries of the weaker sterling. Well, how much they react to the weaker sterling given the dollar. Francine what happens to the yen. Yen. Is very, very interesting. Because in this and today, because of diversion monetary policies, yen should be weaker. At the same time, valuations are very stressed. And yen is very strong. The yen has been fluctuating between these two factors. In a good Case Scenario, it should be weaker, but in a bad Case Scenario can be much stronger. Francine thank you very much for a very spirited conversation. Well, bloomberg surveillance continues in the next hour. Tom keene joins me out of new york. We will have an excuse event here with the chicago fed president Charles Evans at 1 30. U. K. Time. The euro extending some of the gains spurred by catalonias pullback from this immediate declaration of independence from spain. If you look at the dollar, it seems to be drifting a touch as investors await the minutes from the fed reserve. Opect 51 a barrel as predicted robust demand next year. One of the top stories we broke on the program earlier is uber. So, shortly after taking over Uber Technologies in september, the new ceo told employees to brace for a painful sixmonth. We understand there are two u. S. Probes. Thinkt got, mr. Hammond i is testifying in front of the treasury select committee. He says the u. K. Has to be prepared for a no deal brexit scenario. Well check on the market and get back to that shortly. This is bloomberg. Francine madrids move. Rajoys cabinet holds an emergency meeting. The catalonian president postpones declaring independence. Is december a done deal . Investors look for hints in to days fomc minutes. Another tough day for theresa may as he refuses to say she would vote to leave the eu in another referendum. Good morning. This is bloomberg surveillance and im Francine Lacqua in london, tom keene in new york. We focus a lot on the dollar, a little on the euro. We focus a lot on the tax overhaul in the u. S. Tom tax overhaul or not, i was surprised at how much of that was in the World Economic outlook released yesterday. That will be a discussion point withmetta madame lagarde tomorrow. Francine of can stick to the bloomberg first word news. Taylor spain is keeping up the pressure on catalonias Independence Movement after the prime and accusing the catalonia president. Of irresponsible leadership. He stopped short of declaring independence. Meanwhile, rajoy called an emergency meeting of the cabinet and will speak to parliament on the crisis later today. North korea appears to be getting ready to fire a number of scud missiles according to Asia Business daily. 30 of the missiles have been moved to a missile Maintenance Facility on north koreas west coast. The u. S. Supreme court has dismissed one of two cases challenging the Trump Administration travel ban. It might drop the second. Justices suggested they would sidestep a constitutional showdown and allow lower courts to take the first look at the policy. It was that President Trump is violating the constitution by targeting muslims. It is made clear what he thinks about one of the front runners in the race to become chair of the Federal Reserve. Withscussed kevin warsh bloomberg tv. For a while there, the Prediction Markets rethinking the most likely pick was kevin governor. Former fed he does have a track record on the last decade and he has been wrong about everything. Reporter warsh has solid republican credentials. 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 fair to good. Lets do equities, bonds, currencies commodities. Francine. He let a stronger euo. Francine was talking about a stronger euro. Francine yes, the euro is holding on to a lot of games, spurred by catalonias pullback. Areough a lot of people saying this will just be postponed. We will see madrids reaction, whether they want to talk or not. The dollar seems to be drifting and were waiting on fomc meetings. Oil rises above 51 a barrel. Tom let me do another optimistic chart. Fnib survey. This is not political. This is Michael Mckees favorite chart. Here is the enthusiasm of job openings in 2007, before the crisis. Im having trouble here with my football thing today there we go. We have recovered 27 above the joy of 2007. Francine, a lot of people dont know that. There are a lot of openings out there. Francine that is actually, a very good point, and something investors need to keep an eye on in seeing why that does not mean there is more inflation when it comes to wage growth. I did something a little bit different. I know you are talking about this yesterday, but this is the taylor rule. The real rate is actually 2 , rather than the 0. 7 , which is closer to what the fed uses. It would face an uphill battle over the neutral rate. It is something i know a lot of investors are looking at and it is something we need to keep a very close eye on. The fed target is in blue, compared to the taylor rule estimate. The recordbreaking number four stocks is japans nikkei 225, rising to the highest level in almost 21 years. 10 year treasury yields were below the reason peak amid concerns for President Trumps tax agenda and the fomc minutes. Stay tuned for our interview with the chicago fed president Charles Evans, live from zurich. Istalk market, joining us andrew sheets. I guess, andrew, when we look at market levels, we will discuss this with charlie evans, how he sees a stability versus inflation, but we see record after record for these. I think this is the classic behavior, when you get to the point in markets where i valuations are high and confidence starts to come back, but Central Banks have not yet fully responded and pushed back against that. I think investors are looking at the strongest Global Growth since 2010 and yet, centralbank policy remains accommodative by historical standards. Central banks are still allowing things to run hot and as long as they do, asset prices at above average valuations can be supportive. Francine so, the market is not supportive of what the fed is saying . That could be a problem next year. We at Morgan Stanley expect the fed to make three times next year. That is above what the market is expecting and what other investors are expecting. I dont think that is an immediate problem. I do think the market does have a challenge that its, i think, not likely the fed would allow such is the financial conditions to persist as the Unemployment Rate continues to fall and thomas, as you mentioned, the job market remains very u. S. Tom lets go granular. Do you see any whispers of inflation in october, or does that wait for next year . I think it waits until next year. I still think markets enjoy a window here where its not until march of 2018 where the forecast for core cpi kicks off. I believe there is a window here where we could belief in this goldilocks environment of good growth and low inflation. But that starts to change next year and that will be a challenge. Tom i am making the banner here right now and i will drag andrew sheets into this. Outcubs game was rained last night in chicago, but andrew, if we could ask richard saylor, this is a fed that wants to raise rates the japanese had to reverse their tatrate increase in the previous decade. Andet and remorse is front center with a fed that does not want to be wrong, isnt it . I think the fed doesnt want to be a wrong, but it wants to have something ready for when the next downturn happens. The fed is aware, as well as investors, that this expansion has been going on for a long time. When the next downturn does come, Monetary Policy will need something there to offset those effects. Obviously, i think the fed does not want to move too quickly, but it has shown repeatedly in the past a willingness to go slow and respect data and i think what is different this year, and what will be different next year, is the data is coming fedsine with the excitations and when it does, it is reasonable to assume the fed will do close to what they say they will do. Francine is it more dangerous to hike too soon or wait too long . I think janet yellen has been whenwise and right erring on the side of caution. There was significant criticism around the quantitative easing programs. I think they were right to stick to those programs and build some cushion against the unprecedented global crisis. I think now those conditions have really changed and you are looking at not just the lowest Unemployment Rate in a long time, but the very real potential that you get a very big fiscal easing at that low Unemployment Rate. I think the fed also, even if it cannot put that in its numbers immediately, it has to be aware that would be unprecedented in the postwar period. Tom we look forward to looking at the crosssectional nature of our economics finance and our politics. Tomorrow, the same conversation with madame lagarde. Really looking forward to yes, aboutth lagarde emerging markets, about a better global economy. Well, the United Kingdom is a little light in their survey. Taylor this is bloomberg surveillance and im taylor riggs. Uber faces at least five criminal investigations from the justice department. Previouslymore than reported. Bloomberg has learned that authorities are asking questions, whether the ride hailing start of violated transparency laws. They are looking into whether uber had a roll into the documents outlining technology. The head of ubs is not worried about any market disruption when the Federal Reserve begins breaking down the 4. 5 trillion balance sheet. We spoke to ermotti. I dont expect the fed to move aggressively. A lot of the bonds they owe are expired. Later today, the fed releases minutes from its most recent policy meeting. It is a shocking result from the u. S. Mens soccer team and an expensive one. The u. S. Will miss out on the world cup for the First Time Since 1986. That could hurt ratings for fox, which paid for english rights for the next two world cups. Meanwhile, nike and cocacola are sponsoring a team that will not be playing. Thats your Bloomberg Business flash. Francine catalonias president says he will seek talks with the government of madrid over the future of the region. Puigdemonts announcement drew back the immediate independence. Foro, theres a call dialogue. You are always afraid of the outcome if there is not dialogue. So, those calls should be heeded, so we need to open up a time period to open up a dialogue with spain. Still with us, andrew sheets from mar Morgan Stanley and antonio barroso. Will the Prime Minister rajoy initiate talks with catalonia . No, he wont. The impression in madrid is you cannot dialogue with somebody who was not willing to dialogue, ieven if he is calling for it. So, that means there is no possible dialogue between the catalonian government and the Spanish Government. Francine so, how does this end . What catalonia has done, the minister, is to put to use a metaphor that has been used quite frequently. Hes putting the ball in the houses court, and right now the Spanish Government is meeting to decide the next steps. There is a possibility they will activate article 155, to be able to dictate orders to the catalonian government. Tom i am fascinated here, to go to francines wonderful question, what is the next step, or who is the one to help out . I think of the confederacy of 1860 and they spent five years to try to get the british on board. Who is the country that will support catalonia . The math tells me it is france, but i dont buy it for a minute. Theo, and that is why catalonian president made this kind of maneuver. He knows he does not have the support of any major powers in the world, the European Union and the union has been very clear. They are behind the Spanish Government. There are no other options at this point. The key issue to understand is that given that the catalonian government has taken a position that is difficult for them nationally, they will attract attention, but it will not work. Tom lets me ask we most important question. Francine, have you been to andorra . Francine i have. Tom thats great. Francine tom, we will get to andorra in a second. Antonio, if there was a legal referendum in catalonia, with a vote for independence . Yes or no . I doubt it, though it would depend on the options on the table. Polls consistently show that if you give revolution to the catalonians, that option will win by 70 or Something Like that. I dont know if we have a map of andorra, tom. I used to collect stamps. Its one of their havens. What does that mean for catalonian bonds . We sell quite a significant move today. Investors are thinking that risk is off. . Re they off this is a difficult question. Ultimately, i think the points we have been discussing, that it is very difficult for actual independence to happen, both because of the lack of support within the eurozone, this issue of being outside the eurozone means being outside of the ecb, which has implications for funding and Business Operations and those certainly matter for the region and for voters, but i think all of these things make those steps difficult. Yes, there will be nearterm headlines, but we do not see this as something derailing the National Spanish story or the eurozone story. Catalonias the map of i hope this looks good on television. Heres barcelona right here. Francine has stayed here, here, here, and here. And over here is andorra, his little tiny country here. We make a joke about it, but the fact of the matter is, antonio, i dont see anybody catalonia. You will have to convince me. I dont think i am the one to convince you. [laughter] gainr a territory to independence, you need the international powers. They do not have this. Therefore, it is unlikely in the near future. Francine it is a principality of andorra. I dont know how you would even negotiate if there was some kind of independence, which at the moment, nobody believes. What does this mean for the economy of spain . What would be the fallout for investors . The interesting thing here is the starting point for the spanish economy is really strong. Tax revenue is up significantly this year. The exports of the spanish economy look really good. The growth of the spanish economy looks really good. This is prior to these headlines it was one of the better economic stories in europe, really. I think what you are looking at now is some significant uncertainty, which would matter for those institutions that are based there and would have possible funding implications. It is the difficulty with those issues that is one of the biggest reasons why further talks are negotiations are more likely than some dramatic break away. You, antonionk barroso and andrew sheets. Later today we have the exclusive interview with the chicago fed president , Charles Evans. This is bloomberg. Francine tom and fracnine from london and new york. It is time for the morning must listen. This morning we are listening to terry guffey in chicago. We got his take on a range of issues, from mergers to regulations. Advised at best, i did not support that, i believe the banks should be allowed to prop proper eight. Regulations lead to credibility in the marketplace and credibility leads to more business. I actually embrace good, smart, regulation. I do not embrace duplicate regulation and they do not embrace regulation that makes no economic sense. I do not think we are limited to anything. One of the things we have been fortunate to do is to put ourselves in a very strong position to analyze multiple transactions. If the opportunity presented itself. So, you need they couple of them. That does not mean that is the path we would go down. There are many things we could do to create the value for our clients, which in return, will deliver value for my shareholders and that is what we are on task to do. Francine that is cme chairman terry duffy. This is what we see across the board. Theres a lot of talk about brexit and a little bit later on we will speak to the shadow secretary for labour. This is what i am looking at, the u. K. Prime minister theresa may and her senior cabinet ministers risking igniting the anger of their tory colleagues that raised questions over their commitment to brexit. We will have plenty more on brexit and we will look at your markets, next. We had a couple separate interviews on tuesday where the premise to refused to say she would vote to leave the European Union. Towill go to the noise really understand what matters for you and your investments. 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. Tom good morning, everyone. Bloomberg surveillance, lets get to first word news. Taylor wildfires in california are likely to have a longterm impact on the states wine industry. It may be worse in sonoma county. At least 15 people have died in the buyers and 2000 homes, businesses, and other buildings have been destroyed. The uss done as mccain collided with an oil tanker. 10 sailors were killed near singapore. The accident was called preventable and says the ships captain is being reassigned. Prime minister Justin Trudeau meets with President Trump today. The canadian leader arrived in washington just as the talks on the Free Trade Agreement again. Forbes the deal may have to be terminated. Running the risk of making conservative Party Colleagues angry, may says she would vote and another eu referendum. Both insist there is no chance of a new vote. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. Aside from brexit, theresa may is also grappling a trade fallout of dispute. Gardner,ined by terry shadow secretary for International Trade your he has been in washington, d. C. To discuss this issue which roses a threat which poses a threat to northern island. Also still with us is andrew sheets. This has turned ugly, the row threatens jobs at belfast plant, what is the next step . Ofry boeing are the king corporate welfare in america. They are subsidy junkies. This is the most egregious hypocrisy i have ever seen in International Trade in many years. They need to understand the way they are playing this does not sit well with the u. K. Parliamentarian. They also need to understand the jobs at stake here in northern 4200 jobs in are the plant, many more in the supply chain. 63 of the aircraft is made in the u. S. Itself appeared there are jobs in the u. S. That depend on this as well and american legislators are beginning to wake up to that as well. So, boeing has been sucking the ink of corporate welfare america for far too long and if you look at the sunday times report that came out, the way in which they had sold and least act the planes to Monarch Airlines is now something im going to be referring to the Eu Commission to see if there is an antidumping case there. There were aircraft sold and leased back through monarch, sold at less than top price in the european market. We are absolutely coming from bowing and all of the advertisements, all of the covers in london they have put out are not persuading anybody. Francine is there a concern, or do you think that since we are negotiating brexit the u. K. Needs to be seen as business friendly . Gets france k. That its not business friendly so that other investments dont come to the country . Is a mechanism for resolving any question of subsidy, and it is called the world trade organization. What they are trying to do is crush a competitor. They know it, people in america know it. They are trying to crush it because they have superior technology. It is unique and that is why cseriescraft, the aircraft are outperforming all other aircraft. Knowing doesnt even make one in this sector. When the International Trade commission looks at this in the states, they will look at whether there is harm involved here. Boeing does not have an aircraft that would meet the specifications for the Delta Airlines contract. Harm herehat there is is absolutely wrong. Look at it as a duopoly or triathlete, im going to go back to the study you had at harvard a few years ago on the fairness of justice, if up every day with toulouse france on mine, how does it fit into the great duopoly of this world . Barry you have raised a really important question, which is what do we want from our Aerospace Industry and what we need out of aerospace is to recognize that no aircraft comes to the market these days without support from government. It doesnt matter whether it is in the u. S. , canada, china, it is all through support from government. We need over we need a way of recognizing this. The support that comes from government has to be within wto rules, but for countries to be doing with the states are doing now, by slapping the carterville in duties for the subsidy on to bombard ea, but also putting on 78 in terms that , that is 3 to Delta Airlines, and american operator. Tom i want to be clear, is this a complaint of boeing in chicago and seattle, or is this a complaint of the Current Administration in washington . Boeing lost a petition with the department of commerce, they knew the petition was illfounded tom what did they do it . Barry they knew it would run long and they wanted to force a depression in the share price. Deep we donew need to get the men, because they are not onset. First of all, the u. K. Is negotiating a brexit deal where not be under the European Commission, do we not need the European Commission to look at some of these accusations youre putting out there . Barry i have already been there last week. I have met with dg trade. Member at the moment we are a member of the European Union ended is the European Union that holds the rank as it and it ishe wto right that these things are done by the European Union. That is why iowa to the commission, thats why i was they willt the be supporting morally and technically, and legally any actions that the u. K. Needs to have taken there, but now, i think we need to have a real investigation by the European Union as to the involvement of boeing in dumping of aircraft. Francine which we cannot verify. No, thats andrew sheets is just trying to get a good seat. Need a parachute next; board. Tom thats right. Good luck with that, barry. This is your briefing for wednesday morning. This is bloomberg. Francine this is bloomberg , lets talk about Elliott Management who has a stake in the british management it is not clear what he owns or how he plans to push forward the company. Will thing eric has set his sights on europe and has been increasing his stakes across the continent. Is ruth and andrew sheets. What we know about what he sees in these companies . Year ins been a busy europe for him. We have been talking to people who said he is looking at talking about reducing costs. About three months ago they identified their profit targets for the year which analysts slammed, and it seems that investors are betting against him being able to affect change in the industry. With the nephew the story is a little more nuanced. We are trying to figure out what he is pushing for. Ceo has said he was stepping down in 2017, are they looking for a change in management . Cannd nephew has been the m and a come back again, and in terms of what size stake in must be lower than 3 , or else they would have to disclose. Tom i look at the smith and nephew chart and it is deceptive. This is a gorgeous chart. Lower left to the upper right, the 10year track record is only 9 a year. Gorgeous,cally a steady underperformer. That is what mr. Singer sees, right . Ruth yes and something they will be talking about. Is am and a the way to get growth . That is the case the markets have been making for a while now, as you said the stock has not done well for a while, because the growth rate has been changing. Investors are hoping that seen be able toer might expect a big growth. Francine is this the resurgence of activism in europe . Andrew one of the remarkable and hows how low m a low Interest Rates, how cheap financing is, m a is still near the low range in the u. S. And europe. That has a couple of implications, how low can the cycle go and at one point will things get too heated and to extreme. I think there is a lot more room for dealmaking to pick up. It was a lot higher in 2007 or 1999. Next element is the lack of certainty over tax is a huge player. In europe it is a cleaner story because the politics are more stable, but i think in the u. S. You will need more tax. Francine it coincides with the fed hiking rates, so do they not even each other out . Is a complicated situation, absolutely. I think who once to complete a huge transaction only to have the economics change because the laws have changed, but if that involves a significant change in affects that,at too. I think that is keeping the action very strained. Where does mr. Draghi fit into this . Europe has its own calculus. Cfos go draghi make the here in the next few years . Ruth possibly. We do think that there will be more m a in europe. We see really Big Companies coming together and i think that reason why activists are spending more time in europe this year, because they see more potential for dealmaking. Francine and i go back and forth on this, m a for mr. Singer, or anybody else, is it friendly in europe . Ruth this year it hasnt been that friendly. You had unilever, probably the biggest deal that did not happen this year, you had akzo and ppg where mr. Singer had a stake and even though he wanted them to come to the table and talk to american rivals, they said no. They managed to chase americans away for now at least. I think we have seen more hostile situations in europe, something activists are used to dealing with. They feet probably feel like it is familiar ground now. Francine what does that mean for investment potential . Suggests thenk it bull market has further to go, more aggressive dealmaking in m a before the cycle ends. I think that is still a positive tailwind that markets have that can offset some of these other challenges. I think it is also having to drive a market with significant lower correlations between stocks. The fascinating thing about the market at the moment is the degree to which individual companies are moving with each other is the lowest it has been in 10 or 11 years. It is less about the big macro story causing everything to move together, the markets are being driven much more by Company Specific stories, some of those are positive and some are negative here it francine thank you so much andrew sheets and ruth david. We are just getting breaking answeredhe chancellor questions in a treasury select committee, a familiar site for those on radio. Mr. Hammond talking and mps being rough on him. He says we need to determine a worstCase Scenario, which is why he said in the past we need to be careful that a no deal exit is still possible. The growing recognition of a market fragment would negotiating this deal. Tom very interesting. We will look at quant investing one of the ge great schemes for area,best in our next in our next hour, talking to new york galloway at university stern. Coming up, andrew sheets and marty leibowitz. This is bloomberg. Taylor this is bloomberg surveillance, im taylor riggs. And may have falsified data about another of its products, auto parts, will be still has admitted that several entries have falsified data for years. Billionaire steven apparently isnt concerned about a backlash about tightening in the hedge fund industry. People familiar with the matter say he may charge a 2. 75 . Anagement fee the charges would be well above the industry norm. And two recent hires at Goldman Sachs are underscoring the importance of electronics training. Both were brought in as partners, almost unprecedented for goldman to make a technology artment higher tom that really got my attention yesterday the way Goldman Sachs tilts to technology. Lets go the other way, forget about the haverhill economics, lets go want. Lets go quant. You have the privilege of working with a true giant, martin leibowitz. What do you learn about quant every day . He is a truly impressive individual that has been in this industry for a long time and seen a wide variety of markets and i think seeing how quantitative approaches evolved over time and i think that is the point of the recent work we have done is that this is an evolution and i think we are in a low return world where investors are increasingly looking for alternative ways to find risk premium and also ways they can find diversification. Bonds have the last 30 years been excellent ballast for portfolios, provided income as well as safety and diversification, where bond yields are now, they cannot provide that do the same extent. S is where we think more strategies have more promise. And that is what i wrote with marty and our colleagues at Morgan Stanley. Francine where do you expect treasuries to go . Treasury yields, the chart we have here, is it still the case . Andrew we think that the u. S. 10 year ago to 240 by the middle of next year, were not expecting the long end rates to rise much, we see the front end rising more. This is more so the case in europe and japan, usually where you look to bonds was when the markets turn south yard the bonds would rally and that would offset the losses in your stock folio. Given where yields are, it is hard to ask them or rally francine will they change or is it a new thing we need to get used to . Andrew i think it is a new thing we need to get used to. I think we are at levels where bonds can really provide an offset again and a bear market, and even in the u. S. I think you would ask a lot for treasury yields to rally 100 basis points are more like they usually do in a recession, and the next recession. Tom thank you. I really appreciate it. Coming up, we switch the overlay of fixed income into priya as yields grind higher. Dont forget tomorrow, we begin coverage from imf meetings in washington. Stay with us in london and new york. Yankees, 8 00 p. M. In cleveland. Who knew that phones would start doing everything . Entertaining us, getting us back on track, 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. Strengthens. This afternoon, minutes from the etl was served meeting. The dow continues to confound the bears. In catalonia, independence, wealth of a spanish kind, rate uncertainty in the next up for. Arcelona the Prime Minister is expected to speak shortly. In the imf meetings lagarde will note the need for trump tax reform. Good morning, everyone. This is bloomberg surveillance. Im tom keene, Francine Lacqua in london. The World Economic outlook yesterday was almost a jumble of optimism. Right, and are lot of the hopes we had pinned on tax reform or Political Risk we discounted seems to be coming back. Catalonia is still kind of left, right, and center with madrid heaping pressure on the catalonians. Chapter four last night of the World Economic outlook and i was amazed how the imf goes after tax reform, particularly in the United States. We will talk about that tomorrow. With your briefing this morning, here is taylor riggs. Taylor we are starting with pain heating up the pressure on catalonias Independence Movement. He has stopped short of declaring independence and says he will seek talks with the Spanish Government. Meanwhile, spanish Prime Minister called for an emergency meeting of his cabinet, he is due to give a News Conference shortly. North korea appears to be ready to fire a number of scud missiles. About 30 missiles have been moved to north koreas west coast, building its own version of this guide based on design from the former soviet union. Two cases are dismissed discussing the travel ban. Justices suggest they will sidestep a constitutional showdown unless lower court take a look at the latest version of the policy. Say President Trump is violating the constitution by targeting muslims. Krugman talks about what he thinks about the race to the fed chair. For a while there the Prediction Markets were thinking that the most likely pick was kevin warsh, former fed governor, one thing is he does have a track record over the past decade and it is consistent, he has been wrong about everything. To donald is married trumps friends daughter. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Tom the euro is opposite, i have one screen for you. Francine can do better than i can do, oil is elevated. Francine . There is aook over, lot of focus once again on currencies as we try to figure out what happened to the euro on the back of a rallying spanish asset, so what happens with abalone at, were looking at the dollar drifting and oil rising above 51 a barrel as opec predicted. Tom lets do an optimistic chart, Small Business optimism yesterday. This is Michael Mckee favorite charts, the glory of the jolt survey in 2007 and then down we go with job openings, less, less, and have they rolled back, they are 27 higher than they were at the peak of 2007. That is a remarkable chart of many job openings francine in america. Francine yes, something we definitely need to keep an eye on. Have clues, whether they focus on stability rather than lack of inflation. Tom dont forget a conversation with the dome and from carnegie melon, Charles Evans. Look for that in the 8 00 hour this morning. Let us switch, we had andrew sheets on earlier, here with bonds, priya misra is at Td Securities and the head of rate strategies as well. Are we in a normal rate environment . This has changed, this is change, but your world is still not normal, is it . Priya i think if you try to decompose Interest Rates, we are in a new normal. There is a lot of money chasing yield. Treasuries are pretty cheap if you compare with bonds, that is sort of the new normal we are in. It is very hard for bond yields to rise even with Central Banks equalizing even with global rates staying low. Tom francine brought this up, lets ring economics into priya misras world. Tailored role that francine was showing earlier. This is what priya memorize when she took her masters, this is tied to economic number there. What is your belief on the system and the ideas that rates could nudge up when you look at the demographic realities of Something Like nehru . An and observable quantity. Does it signal lower Interest Rates . Ebbingreat moderation away and we may go with higher rates . Priya i am not entirely convinced it is ebbing away. The main reason is if you look at structure forces, productivity is very low. The labor market is on fire, we havent had any wage inflation, really. You not seeing wage inflation, lower, weeing tec had are continuing to head lower over the next six months. Whatever your estimation is, it is probably lower than we thought. Where the cycle ends is much lower than historical. We may see a little bit of ebbing away, we are not talking 100 basis points. Francine once the fed hikes, is this a stronger sustained trend . You can argue a lot of indicators point to stability and they are performing that to looking to inflation given what you said about pc . Priya i think we struggle with whether that is the reason why the fed once to normalize here. There is no reason for them to continue to hike. I think it is partly there, but they fed undercurrent leadership wants to focus on macro potential reasons, Financial Stability and Monetary Policy for the economy, but i think oncequestion becomes valid we are actually once the fed has normalized, once they think we are at some normal interestrate, not neutral, but normal, then the question becomes what is the catalyst to continue to tighten here it may be financial conditions will become important then. I think that is when fed leadership becomes important which is in flux here. Francine what would be the catalyst . Should they worry about distortion in the markets . Priya i think to an extent they are still normalizing. I think they should use macro potential tools, the fed does have regulatory site. If they ease that if you see significant easing up of financial regulation, i think they fed should take that into account. Tom we will continue this discussion. We saw 22,800 on the dow yesterday. Tomorrow, a conversation with christine lagarde, the managing director of the International Monetary fund. Emerging markets, yes on President Trump. This is bloomberg. Francine a big noise from news from rain saying he is starting a protest that could lead to suspension of the Catalan Government here to what he is talking about is basically triggering article 155. There is an article where Central Government can control catalonia if they believe it is interest for the rest of the country. I dont know how this would go down especially if it is the same police we saw disturbing pictures of two weeks ago disrupting what spain calls illegal referendum. Something we need to keep an ion. Usually the shorter conversations are the more important ones. I would note that in the Washington Post this morning, eric gunderman, looking at the bloomberg terminal, the myth of massive support for independence in catalonia, one take from america this morning. It is now time to do what we need to do every day, catch up on all inside the beltway. Our chief correspondent Kevin Cirilli joining us this morning. Kevin, we have to go over the tawdry affair of last night, which is this rumor, that speculation, general kelly has one foot out the door. Everybody agrees it is just rumor and speculation, why are we having the conversation . Kevin simply because he is the latest to have these allegations put against them. It seems like every couple of weeks there are rumors of comings and goings at the trump white house. See isery article i counting senators. Madame lagarde did not do that in the outlook for the imf, but chapter four is entirely on tax reform. Does the administration understand the global interest in getting tax reform started . Kevin i think they are very ambitious in terms of getting it done, yesterday President Trump saying he will be announcing new details the next couple of weeks. I spoke with sources on capitol hill yesterday they told me they will be eagerly awaiting them here at the reality is this state and local the duction is not something that has really become a contentious issue on capitol hill and i think you will see i would predict tweets to that over the next couple of weeks. Tom does the badmouthing of senator corker matter . You could go down the tawdry list of stupidity, our godgiven height. Who is the next senator to get tarred and feathered i the president of the United States . Kevin earlier this week when the senator was golfing with lindsey graham, i heard he was on a list of several senators the president wanted to go golfing with and of course senator graham and President Trump not having the best relationship for some time, and they have seemingly pass it up, but with regard to senator corker i think it has much to do with foreignpolicy decisions that were made. White hasat is bubbled over. He is not running again, up on capitol hill they dont think it has helped accomplish any legislative items. Goingne hows it watching and monitoring north korea . Are they just watching and monitoring or trying to him once the president . Kevin there are definitely back channels being worked to try to get kim jongun to just stop, but i think publicly your noticing aggressive rhetoric coming from President Trump. , they were arguing the other day when he said, he for the storm, but they realized that this problem is only going to continue and i think that they have really tried to show that they are keeping all options on the table. Francine i know we are also monitoring travel restrictions. There is so much to talk about when we come to you. Tom has three questions, i have questions unlike five other topics, what is being talked about in washington corridors . Travel bans, travel restrictions, or Something Else . Kevin no one is really talking about the travel ban in at theday congress or white house, many people are talking about the fall of fallout of senator corker on tax reform. Justin trudeau will be here meeting with President Trump. It will be interesting to see the relationship between the president and Prime Minister on that front. And i think that many people just focusing on whether or not the at administration can get a win by the end of the year. Tom get with it, all that matters is nationalcubs as ball this afternoon. On Philadelphia Eagles mode. Tom they are doing better than good right now. Kevin thank you. Tom the house ways and Means Committee chair, kevin brady, look for that in the 1 00 p. M. Hour today. You see the red there, black rock out with earnings. They have some inflows and better than good revenue stream as well. We will get those parsed as well. And even though that is a backward view to third quarter, that kicks off banking coverage. York, this, from new is bloomberg. Francine about 10 minutes ago we heard from spains Prime Minister about him starting the process that could lead to the of the catalonian government. Our correspondent is in barcelona. We are trying to figure out, tell us whether they declared independence what is the state of play right now . Absolutely. Two things, he is trying to discredit what we saw last night. There he confusing. We talked about this so many times, a lot will depend on the language. For viewers, the catalog regional president says i accept the mandate and will declare a republic, but immediately suspended this declaration. Looking to discredit the catalonian parliament, nobody understands what happens tonight, so you need to tell me exactly what you did and now the government puts out the clarification, a note saying this is what happened, and this is what we think it means. Obviously him saying it triggers 155, this is what we did, declare a republic. Francine do we have a deadline . We understand that marion la jolla may speak again at 4 00 local time. Think we are seeing a lot of backandforth between madrid and first lineup. Saying, barcelona, your move. You need to tell us what happened yesterday night, we dont understand it. It is very unclear. Rajoy has already met with the opposition and leader of the liberal party. They are saying what happened last night was irresponsible and unacceptable. We cannot have talks outside the law. You can see how they are moving and putting on a common front which they havent done until now. If you wanted to invoke article 155, it is on him. Everyone is confused. Francine this is the thing, the key point, on the one hand oy may want to know what happened last night, but the other thing is the way this spanish constitution is, in order to suspend regional government, under article 155, first of all the president needs to ask the regional president to correct their behavior . Maria thats how it works. Actually, we have talked about article 175 and said this is what it would mean. Roadway needs to tell the regional press, your savior is acceptable, you need to rectify. It we dont get the rectification, if he doesnt improve his behavior dropping the referendum, than this document would have to be submitted to the senate. A majoritynot have in parliament, but he kept his majority in senate. He could get this done easily. It goes beyond suspending the saidnal president , rajoy were going to put a for whatever time is necessary. He can also reshuffle key elements of the Catalan Society like the police here we have been talking up this per week, for weeks, who is in charge of barcelona. Tom think its a much. I think well hear from you again today. Within the United States, this goes with the opportunity to buy more beleaguered stress yield. I keep hearing in literature the u. S. Yield is here or the u. K. Yield is here. And in catalonia the yield comes in. Is that where we are . Ruth priya i think we are. I think enough supposed to buy spanish bonds yet. I think you get more risk priced in, so it could still widen. I think the question is when the ecb comes in, the entire global rate is watching that. Peak,itical is at its can we talk about rate hikes here . And that is the tom if the ecb stepson, do you get a sense that everything moves up . Priya yes. The question is not tapering, but when is the next rate hike. If they were to taper but the not hike until 2019, i think there is less room to move. I think bonds came back up and it is taking all gains with it. Waiting for the i hate Scott Galloway. I have to get up to speed on the things. This is bloomberg. Tom bloomberg surveillance, lets get right to our news. Francine lacqua in london, tom keene in london. Wildfires in Northern California are likely to have a longterm impact on the wine industry. Vineyards have been destroyed or significantly damaged and the damage may be worse in sonoma county. At least 17 people have died and 2000 homes, businesses, and other buildings have been destroyed here to the u. S. Navy fired the uss john mccain which collided with an oil tanker. 10 sailors were killed. The navy called the accident preventable and said the captain and said the captain an executive officer are being reassigned. Isters Prime Minister canisters Prime Minister meets with President Trump today, playing up the similarities of his policies with the president. This is the fourth round of talks on the north american trade agreement. President trump says the deal may have to be terminated. Theresa may and top cabinet makers run the risk of making. Onservative colleagues angry may refused to say if she would vote to leave the e. U. And another referendum. Her deputy Still Believes the country is better off inside the union. U. K. Home secretary jack straw tells us theres is a chance of no deal on brexit. I put it pretty low, i could be wrong about this. I am wrong about plenty of things. I think the chances of no deal are 10 . Taylor global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Riggs. Ylor this is bloomberg. Francine thank you so much. I did enjoy my conversation with jack straw. He was very careful about predicting things you has in these kinds of negotiations, anything can happen. Theresa may and jack straw said it, they have an Impossible Task of selling soft, which basically is a high wire act to try to keep europe and business suite while talking tough on her brexit supporting tory colleagues at home. It is almost like juggling. Tom it is why washington exists. London is less baffling because washington exists. Francine it is a new metric that we can look at. Lets talk tech and softback founder, he has been speaking with david rubenstein. While he revealed he missed out on an opportunity of a lifetime i not investing in amazon. David i think you said sometimes in the past you had tried to buy companies and disagreed on the valuation, so i believe you tried to buy a piece of amazon and you and jeff bezos could not agree. Is that true . We almost agreed. The difference was not that big. We almost agreed. But when i really wanted to invest, my executives could not agree and at that time amazon was still losing money and still before ipo. But he had a great vision, strong passion, so i was really convinced from then. In hindsight you made a mistake. Masayoshi totally. Tom i want to bring in a book right now, and this is classic Scott Galloway. You have the tuition chart here. The professor from nyu stern with the cost of college chart, and he comes over here and observes i remind myself that nyu why you are charging gets 500 a minute for me and a projector. This is ridiculous, he says, and actually uses french a little bit skewed towards i cannot say that on tv. Joining us, Scott Galloway of nyu and the book is the four. A guy as tuned in and wired in as you, when you write about the four big ones, what was the observation that surprised you . Scott at these countries play by a different set of rules and are not subject to the same scrutiny that the rest of businesses. We worship the altar of innovation versus kindness and character. Tom will that be snapped at one point . There is a lot of tension between washington and the glory boys of silicon valley, the glory men and women, i should say. Is there a point where those rules will break . Scott i think the breaking point was the weaponization by an Intelligence Unit of the russian government of some of these platforms, although i think the regulation or fines will not come from where we think. I think they will come out of the e. U. , who registers a lot of the downside that appears around privacy and job destruction, but a fracture of the upside fraction of the upside. Tom you have great charts in the book that show the dominance under some of the metrics. I love this, follow your talent not your passion. What is jeff bezos passion . Scott total and complete world domination. I think we are headed toward a singularity for amazon. The most dominant factor now is no longer Interest Rates or the underlying performance of the Consumer Company itself, but what amazon is doing or threatening to do. Kroger lost one third of its value between the time amazon announced the acquisition of whole foods and when it closed. Amazon threatens to go into the drug business, and you have drugstores declined 4 to 5 . Amazon can outperform jedi mind tricks, look at a country company, wish ill on it, and inflict pain without even going into that sector. Francine i really like chapter six. This is entitled light me. Is a core competence of high growth tech firms. This is ip but also our data. What if you think about these companies have done and what we are saying to these companies, a fine of 116 million, Facebook Says to the e. U. Commission do not worry about our ability to share data between whatsapp and the core platforms, as it is impossible. The acquisition gets approved by the e. U. Spoiler alert, they figure it out. The e. U. Finds them 160 million on a 19 billiondollar acquisition. This is the equivalent of a . 25 parking tick for a 100 an hour parking ticket for a 100 an hour meter. Francine are you suggesting this will continue and there is no way of avoiding this . Scott i think you are about to see the mother of all fines come out of europe. The regulator who i would argue whose testicles have descended is Marjorie Lessig are. She is the only one going after this. I do not think they have the will or collective iq to take on big tech. Big tech is smarter, has more resources than washington is able to compete with. The regulation and intervention of fines will come out of the e. U. Tom everybody is reading this book, i kid you not. I see it in our studios in new york, and it is glorious. Ask your question of professor galloway after what you have ground through from this chapter to that. Priya i think from a macro perspective the point you highlight is very valuable. You are getting these monopolies or oligopolies across industries. That is keeping inflation pretty low, but my question from 101 economics, at some point they extract monopoly rent. When does that happen . Whole foods has kept inflation low. What point does amazon take over the world and start high inflation . Scott that is the threat, but we have not seen it yet. Antitrust law is basically, but when two thirds of one all all like desk all all mine growth goes to one player and 104 goes to facebook and growth if you aremeaning not in one of those companies and your business is in structural decline. One wonders what happens when we wake up and have four to five Companies Running the consumer economy. Tom there is a tip point where you flip from the benefits of amazon over to it being damaging to the greater industry of any given nation. You and i know it is not a tip point, not a single points, it is gradual. I would suggest it would be expressed through the labor economy. What dcl in the labor economy peopleu get x number of lined up in massachusetts to fill cardboard boxes . Scott job distraction through innovation is nothing new. We have just never seen companies this good at it. Amazon needs one person for every two to three at macys to transact the same amount of business. The level of job destruction is incredible. Look at the icons of yesterday, general motors, 50 billion in market cap. Facebook, 450 billion in market cap, 22,000 jobs. We are under the impression there is a lot more people working at these companies. The total population of these four companies could fit in the lower east side, yet the market capitalization is the size of the gdp of india. If you want to talk about an outsized valuation, it is staggering. It is great if you own real estate in Portola Valley or work for one of these companies. Is it good for the rest of us . Francine you say that basically the European Commission wants to go after a lot of these big tech firms in terms of data, but there will be a lot more questions regarding some of the russia links. For example, with facebook. How can the tech firms try to keep washington at bay . Scott i think it depends on the firm. If i was on the board of amazon i would prophylactically span eight of you off. Key to Crisis Management is to be seen as over correcting so the series of half measures coming out of facebook saying they would hire 250 people and then it has gone to a thousand, which i would affectionately referred to as pissing in the ocean. They could hire 10,000 people and it might really use their cash flow reduce their cash flow by 10 . They are still claiming it would be impossible. Bloomberg was not weaponize by russia, the New York Times was not weaponize by russia. They can figure this out. Tom shout out to matt winkler and John Mickelthwait who help russia. E weaponized by Scott Galloway, lets remember his great work with us, his perspective on yahoo and the emg of the career for marissa mayer. We will continue, mr. Galloway, the four. A really good briefing of the news. Bloomberg daybreak europe, bloomberg radio, coming up more with Scott Galloway. This is bloomberg. Francine this is bloomberg surveillance, tom and francine from london and new york. We spoke with the u. K. Shadow trade secretary Barry Gardner who alleges boeing has received had ceased hefty subsidies here to here is boeings response the case in the u. S. Is about complying with trade law. Boeing complies despite the rhetoric regarding these proceedings. Gardiner also alleged the boeings monarch amounts to unfair dumping and boeing says it does not comment publicly on the Financial Arrangements of its customers. Boeing declined to comment on gardeners interaction that boeing wants to hurt bombardiers share price. We wanted to reach out to boeing for comment. Lets get straight to the Bloomberg Business flash. Taylor billionaire steven cohen is apparently not concerned about a backlash. He may open a fund. People familiar with the matter say he may charge two and three quarters percent Management Fee and pass on certain costs for the first time. Those charges would be well above the industry norm. Uber faces at least five criminal investigations from the justice department, two more than previously reported. Authorities are asking questions whether the ride hailing startup violated Price Transparency laws. They are looking into whether cooper had a role in the alleged theft of documents outlining uber had a role in the alleged theft of documents outlining alphabets vehicles. Francine lets get more with the story and future of uber with Scott Galloway who wrote this great book called the four. York. Riya misra in new when you look at uber, theres quite a lot of allegations. What do they need to do to regain public trust, or do they need to regain first of all the trust of regulators . Scott i think they have taken some key steps, the first is replacing the ceo with someone who as seen as adult supervision. The board had two great additions that were put on the board by travis. Incredibly seasoned executives, but this was a failure in Corporate Governance. It became all about the ceo and the company had shareholders and families dependent on the wellbeing of the company. The board has become until now a place where reputations go to die. Get their Corporate Governance in order, a better ceo, and i think they have done that. Tom you talk about uber as a fifth horseman. You walk you to flee through the history of uber. One question are they profitable or does profit not matter to the four or five . Scott amazon has basically taught the entire ecosystem and changed the compact and replaced profits with vision and leadership. This has snaked into the private ecosystem. I used to run a venture of that company and the only reason the only way i could run a company was if i promised to raise more money and spend more. Tom is the amazon model of avoiding operating income options, is that replicable . Scott it appears to be the model salesforce is chasing and i would argue the entire private markets have adopted this growth fast leadership and winner take all regardless of profitability. I do not think this song ends well. The whole point is to grow no matter what the cost. Tom what is critical here is we do not know how this will end. Francine which was my question to scott. If you do not think this will end well, what do you mean . Scott priya might have some thoughts on this. At one point when the markets , there are a lot of companies caught shorthanded. Tom is his world like this . Could he write the book before four, our the because our company priya it is a key point, does productivity pick up . Productivity is pretty high, there is a lot of innovation so even though the aggregate numbers look low, it will pick up. It may not pick up because the innovation is only happening in these four or five. Tom is your world good for her india . She is one of the elite of india coming out of their academic. India is going to be dominant over china in four years. Is your world good for india . At china, thelook lesson is do not let these countries in and capture the economic value yourself here you hate to say that but if you are italy if you let them in and destroy your media and add jobs and let shareholder value flow out, or du adopt the Chinese Market chinese model of benchmark and taking it yourself . Tom yahoos future . Scott it is done. It is going to be a moment in time and it is done. Galloway, it is going to be summer forever. Galloway, nyu. Priya misra will continue with us. Tv , this is what you do in the morning. You get briefed off tv , come over here and scroll down, find a chart and you steal the chart so you look brilliant in your morning briefing. Francine this is bloomberg surveillance, francine and tom from london and new york. Coming up shortly is bloomberg daybreak americas. I know you have a lot on, including bank earnings. Im so excited finally to talk about earnings and who better to talk about that with then mike mayo, head of u. S. Largecap bank research, and so much to go through. Reform, tax deregulation, so much to unpack in these earnings. Hebrings props but last time did not bring anything and i gave him shade for that. On radio you will not be able to see it that for us it will be fun. Tom we can do that through the magic of social media youd priya misra, the 10 year yield on the moderation back to 1980. The two ayalaayala the two yellow lines are the end of the land of moderation. He brought that down to a key level of 2. 4 . I know you do not want to parse that narrow, but the idea of not a lift in rates but a chronic steadiness of higher rates is of more interest, isnt it . Priya definitely. It is a lower band. Well. Ill said that as he did not predict Walter Heller rates. Priya the argument is that our neutral rate is much lower. Heart of that is inflation and neutral real rates. Part of that is inflation and neutral real rates. You are looking at a decline in demographics and productivity which is far more structured than this idea we are not measuring it right, and i think Central Banks have won the war on inflation and then some. Someone like more than they have. This is a global issue, yes. Francine if it is structural, what does that mean . Priya we will be potentially protect perpetually waiting for that productivity lift and then wait for the productivity left to take the funds rate higher and that is when they struggle. Globally you are seeing this effort toward normalization. I think we will be in this band potentially waiting for an extra for the next recession. You do not neither recession. You can be at 1. 5 real gdp in the u. S. December a done deal or do they move it to november . Priya the market is not at all priced for november so they have to tell us in the minutes they are very close for november. Once you get the projections in december and the fed says, we are looking for inflation to pick up i think they could justify a hike. Tom priya misra with us of Td Securities, thank you so much. She will continue with us and david gura on bloomberg radio. , from carnegie00 mellon, the president of the chicago fed Charles Evans before the washington cubs game in chicago. This is bloomberg. Is this a phone . Or a little internet machine . It makes you wonder shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. So all you pay for is data. 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. Jonathan President Trump faces a challenge uniting republicans behind his tax plan and says he will adjust it to make it stronger. Blink, they stop short of declaring independence as roy steps up the pressure on separatists. Theresa may risks the wrath of brexiteers. From new york for our audience worldwide, good morning. I am Jonathan Ferro alongside david westin and alix steel. Lets begin with the market action. We close out yesterday just short of an alltime high. It is wednesday today. Alix he is off on friday. Where are you going . Jonathan i am not going to disclose. Yields are lower by two basis and the fx. 34 market, the dollar declining for a fourth straight session, meaning a euro a little bit stronger at 1. 18. Alix