Transcripts For BLOOMBERG Bloomberg Surveillance 20171115

This is the company we are keeping an eye on. We understand that net income acmcame in better than expected. We are trying to figure out exactly what they do next, but results seem to be pretty good, well ahead of estimates. I am looking at many things, but overall, global stocks are extending declines and we are seeing this risk reversal permeating through a lot of the asset classes. Gold, up a patch. Then, you have the eurodollar at 1. 1841. The topix, in asia, its retreating for a fifth day. Lets get to the bloomberg first word news. Revivingslowdown is fears over a glut in raw materials. The bloomberg Commodity Index extended declines. The fall has been exacerbated by concern that demand will weaken a china bounceback amid a pledge by president xi jinping to focus on the quality of expansion, rather than the pace. Nickel, iron ore dropped. Zimbabwe, mnangawa is stepping down and negotiating for his wife to leave the country. In a televised address, Major General says he will guarantee the safety of zimbabwe, targeting criminals around him. This is not a military takeover. Doing our toes are , social andolitical Economic Situation within our country. Economy has grown for a seventh straight quarter, its longest expansion since 2001. Gross domestic product grew in the threemonth that ended on september 30. A decline in Consumer Spending was upset. Theresa may is heading for a showdown with her own party over what one member of parliament called her mad plan to write the date of brexit into british law. Dominic lee said he would vote to stop mays proposal to enshrine the resolution march 2 9, 2019. A straily will legalize samesex marriage by the end of the year after voters backed the move in a nationwide survey. S supportedspondent marriage equality. Malcolm turnbull said we must respect the voice of the people. 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 thank you so much. Ins kick off with the news markets today. There are worries about tax reforms in the u. S. The stoxx 600 is on the longest losing streak since may of this year. Is the part over for the rally and how should investors be positioning their portfolios . Gilbert and gildan sundstrom join us. Dline, what prompts this move . Theres no real trigger. ,s this what you were expecting a correction that comes from mood into sentiment, but not a real pinpoint. Geradline i think you just pointed to it. I think positioning was relatively heavy. We had a really strong rally. All the catalysts from the earnings even have the softened. The market needs a correction. I think at the moment it is a lot of noise. The proper signaling to come from real data, maybe the cpi later this afternoon, or things that would generally worry is, but so far it is a healthy correction. Francine you look at market functioning. What are they worried about at the moment . You write a lot about Central Banks, and that is where the biggest risk would come from. David you have the u. S. Tech situation, the brexit situation, germanys sailings to form a government. There are reasons to take money off the table, but if you look at the Global Economic expansion , it is greater and we seek profitability, it is pretty good. I think geraldine is right. This is a healthy correction. He might see more of it. We might the more profit before the end of the year. I dont cyb with the stock giving away to gains. Year has forget, this been exceptional, compared to the beginning of the year. We have had a really strong rally, so it is all good. Francine geraldine, at the same time, we were speaking to Patrick Harker on monday and if you look at the two 10 year spread in the u. S. , you could argue this is partly to do with what the fed is doing, but is there something more sinister . Geraldine i think there is a mixture of things. One of course is we are in the new neutral, so rates will not go as high as they used to be. Therefore, what we had with the fed hiking, it tends to flatten a little bit the yield curve. That said, the levels we see now are relatively low. Theres three hikes to come in the next 12 months. Inflation is going to creep higher. Overall, i do not see anything sinister in this, just positioning and market moves. Francine a lot of the time, you look at this chart and you see this reversible, which could point to a recession. Geraldine yes. Francine why is it different this time . Geraldine i think the curve is pretty flat in general. It has been a while and the world has continued to be good. A dont the see a risk of recession around the corner. We would have to see a genuine surprise of a geopolitical nature that is not within the forecast around the corner. Mark two years back, they learned the lesson from that. Englandand the bank of they are all taking this very gently and not spooking markets very much. So, i think the Central Banks are still backing stuff. Francine geraldine, are you buying anything in this kind of market . So ine well, im here, [laughter] geraldine we will see. We will have to see how things pan out. Francine thank you, Geraldine Sundstrom. Up next, a 50 billion deal in dubai. Mark carney might not have to write a letter to the chancellor after inflation came in at 3 yesterday, but does he still deserve his title . We will talk the bank of england with mark carney. That is of course, with mark gilbert and Geraldine Sundstrom. This is bloomberg. Francine this is bloomberg surveillance and im Francine Lacqua in london. On to corporate stories and airbus. Shares jumped after the Company Announced it had won a record order for 430 jet liners with almost 50 billion. More, mark gilbert and Geraldine Sundstrom are with us. This is a huge deal for airbus. They are probably popping champagne open. This is a massive order for airbus. This comes at a premium time for john leahy. Hes on his way out, so announcing such a big order at this point in time comes as a huge boost. They have lost out a little bit this morning. There was another order. So, this one came from indigo, and there was no order from flydubai. There was the possibility that that would be split. Kind of a mixed message this morning. The champagne is maybe open. Francine chilled, but not open yet. I love this, between boeing and airbus. Boeing has had the upper hand for quite some time. Will we see more orders . Guy the flydubai order might be slightly tilted back in boeings direction, but earlier this week orders forwid ebode body boeing, knocking airbus back. Talking to the guys earlier this week, they were asking, where is john leahy . They have been working behind the scenes to get this deal done. The choreography is always very important. Francine leahy is about to step down, right . So, this is part of his legacy. Is he building what he wants to be remembered for . Guy yeah, he was the guy who is behind the a320. He went to the board in a make or break moment and said, we need to reengineer this aircraft. The local carriers needed to reopen the market. He is also going to be remembered for struggling to sell the a380. I think before he goes he would like another big a380 order. Francine ok, the narrowbody aircraft it is popular for shorter hauls. Guy this is the 737 max, this is what most of us spend most of our time on, the narrowbody aircrafts that bop around the world. This is where you make a lower margin, but you sell a higher volume, and at a discount. That number in terms of the list price will be nowhere near that. The list price is going to be absolutely huge. It is significant. This is where airbus is stronger. It has been more wellknown, doing well in the widebody area. The the critical questions we do not know the answer to yet is, with engines will go along the aircrafts that are sold . Theres the cfm family out of france. Theres a huge amount of value partnered with that as well. Francine guy johnson there, my former coanchor, now the anchor of the European Market open. Next, we talk about brexit and theresa may, facing a revolt from within her own party over her new brexit plans. We will talk u. K. This is bloomberg. Francine this is bloomberg surveillance and im Francine Lacqua in london. Lets focus on the u. K. Theresa may is facing a result from her own mps to put the brexit date into british law. Dominic greene was cheered by several senior colleagues as he said he would vote to stop the proposal. He described the brexit as an extraordinarily painful process of selfmutilation and insisted that parliament had the right to intervene in the governments stage. T every meanwhile, the governor of the bank of england was saved from having to write to the chancellor of the exchequer to explain why inflation was more than one percentage point above target. 3 inrices rose above october. If mark carney did not have to, what will he say . We imagine the letter yesterday. He imagined he would write something like, the honest truth is that there are only three things that matter for british current account outlook brexit, brexit and brexit. If things go as bad as i fear, pound good start to make bitcoin look like a reliable store of value. Mark, it was a very funny letter. But seriously, it is brexit. What does that mean for how mark carney can navigate the future . Mark they have taken away the emergency rate they had last year to give themselves a brilliant case we end up with a cliffedge brexit and we have to insert more stimulus into the economy. This gives them a little bit more elbow room. I dont buy the argument that wage growth will accelerate sufficiently to drive Inflation Higher and if you look at the bank of englands own forecast of inflation coming down next august, i think this is all about giving themselves a bit more elbow room in case brexit goes badly and lets face it, it does not look like it is going well, to be able to provide that it up extra stimulus in the view of the mpc. Francine what does this mean for investments, actually, when you look at gilts, geraldine . What is your bet on the pound . Geraldine it is very hard to have a strategy that has a high degree of confidence because really, the chancellors of the transition deal is really going assetthe key reason the will do well or not. We think there is a slightly better chance of 50 that we get a transition deal by the end of the First Quarter of 2018. That said, this is not a very high percentage. Taking any large physician in the u. K. Taking any large position in the u. K. Is probably too brazen. We think the level of yields currently not attractive compared to two other levels int h the world. If you want to think duration, we think you are better off in the u. S. In terms of the pound, we are relatively neutral. Francine we have a pound chart coming up, and i wanted to ask you about volatility. This is a simple chart looking at u. K. Employment and this is the average Weekly Earnings growth. When is inflation going to translate into wage growth . Two he was one of the dissenters about the rate increase and he said, look, we should be looking what we can see in the data, not what we expect to see. The older relationships are breaking down. The pressure on unemployment is relentless. Workers dont seem to have any Pricing Power in terms of their incomes, and the bank of england said, we expected to come because it always has in the past. I dont think that relationship holds anymore. Francine right, but then you need to model what you think it would look like if we had tariffs. Are you working on five different models if we go to elections . It seems the outcomes could be vastly different, like nothing we have ever seen before. Mark i think there is a global phenomenon, where the wage growth is not being produced that we have seen in the past. When something is not working, you have to move away from it. If the facts change, you change your methods. I dont think the central bankers are ready to give up the formula, that unemployment will cause wage inflation. I dont see it happening and the evidence is there that it is not happening. Francine this is the pound volatility chart. It is essentially the pound dollar volatility in blue. What are investors looking for . Are they looking for parliament . Are we looking at letters from mark carney . Geraldine well, it is getting to crunch time, because do have a transition deal that really situation,ef to the it needs to come sooner rather than later because Companies Need contingency plans, and the need to decide what to do. Arer into nearer and ne the crunch time, the First Quarter of 2018, the level of excitement is likely to go up and not down, i would say. Theres a lot of back and forth. Its even very complicated for all of us to follow every detail of it in turn. I would think unless by miracle all of a sudden we have found the great solution for europe and the u. K. To agree on everything, volatility is relatively likely to remain elevated. Mark we live in exciting times. Chart that is not much of an elevation in volatility, given what we have seen in the past, and yet, the background to the talks is deteriorating all the time. Francine but do you believe there is an assumption and the markets that the brexit will not happen . It is something i hear more and more, but im not sure if it is has people are hoping it will not happen because they voted to remain in the first place. Mark i think there is a background hope that the bad thing does not happen. An optimism that might be unfounded, g ivegiven the constitutional effect of the therendum and given that incoming government which by the way, it is very hard to dislodge the incumbent government is keen on pushing brexit through. I think there is a background hope it will not happen, but i am not sure where that hope is founded in reality. Francine in 20 seconds, are you modeling a labour win with Jeremy Corbyn as the next Prime Minister . Geraldine this is a little bit too far in the horizon. Francine so, you are looking at what happens within the next three months. Sundstrom from pimco and mark gilbert from gadfly stay with us. We are talking communication. We had a great panel yesterday in frankfurt with kuroda, mario draghi, mark carney, and of course janet yellen. Draghi says it is one of the tools now available for Central Banks. We discuss that next, and more on inflation. This is bloomberg. Francine this is bloomberg surveillance. Lets get to the first word news. Senate pack try to commit it has hammered out details on its tax cut proposal while the house may vote on their bill tomorrow. Releases modified tax proposal that would make middleclass breaks and other provisions temporary in a bid to comply with the Senate Fiscal rules. It would repeal the obamacare requirements that individuals have health coverage. Theresa may is heading for a showdown with her own party over what one member of parliament called her mad plan to rush brexit into british law. Dominic grieve was cheered by several senior colleagues in the house of commons as he said he would vote to stop the proposal to enshrine the date of withdrawal, march 29 of 2019. Australia is set to legalize samesex marriage before the end of the year after voters emphatically back to be moved in a nationwide survey after the country Statistics Office revealed 61. 6 percent of respondents supported marriage equality. The Prime Minister said we must respect the voice of the people. Global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. I am nejra cehic. This is bloomberg. Francine getting some employment figures out of the u. K. Any impact it has sat on the pound. This is the three months Unemployment Rate at 4. 2 , in line with expectations. Average Weekly Earnings, they are up a bit, 2. 2 for september and 2. 1 expected. You can see the pound is 1. 3204. Mark barton has been looking at the action. 37 ofpound respondents of bank of America Merrill lynch fund manager survey underweight u. K. Stocks, and level of pessimism last seen in the 2008 crisis. Even as the ftse 100 index set a record earlier this month, it is underperforming the world index by 90. This is a wonderful function. Everything you need to know about a certain asset, today i am choosing airbus, edit out the biggest commercial airplane deal in his history, securing the deal value at nearly 50 billion for 430 airplanes. Dramatically overshadowing a deal one by boeing. This has everything you need to know referring to airbus, the stock price, average on the above trade, earningspershare, consensus estimate. Function. Forget that Commodity Index had a big drop yesterday of 1. 2 further declines today. The most in six months as the drop yesterday. Pledge toing back a focus on the quality of its expensive, rather than the pace of it. Hurting metals. Oil, u. S. Production rising. These are percentage moves in the bloomberg Commodity Index. Japan today going for a seventh consecutive quarter, the longest expansion since 2001 ever covering in exports with rising investment gdp growing an annualized rate of 1. 4 versus 2. 6 in the second quarter, led by exports and business spending. There is the winning run. Francine thank you with the latest. While President Trump is reported considering their chief Mohamed Elerian for one of the open seat of the fed board of governors, he would replace Stanley Fischer according to media reports. He was formerly the ceo of pimco and would bring decades of experience of monetary knowledge to the fed. U. S. Inflation data at 1 30 p. M. London time. They have been consistently short of the fed goal. October figure may underscore the status quo and a soft rating could make the fed rethink a december rate hike. Geradline sundstrom and mark gilbert are still with us. What are you waiting what you concerned about from the fed . So far, i do not think there is much story about. There is a lot of empty seats. Status quo is what it looks like. When it comes to the number of hikes on the horizon, december or not december, we think to hikes to three hikes in the next three months is what is priced in the market more or less. Not much of waves to be expected. Cpi number is important this week, a loud noise this week, probably a real signal. Inflation has been disappointed pretty much everywhere in the world. We will see if the number confirms the trend or gives a hope that the fed is right and inflation will be higher. Francine my favorite quote of the week is jay powell saying that he fears that blah is what traders hear from the fed. How do they stop that from happening . The panel on Forward Guidance was interesting in a particular way with mario draghi saying is a fully fledged to Central Banks to use Forward Guidance as one of the tools. The problem is the entire toolbox has expanded and will never go away. Quantitative easing will always be one of the first things they reach for in the future. Forward guidance is a difficult tool to use because tried to commit the market for data dependence, when the data is not going be way you want with which give inflation is not yet you still raise Interest Rates, it undermines the message a little bit. Inflation data has been disappointing everywhere. Normal relationships have broken down between growth and inflation. It is not clear theyre coming back and not clear this idea that Forward Guidance, data dependence being driven by the figures is really going to hold water and the environment with that backdrop. Francine jay powell is considered by the markets a little bit of a replacement of janet yellen, is there a concern that there are too many vacuums . Talking about Mohamed Elerian taking the place of Stanley Fischer and the communication will be distorted somehow because of too many people in the job. The shape they have taken is reassuring. No novelty in the thought but the number of vacant seat is fairly high and we have uncertainty. The market is taking the attitude that nothing will rock the boat, the modus operandi of the fed will be unchanged. We should expect from any highly professional body like the fed and being overly worried by the vacant seats is not warranted. Francine what is i was struck by mark carney yesterday talking about the communication the central bank needs to do for the real economy. That was something another governor touched on, i want to make sure my people understand they can spend and do something. Mario draghi has another story, forgot its helps with, is skewing the market. Which one is it . Haveth, central bankers enormous power and they are not elected and that makes them nervous. Their independence is not enshrined in the natural rules of the world. It is a new phenomenon. They are where they have to communicate to the person on the theyt they are aware have to give medicaid to the person on the street why they have so much power over citizens. Mark carney was talking about the average length of memos. A study shows the level of language used in the speech is way too high. It is too complicated. The root cause for the discomfort is the fact they now control so much of the global economy. Yet, they are not elected and they need to communicate to the person on the street but the background is for their decisions. Talking about the composition of the fed, i would love to see someone from industry in the fed. If Mohamed Elerian gets the job, he is a market got. Francine light gary cohn or someone from retail . Someone who has to meet payroll every friday, someone like jeff bezos who has built a business from the ground up and understand what the value of a dollar, pound, euro is and knows what the cost of money is and what draws an economy. Central bankers talk about entrepreneurs and how they drive the economy. Why not let one of them into the hallowed halls of central broadenas a change to janet yellen spoke about grouping and said the broadness of the fed takes away i think there is group think in the central becky community and if you brought in the pool of central Banking Community and if you brought it the pool of talent. Maybe explain things and understandable terms what is driving the economy and why policy is doing what its doing. Francine i love that idea and we have to do a whole show on you on doing that. I do not know whether they have thought about it. Mark Gilbert Joining us, thank you. And geradline sundstrom from pimco stays with us. Robert mugabe is preparing to step down in zimbabwe, we will have the latest coming up. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua in london. Lets get to zimbabwe kind of president Robert Mugabe is prepared to step down. According to news 24 citing unidentified people familiar with the situation, the 93yearold president is negotiating for his wife to leave the country. The report comes as a military seizes power after a week of confrontation with the government of Robert Mugabe. They say and can was needed to stave off a violent conflict in the african nation that he has ruled since 1980. Why now . A big question. It has been a long time that Robert Mugabe has served as president of zimbabwe. The interesting part is that last week, monday, Robert Mugabe fired his Vice President who seemed to be his longtime ally. He was responsible and chief at the time in the 1980s and making sure Robert Mugabe emerged as the leader for zimbabwe as they attained independence from the United Kingdom in 1980. Faded and has been a shift in policy in zimbabwe. That has sparked what seems to coup but the military says it is not a coup but a bloodless correction and making sure no lives are lost. Francine lets say the military takeover is successful, what is the timeframe . And what happens to the country if it is successful . It is difficult to say. The fluidity of news out of zimbabwe is sketchy and difficult. As you said, unnamed sources have said Robert Mugabe is preparing to step down with no official word from zimbabwe or the ruling party. Interesting elements is how will this play out over the next few days . It would have to come from Robert Mugabe for the Vice President. If he is stepping aside and allowing for his wife grace to leave peacefully, it will be interesting to how it develops and what is left behind with regards to zimbabwe, 10 how much more influence will be military have as the year goes by. And into next year. Interesting to note that moments ago the South African president ching out and is now the he said the African Community will monitor the situation in zimbabwe and remains ready to assist when necessary to resolve the political impasse. Francine thank you. Following this very closely. More analysis, lets turn to alex magaisa at the university of kent who designed zimbabwes constitution in 2013. Thank you for joining us. We are trying to figure out what happened in the last week and in the last two weeks at what is happening now. As you probably the Vice President was fired last monday. There has been a response from the military who issued a tough statement on monday. It followed this morning another statement showed that the military had taken over. They are insisting they have not taken over the government. Is a coup francine does this have the support of the people in zimbabwe . One of the aspects of zimbabwe policy is that they are frustrated. By the rule of Robert Mugabe for so many years. He has been in charge for 37 years and rigged elections during that time. People have become despond it. He was supposed to go by any means necessary. A lot of people are now celebrating his disposal. They are frustrated. Francine will Robert Mugabe go peacefully . It looks like the military are now in charge. They have respect for Robert Mugabe as he has led them for so many years. He is someone they respect. There is sympathy for him. They do not want to be seen to be mistreating him and it is an opportunity for a dignified exit. He may retire or resign. They will try to treat him as humanely as possible. Francine professor, after 37 years of power from Robert Mugabe, how can the country rebuild itself . Rebuilding zimbabwe is a mammoth task. The resident deterioration over the past there has been deterioration over 18 years and there is terrible economic conditions. They need to restore economic relations with western countries and lines of credit it has had with financial institutions. You need to have investment and also need to have confidence among your own people. This is something Robert Mugabe has never done, never a good economic manager. Whoabwe needs a new leader is able to open up opportunities and bring in a new way of doing things. This is what the people are hoping for, that any change that will take place after Robert Mugabe will be positive change. Tom francine alex magaisa, thank you very much, the law professor from the university of kent to help draft zimbabwes competition. , Warren Buffett takes a light out of apple. We discussed this next. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua in london. Warren buffett has received reduced his stake in ibm. Andaised his stake in apple Berkshire Hathaway has a folding guide at about 21 billion. Holding at about 21 billion. That is his recent moves. Should investors be positioning their portfolios . Lets get. From geradline sundstrom lets get thoughts from geradline sundstrom of pimco. Principles you go by or do you just look at opportunities . Is a topdownco investors and we look at the cycle. Typically late cycle you see good growth and yields going up. And equities will be where you will want to have a good part of your exposure when it comes to asset allocation. That is what we are collected in in ourlio to portfolio. U. S. Equities, we are looking for value in other areas, currently our favorite area has been japan. It shows tremendous earnings momentum, very good quality of earning. One of the best in decades. And violations remain relatively valuations remain relatively cheap in absolute terms. Tough to find anything cheap but. His is our favorite market over correction like many markets but we feel the momentum in earnings is relatively strong and can continue to deliver. Francine what does europe would like, over crowded look like, overcrowded . At weis export driven have seen in the third quarter, earnings, the euro has been a huge headwind to a number of the companies. And he Forward Guidance by the ecb not giving a lot of hope in terms of rates for the financial sector. It is a market that is a little bit challenged at the moment but should not be overly punished. Growth is continuing to surprise on the upside in europe. The strength of the euro should be relatively contained. Rates are going higher in the u. S. But not in europe. It is not a market that one should pull their back on, still ok value. In the order of choices, japan would be ahead. Francine does tax reform that changeange review your view in the u. S. . Geradline it would have more impact on small cap and they had shown relatively weakness in terms of earnings, they have shown signs of life and probably willing it has corrected late around the tax reform. It could be attractive. Buffett sees that, the cash buys within big tech. Francine thank you, Francine Lacqua geradline sundstrom. 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. 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. An end . The global sellout with concerns about u. S. Tax reform. The sky is the limit. Airbus announces a nearly 50 billion deal with a u. S. Investor. Zimbabwe. Zed power in good morning. This is bloomberg surveillance and im Francine Lacqua in london and tom keene is in new york. We are seeing a selloff and we need to look at the underlying causes. But im also looking at brexit and what that means for example, for the europound. Tom yeah, it just wont go away. This was in the wall street journal this morning. Index we haves gone from 5. 5 yield to explain 3 yield. Well have a chart on that in a moment. Francine lets go straight to the bloomberg first word news. Taylor Senate Republican leaders might have made tax reform a little more complicated. They have decided to add a repeal of obamacares individual mandates of the tax cut package. That will help meet their fiscal target. Twice this year Senate Republicans tried and failed to repeal obamacare. Francine, as you mentioned, in zimbabwe, the military has seized power and threatened the presidency of Robert Mugabe. Mugabe and his wife are in custody. The takeover comes after mugabe aimed at giving his wife control over the ruling party. Job is toface his brief north korea about the job, but there is speculation he could be carrying a message between the chinese president xi jinping and President Trump. Australia has said yes to samesex marriage will a nationwide survey found 62 of people want samesex marriage to be legalized. 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 thank you, taylor. Lets get through the data check. Equities, bonds, currencies and commodities. Very nuaned right now. 10, with massive curve flattening. Oil with a bit of a hit. Next screen, please. The vix 13. 56. That is the threemonth spread. This is the michael purvedarvis spread. He likes to look at it from tip to tail. Turkey, whichin is to one of those canaries in the coal mine. Turkey is very fragile versus other e. M. Currencies. Francine it is a good want to look at, currently unchanged, but if you look at it on the longerterm, that is not what you. Rend is telling the risk off environment is showing little signs of easing. We are looking at the underlying cause, maybe a little bit of tax reforms. Gold is up 0. 4 . Tom i want to get to two charts not one. I dont want to slow down the show, but it is so important to film the economics. This is a gorgeous chart, the the three etf and moving averages converge right here. Thats rare. Down we go, this is price lower, yield higher in the high yield space. If we go over to another chart and francine, the ft featuring this this morning, this is a venezuela peace out only two years. This goes to the default worries of venezuela back up here at 100 or par. Down we go and we come back up to 60. Heres zero in this curve over 28 cents on the dollra. Francine tom, i am so glad you did two charts, because i did not do mine. Tom tom oh, there you go francine a Global Equity selloff the event in asia over the concern stocks might have become too expensive. Tepid demands have weighed on mining, oil, and metal stocks. We see the longest losing streak in three years. Thank you guys for joining us for the hour. I dont know what sentiment they are looking at. Is it because it is almost the end of the quarter and people are adjusting their portfolios . Or is it because they are underwhelmed by the tax reform . I think we need to remember we have had a really good run d 72 ofrisk assets an credit and emerging markets. We have had a strong october. I think we are getting into a tight market coming into year end. Liquidity in markets is starting to dry up. Investors are rightly, i think, concerned about valuations. Weve been in the position where we have been booking some profits and have been happy to do so. I think we are not alone i think there are other investors in the credit space who have been doing the same thing. That being said, there have been some, you know, noise around the tax reform issue. We had some weaker data coming out of china, and then this theme around the flattening of the yield curve, i think it is overdone. Nonetheless, it is something that is creating a little bit of nervousness as well. You put all of that together, i think we are seeing a soggy, soft market with some risk being taken off the table, but i dont think this is the beginning of the end. Francine and there is nothing wrong in the economy at the moment, apart from the inflation activity we have had for a while. David if you dig a list of all if you taked a list of all the fears we had at the beginning of the year, none of them actually happened. One thing that might still be weighing a little bit on minds is the fact that people stopped listening to what Central Banks are saying, and they are removing their support ever so slightly, but still, it is a big change. Francine it is a big change. Without a doubt, the quote of the week was Jerome Powell. A point atthere is which the market will have to listen to the actual message. Which is, were not going to wait until inflation is new at 2 with a big flashing red light. They will act reactively. They will act proactively. Theres always a point at which people stopped looking at what the Central Banks say and what they dream Central Banks could say. Differ aprobably little bit in the shared view of the fed. I think it is surprising that the market is pricing in one rate hike for 2018. The fed tells us they will be doing three. We think, if we look at it, the fed has been on a quarterly timing path. We had been on a quarterly timing path because if they raised rates twice, they will do so again in september. Where we differ a little bit is, is they arethe ecb, just buying so many bonds and then you have the Forward Guidance linked to that. When you have negative rates pulling the whole down, it is hard to see how you could get that becoming unanchored. Tom david, i want to go to the bond market. I agree with you, the idea where we have seen this before. We are on two standard deviations. Bring up this chart the old lehmanbarclays high yield index. Whats fascinating to me, david, is we dont understand the bull market. Here is the lehman low, and here ull market, equity b but the market goes back 15 years. It has been an amazing run and even with the pullback today, it is barely a blip. Can you say bond market bowl over . David that is a really big question, tom, that you are setting up for me. I am not going to call the end of the bond bull market, but i think we are approaching an Inflection Point with you wind down in quantitative easing. I dont think that means we will be going to sustain bonds bear market, but there is only so far, as you highlighted in your chart, that we can keep moving in one direction. I do think we are going to see buter real nominal rates, one of the challenges, and we see this with the flattening of the yield curve, just how far can Central Banks change rates . We have really deleveraged. Moec, you and your group were phenomenal on gdp four or five or six years ago. No, i think we have a way to go. We intend to believe the fed and the dots. We think next you they will deliver three hikes. It is not necessarily that we agree with what they are doing because in the face of shaking inflation, we think they should be more cautious, but they seem to be in this preemptive movement. When i look at europe, i find it surprising that the market acted in a dovish manner. They are still buying and telling us, for the last time francine we dont have an end date. That is why the market was dovish, right . Gilles yes, there is no end date, but this is becoming very rhetorical. The question that nobody else asked was, can we actually believe you . It is openended only if the ecb can tell us there is no limit to what we can do. We can move away from the capital key. During the press conference, draghi said there are two thi ngs. We did not discuss reversing the sequence or changing the variations, which is very hard. Really hope its the last time. David they have been making clear that they will be buying sizable amounts of cooking credit, which is taking a little bit of a move from uber. They will be continuing to buy on a net basis, they will not be doing a hard taper in 2019. Tom lets drive this conversation forward, mr. Moec and mr. Riley with us. Haass. Up, richard the president has landed. Stay with us. This is bloomberg. Taylor this is bloomberg surveillance and im taylor riggs. It is the biggest commercial plane sale in airbus history. They have partnered with Indigo Partners for 430 planes. The deal is valued at almost 35 50 billion. Tencent posted the strongest growth in almost seven years, posting a 61 rise in quarterly revenue. Tencent is riding the success of video games in an expanding internet and advertising business. Thats your Bloomberg Business flash. Francine another day and another challenge for the u. K. Prime minister. May seems to be heading into a showdown with her own party. Now, the former attorney general, dominic greene, was cheered by several senior members in the house of commons as he said he would vote to stop the proposal. The brexit bill faces the second day of debate today. We are now joined by a member of our u. K. Reporting team. Great to have you on the program. What do you do everyday . Do you wake up, look at your reporting team and say, where are the leaks coming from, what is the biggest contention . We are working very long shifts, and having a lot of coffee. Essentially, we are in a marathon session. We have had eight days of pick piece at this mammoth of legislation. Dominic greene has already given us a display of what we are in for. Francine who does theresa may have that support her . Are there people that back her loyally that we should look out for . On the one hand, you have this growing list of 40 dissenters. On the other hand, there is a general agreement that nobody wants it to go right now. That is what is keeping her in play that is the paradox of theresa may, why she is so weak, yet she is still around. Tom are we just refighting the evening of june 22, 2016, where we did not know what would happen the next day . It is like groundhog day, isnt it . Tom yeah, if this is groundhog day, when does this cycle end of reliving what francine and i and jon ferro did on june 22 and june 23 . How do you break that groundhog cycle . According to theresa may, you put it in writing and say on this day 11 p. M. , brussels time, we will leave. Of course, others have other ideas. It really is a story that never ends and we have no way of knowing how it is going to end. They could be that maybe we will never leave. That is also a possibility. Francine which is where i wanted to go, a pound volatility chart. We were trying to figure out with one of our guests this is pound volatility at one weekend one month. It is volatile, but not that volatile. Is there an assumption that we get a transition deal, or we might not leave the eu at all . I think there is well, this is not a refight about the referendum because the book was to leave something, but there is a lack of clarity about where the u. K. Is actually going. I think sterling and sterling assets being caught in that tugofwar of, will it be a total soft brexit, where the relationship will be quite close with an extended transition period, i think some of that is being pressed into sterling. Plus, a of course, the bank of england doing its rate hike. I dont like sterling assets, i dont like sterling. We have a short and sterling against the euro and dollar. I dont particularly like sterling credit. And we think gilt yields will go higher, not because the bank of england will be so aggressive, but you need some risk premium in here. Tom francine, keep the conversation going with david and gilles moec. I just got an email and i stand corrected it is a surveillance correction. Francine emailed me from london and said, you idiot, it is not june 22. I meant, francine, that it was the two days before brexit that were bazaar. Francine right, it was june 23. We agree, tom, on the day that the referendum took place. What does this mean for the bank of england . Gilles it is hard to say. Yesterday in frankfurt, clearly mark carney did not want to elaborate too much on brexit, but he had to because he was asked the question. And what he said is actually very complicated. I have been following Monetary Policy for 25 years and if i had to summarize what he said, i would struggle. I will try. Basically, it might be that brexit is more of a supplyside shock. And if it is a supplyside shock, military policy might have to be tighter because the pace at which he would start changing inflation is lower. But he also said it might end up being a domestic shock. The truth is, we dont know. Tom we will continue this discussion. Jackson,flavia krause from the u. K. Government reporting team. Stay with us from london and from new york. This is bloomberg. Francine this is bloomberg surveillance with tom and francine from london and new york. Tom, this is what we need to focus on. Lets get straight to zimbabwe to figure out what we need to do next. The president is said to be ready to step down after being in power for almost 40 years. The fallout is quite significant and it will continue to be very significant in the coming weeks. After 40 years, the understanding is there are reports that he will stand down. That is according to local press agencies. We turn to our south Africa Economy reporter for the very latest from johannesburg. Thank you for coming back on. We are trying to figure the timing of this. How significant is it that it is now and not one year ago or two years ago . Certainly come if you think about the elections, it is quite an interesting one. Robert mugabe had just fired his Vice President , who is the person that i think could then take the presidency. And then he will be seen as the leader. Not too long ago when he did fire the Vice President , that was seen as a move to have mugabes wife step in as the pf, whicher of zanu would take power of the nation as well. It is an interesting play. How long the scenario will play out will still be interesting. However, some people are saying it is a slow coup, while military supporters are saying it is not a coup at all, but a bloodless correction of the past. Francine thank you for the update there. Now, we will be back with david riley and gilles moec. A Bloomberg Markets, conversation with john chen at 10 30 a. M. In new york and 3 30 p. M. In london. This is bloomberg. Surveillance. From london and new york. Francine lacqua and tom keene. First word news, here is taylor riggs. Senate Republican Leaders hope third time will be a term for obamacare as they corrected in the individual mandate to help pay for deep cuts in their tax overhaul bill and it could complicate vote calculations and both chambers of congress. Twice already this year the senate tried and failed to repeal obamacare. Senate republican leader Mitch Mcconnell is looking at replacing roy moore as alabama alexa if alabama election and Mitch Mcconnell says what more should not run because of allegations of sexual impropriety. Mitch mcconnell has discussed the idea of expelling roy moore if he is elected and having Jeff Sessions appoint his old senate seat. Russia is convinced opec needs to decide this month to extend oil output cutbacks. According to people familiar with the matter, russia believes it is too early to decide and there is disagreement over how long an extension is needed. The current cutbacks expire in march. Prime minister theresa may is headed for a showdown with members of her own conservative party over brexit. Former attorney general Dominic Grieve says he will vote to stop her proposal to stop the date of brexit into law and says the law would force written out of the eu with hundreds of other treaties, even if there is no deal on a trading relationship. Global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom thank you. You have a panel, another panel, nobody cares. Guess what . Yesterday was magic. Here they are. We formulated a framework where the various parts of this Forward Guidance, Interest Rates on one side, asset purchase on the other what interact in a synergy. Janet yellen for us come all guidance should be conditional and related to the outlook for the economy. Inflation expectations are formed, not only by forwardlooking way, but also backward looking way. It is a matter of policy itself. Tom for those taking part in the medieval science, it was extraordinary. With us in london is david riley of Bluebay Asset Management and gilles moec of bank of America Merrill lynch. I thought it was very special. What was interested about central bankers on the same platform . What was interesting is that there was almost only a retrospective. They talked about past experiences and how they handled themselves in different circumstances. Not a lot about perspective discussions. And grilled on brexit. Not a lot new to take away in terms of the next steps. Tom i guess it did not move the market but it in trenches orthodox thinking at the Central Banks. Do they have that luxury for much longer, can they stay on traditional, theoretical paths . Much easier for Central Banks and the markets to have these debates around terminal rates and curves, and Forward Guidance comment policy sequencing when inflation has been below target and growth has been above target, or above trend. As we go through next year and beyond, we will have tougher policy choices facing Central Banks. A more volatile environment for investors generally. At the moment, you have an academic discussion. ,nce inflation start picking up through 2018, we will get to be sharpened and test Forward Guidance. Tom does inflation pick up, or is there enough goods and disinflation to keep overall inflation dampened . Countries inflation is driven by domestic factors. Factors overall global through manufacturing and so forth but at the heart of inflationary trajectory, you have services, prices, wages. This is where we should start seeing things happening, especially in the u. S. It is a miracle that wages and inflation have not picked up, tons of factors. If we are persistent and patient , we will see inflation turning a corner in the u. S. This is how the fed is looking at things. It has turned a corner in the u. S. It will be important for europe. Ie will see inflation think slack is too high but if we can prove that one key market , inflation is finally coming back, everyone will look at every market at the same time. Francine important because cpi data in the u. S. Later today. Do you think it is just lagging or will it remain subdued . I think it is lagging. Francine because of a structural concern . That isnot convinced the explanation technology. If prices are driven down by technology, it means you have more money to spend on stocks that cannot be automated. Not a strong case for this. Withis happening has to do the way the labor market is being changing. That we should work on the assumption that it has moved. With management in many of the companies we let to, lent u. S. , wecularly in the are picking up references by management to rising wage pressures. They are responding and expected to respond with higher wages. When you look at wage data and depending on how you cut it, we are seeing modest pickup. The u. S. Is at full employment and we will get pickup in overall inflation going through 2018. We are starting to see evidence from the bottom up. Francine this could be a sweet spot. Maybe does not fit with your models but if you are a ceo you do not have to pay your employees a lot more and that could help animal spirit and reinvestment. Why not . Because you need people to buy stuff. One aspect has been that companies have focused on cutting costs, building margins. They have not been doing so much in the way of investment. Over the medium term, what will be happening to to make the makeery sustainable to th francine a Global Supply chain with energy products, a group in crisis for quite some time with the headlines in the last five minutes, they are looking to extend debt maturities, if you extend debt maturities, you do not have to pay them straightaway and starting talks with creditors on a possible restructuring of more than 3 billion as the commodity trader continue badly for survival. This is bloomberg. Francine this is bloomberg surveillance. Tom and francine from london and new york. Tom thinking about his next trip to london and airbus has security biggest commercial airplane deal and its history, shares jump after they announced it had one record order for 430 jetliners. 50 billion. Guy johnson joins us. Gilles moec and david riley are with us. Guy loves this, boeing versus airbus. Is airbus catching up . Honest, when we come to the end of the show, i think the early score went to boeing with the big emirates order. Emirates has faded into the background with the big story. Earlier this week, everybody was peopleng where is missing in action. They turned up with a massive order from indigo. This is a huge order. Airbus. L running around the business in for 20 years and built it into what it is now. Now he can depart with a huge order. It is big for him. Francine his legacy, airbus has set up some downs. It has, generally ups. The ticket from a company that did not have much in the family to being a full operator. They started up with narrowbody and progressed into the widebody vucevic traditionally been which traditionally was boeing space. What is missing from the show, huge snobs, emirates was cut out of the 380. No more 380 order. John would love more. Until he does tom away from the aviation gaza, is this gossip, is this just about airlines wearing out . They are a depreciable asset and are these for airlines involved in the big order trying to get out in front of everything we are flying is worn out . Part of that is true but these operating costs are significantly lower with these new airplanes and competition is still fears. Fierce. If you can operate with cheaper airplanes, that matters. Going into areas where the market is expanding. The Traditional Market is less true, because you can run a at theseed aircraft lower fuel prices for a little bit longer. That means most of the orders from emerging markets rather than developed markets. Seven cents,akes eight cents, nine cents, consents on the dollar, thin margin, does airbus make money quarter to quarter . Is that a safe statement . Prettyeconomics is inasmuch as pretty, the orders is pretty, is build, you have book to you want to keep your order book growing but sending aircraft out of the factory. You still want more orders coming in in the future. That issue is something that has been problematic of late, trying to keep an north of one. Delivering an order tomorrow to an airline is different than taking an order for 10 years down the road as you have to account for the factors. Tom i know you are a fan boy of this and you take the surveillance gulfstream to divide. Placeai, what about that makes them want to get together there . They get together outside of london and at the Paris Air Show outside charles de gaulle. Those operate every other year. Who is in the gcc, the big carriers, it has been emirates, hub and spoke companies who have ordered a lot of aircraft over the past few years and a mustsee event. That myanybody sad favorite comedy boeing 747, anybody my favorite, boeing 747, anybody sad it is going . I am, a fantastic airplane. Tom why . It looks fantastic. Between engine aircraft are much more efficient. The twin engine aircraft are much more efficient, you have a problem going over the water in them, economics much tougher. Tom interesting. Francine on the narrowbody, they still need to find who makes the engines. That is a huge business story for who gets the contract. , ebolake in the industry bolt anane to an you airplane to an engine, instead of the other way around. It is complicated. Pratt whitney make one engine ge and a320 line and another company make another one. The gear and a much more complicated issue. Tom thank you. I give you the surveillance gulfstream for the weekend but somebody else is taking it to jackson. Let me look at tv. This is how you get briefed offer trading desk. Quite valuable to get started in the morning. The bonus round is you can go to a previous segment and click on it, there is a given chart and you can steal the chart over to your login. Worth its weight in gold. This is bloomberg. Taylor lets get to the Bloomberg Business flash. The head of unicredit german unit the leading candidate to be the next ceo of georgia board. Ould replace billionaire investor Warren Buffett has added to his stake in apple and reduces ibm holdings. According to regular for filings , Berkshire Hathaway bought another 4 million shares of apple and the stake is now valued at 21 billion. They kept trimming its taken ibm now valued at 5. 4 billion. That is your Bloomberg Business flash. Tom i want to bring up a chart. It is a lollipop chart. Go. Twoyear yield, up we a long curvature of an acceleration up to a higher yield. With us is david riley and gilles moec. Have wet continue, reached an escape a loss of the port higher yield curves for higher yield curves . The twoyear is moving up as the fed rates moves rates higher. A concerned is behind of the wrist as get, twoyear dust risk asset, twoyear moving higher, the 10 year is where it was at the start of the year. That is why we have had a flattening. One aspect which would be a do notif we do not get some pickup in inflation but the fed stays on its hiking path , the twoyear will go higher and the curve will go flat and the market will not like that. Then the alarm bells will ring. That is not my call. But one of the concerns. Tom we are all guilty of physics in the. Physics envy. I do not want to get into a enertia. And ar . Hat does this signal to you people are paying attention to what the fed has constantly been saying since the beginning of the year. Acts as it does without inflation, we are in trouble. Finally, getting the message across. Francine christmas comes early for tom keene. I am putting up the dots. Do we care about them anymore . We do. Even if they do not always deliver, it is a nice communication tool and they know people look at it. Still something we need to see. We expect them to hike rates. Francine do you look at the dots, david . Looking at the fed five chair possibly Mohamed Elerian. Vice chair possibly Mohamed Elerian. Will it change the way they communicate . You make a good point, fed leadership is going through a significant change, even with Jerome Powell taking over. Although centrists within the committee, there will be other changes. I think you have to be skeptical about the value as you look further out. I think they are on a path where they are looking to do a quarterly timing path. This is where the tax reform issue comes in, tax cuts, because that potentially could give a boost to growth expectations and also to inflation expectations. We could see, not just three, but four rate hikes next year. Tom 3 is right here. What is amazing is that we 2. 5 . E to 2020 to is that the Merrill Lynch terminal rate . Probably not far away. Have a strong to idea on where potential growth is going to be at this stage. Our view is potential growth in the u. S. Is south of 2 . The impact ofd inflation. Threeyear, fouryear horizon, we hope for potential growth in the u. S. Resuming some acceleration. It has been weak over the last two years. We could see potential of acceleration. Tom a huge theme next year. David riley and gilles moec, thank you so much. Disagrees with everything we talked about and he joins us and Richard Haass of the council of Foreign Relations. This is bloomberg. Tom yields higher. High yield bond fund is lower. The careful as the bond market also leads higher inflation and centralbank rate hikes to come. In this hour, Gary Shilling disagrees with what i just said. Japan, china, vietnam, the president returns in this hour. Richard haass on the council of Foreign Relations. In the United Kingdom, just like a year ago, it will not go away. This is bloomberg surveillance. Live from our World Headquarters in new york, i am tom keene and Francine Lacqua in a fractious london. Theresa at risk is mays government . Francine i do not know whether to focus on the internal politics of the conservative party or measure whether her weakness affects your negotiation skills. Tom a fabulous hour with Richard Haass and Gary Shilling. Here is your first four news. Leaders maypublican have made tax reform more complicated as they added a repeal of the obamacare individual mandate the taxcut package which will help them meet their fiscal targets and change the vote calculations and both of the senate and house. Twice Senate Republicans tried and failed to repeal obamacare. Zimbabwe, the military has seized power and is threatening to do away with longtime president Robert Mugabe. The head of the armed forces said it was necessary to prevent violent conflict and Robert Mugabe and his wife are in custody. Fired his Vice President aimed at giving his wife control over the ruling party. China is sending a special envoy to north korea. On the surface, it will reap north korea about chinas leadership reshuffle but speculation he may be carrying a message from the recent talks between chinese president xi jinping and President Trump. Australia has said yesterday samesex marriage. A survey said 62 of australians want samesex marriage to be legalized. The Prime Minister called on parliament to legislate there is equality by christmas. Marriage equality by christmas. Global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom equities, bonds, currencies, commodities. Dow futures negative and a dollar we go with the euro stronger and oil takes a hit. I would note and that turkish lira is weaker over the last number of days. Francine stocks declining globally. Gold is advancing. The euro is seeming to be adding to recent gains. A risk off mood overall. Tom a balanced comment, everybody is watching highyield models. The moving averages are beyond elegant. Off a cliff goes the price of highyield bonds. I do not want to overplay it. We have seen it before, but there is angst in the market this morning. The president has landed, getting in late night and having a vegetarian meal in the philippines. Kevin cirilli joins us in washington. What will be greeting be like in washington . The president makes it back from abroad, what is he being greeted by this morning . He is back and it is about tax reform. The house paved the way for there to be a vote tomorrow in the house of representatives on the tax package and sending it to the senate where it is underway. While the president was flying , theto the United States house of representatives was busy trying to get this in line with the senate version. They would be making permanent the Corporate Tax rate cuts, lowering from 35 to 20 in 2019 which is in line with the senate version. Health care is now in the tax debate, limited the mandate of requiring people to have coverage. Linking whatd they has not worked for 18 months into this plan . They feel they have to deliver some type of legislative win on health care after the failure to get a significant reform package through this year. This is not a complete overhaul of the Affordable Care act. It. S a significant dent in part of a broader strategy of the president trying to weakien it. It is what the republicans have run on 47, 8 years. For 7, 8 years. Tomorrow, the house will likely vote on the tax bill. The senate is underway. If the senate can vote before thanksgiving, a strong indicator this could get done by the end of the year. If they have to wait until the week after thanksgiving in the senate, it would delay the reconciliation process but it still keeps them on the timeline for getting it done in january. Hurdler 8 is a political in the way as they have to ever a Government Shutdown and has a partial Government Spending bill to avoid a shutdown. Tom thank you to our chief washington correspondent. Richard haass with the council on Foreign Relations and fairly describes his Public Service to both parties and in particular in his work on Northern Ireland. His important book is the world in disarray, which links back to what people talk about, fiscal integrity at home. You have lived catch reform and tax regrets, will we blow up and tax cuts, will we blow up our integrity . In washington seem to care about the size of the deficit and the size of the debt. Entitlements are not considered and people not looking at this. Go back to the taxcut story. The idea you would take health care, the most controversial subject, democrats just won the Virginia Election in part because of that. You introduce it to the taxcut legislation makes zero sense. It kills any chance of getting democratic support. It overly politicizes it. To have Health Care Without a mandate makes little sense. Tom the desperation, the idea we need 300 some billion dollars to plug the fiscal hole you are in next for non. It is the wrong place to raise money. There are other things you can do. This is the one thing that will probably blow it up. Francine do they know this . Can they work on it . Of course they can as you have two different versions being worked. It seems to me, i was talking to democrats and the chance of some type of bipartisanship on tax reform is not impossible. This would make it impossible. Francine it is not impossible but is it improbable . What is the possibility it will get done before christmas . I think that is low. Republicans need something to show for themselves and tax reform is the best bet but this reduces the odds it will get it and slows it down. Tom we look at experts, this is a fabulous summary from the Tax Policy Center of the gossip of when the senate face this problem in 2001, as solved it by allowing the tax cuts to expire after a decade, which took the government to the brink of a physical cliff. She also says, they do not need to pass a bill to keep in Good Standing with their voters, they needed taxcut to keep in Good Standing with their donors. You have lived this, raising money for cfr. That is all this is about raising money . Also a sense that talking about the tax cut, people feel we are not growing at the rate we can. A legitimate case to cut Corporate Tax rates. There is a consensus on that. The consensus breaks down on the stuff we are talking about this morning. Tom Gary Shilling will be along with us. Let me tell you about another moment on Bloomberg Television today, she is the senator from West Virginia in a bind with this legislation. The senator from West Virginia in 8 00 our. This is bloomberg. Stay with us. This is bloomberg surveillance. Lets get to the Bloomberg Business . The Biggest Airline sale and indigo history partners for airlines from it430 emily. The deal is that almost 50 billion and its airbus the upper hand at the dubai air show her head been trailing boeing and orders. Where it has been trailing boeing in orders. Expanding internet advertising business. In germany, prosecutors raided v headquarters, and thus getting whether they had payments to the top labor representatives and the company and Union Representatives say the payments were illegal. L. Lega tom with us is Gary Shilling. And Richard Haass of the council of Foreign Relations. ,ets go to Mohamed Elerian shortlisted for vicechairman of the fed. All our viewers know is a centrist. Well commands respect, with his support he has garnered on capitol hill, in a position to help run some of the potentially damaging political tax on the fed. If we have a powell, Mohamed Elerian fed, do we have enough phd firepower . I do not know about that but powell probably wants a strong economist in the vicechairman position. He is not an economist. The fed has been dominated by the economists and it has been too much. Fed whoook at the believes in the phillips curve. They cannot understand why it is not working, in other words, inflation and unemployment have been coming down since the financial crisis. The idea of having somebody at the top who perhaps has more business orientation is better. He needs economists still. Tom i thought of you yesterday. It was chapter, book, verse with the central banker on phillips curve analysis. They are all still on that theory. They are, and that is the problem, they are too theoretical and have not said, what is going on . Tom why will rates not go higher . Because there is too much excess capacity in the world and too many people on a global basis. One of the problems of the fed, they look at the u. S. And say labor markets are tight, and forget about the hundreds of millions of people in india and bangladesh and vietnam. Tom that is what we talked about in the last hour. The idea of demand and supply dynamics and which wins. Francine it was an interesting conversation and i also spoke to mark gilbert and he suggested that what the fed it needs is someone from the real economy. Not talking about bankers or gary cohn, someone like jeff bezos. Do you think the fed composition needs to change to avoid groupthink . I was hoping they do change. We have had 7, 8 years of economic recovery and inflation is down. And bond yields are down over that time, treasury yields. It is telling you something. The fed is raising shortterm rates with no spillover to the long end. You have quite the reverse. There is honestly something going on. I think it is deflationary forces, which are very strong. The fed is not willing to accept that. Other central bankers as well. As tom pointed out, they said the same thing yesterday. A herd instinct. Francine richard, would this be the perfect time not reforming the fed or reforming Central Banks, but should we start from scratch in looking at the mandate and how you make up the fed . Tom that may works because Richard Haass is shortlisted to be a governor. [laughter] the fed is one of the truly professional independent institutions in this government and in many governments and the idea one was start a big process however right or wrong of i wouldar calls think the longterm independence of Central Banks in this country and other countries is something we should preserve. Any change should be done with caution. Tom i look at the world of Gary Shilling and the call of lower Interest Rates. It comes down to a potential gdp that is lower and a terminal rate that is Gary Shilling like i am trying to build you up but it goes to your world of where it is 1920s and 1930s like, in between where we could not get it going. Are you more optimistic . I hope history does not repeat itself. We talk about the growth of for sentiment in this country. You have a president who does not believe in free trade. The United States has walked away from the biggest single new trading framework in the world. That is one parallel to the past that worries me and will subtract from growth. Francine what is the next step . Is there anyway the Trump Administration can go back on promises they made during the campaign and embrace globalization in some shape or form . Could they, yes. Will they, no. No signs and the white house will talk about trade later this week. I see zero evidence the administration will rethink what is a truly misguided policy towards trade. Tom we have to can you down on your yield call. Whatear is coming up does it mean to you that the highyield markets rolling over and reaffirming your one year, five your call on rates . There was a very tight spread between junk bonds and treasuries. We have not had much in the way of defaults in the highyield area. You now have venezuela, a wakeup call. Probably a return to rational tom what is your yield call . 2 on the long bond. Tom 30 year bond. The long bond is the 30 year bond. We need a translator for Gary Shilling. This is what we love about surveillance different animals looking at economics and International Relations and we continue with Richard Haass and Gary Shilling. At an important update from francine on what is going on in london with the debate over the eu and the United Kingdom. Coming up on Bloomberg Markets sheila bair. Stay with us. This is bloomberg. Good morning. Francine this is bloomberg surveillance. And theiro zimbabwe president Robert Mugabe visit to step down after being in power for almost 40 years according to news 24. This is as the countrys military seizes power after conflict with Robert Mugabes government and they have promised to keep the president and his family safe. They say he is confined to his home but otherwise fine. With us is Richard Haass. When you look at zimbabwe, i do not know how the timeline or the timing is important. This is a country and army that has had enough. Only 30 or 35 years too late. He has been there only president since independence and has destroyed the fabric of the economy and the society. This should be a thriving country but is a destitute country. The good news, hopefully the. Obert mugabe era is over none of us can be optimistic about the future but at least there is a chance that the stranglehold he had on his country is over. Band as not a oneman he had supporters. If people will tolerate this for 40 years, what makes you think successors will be better . Oldike i said, out with the and the history in africa is uneven so we will see. Tom the idea is he is 93 years old, a dictatorship of a long tenure. Who is the sphere of influence . I learned this on the council of Foreign Relations panel. Who has influence on zimbabwe . South africa the principal in terms of external. I do not know enough about the internal dynamics about what is likely to emerge. He has poisoned the political cultural for four decades so i cannot be wildly optimistic but at least he is finally gone. In. Cine let me jump 95 unemployment. How do you fix that . You will have to have a massive economic transition. You will have to stop the corruption on the scale you see. Almost they start over. A rare redo. They will need International Help and create an environment where people will want to come back to the country. They have had a lot of flight of human talent with no investment. You have to start over. Tom we look forward to this in the coming weeks and months. Richard haass at the council of Foreign Relations. Coming up on bloomberg radio, Dennis Gartman. Returns. President it will be an eventful final part of the week into next week for the president , after an interesting trip. We will touch on this in a and trade as well. Our crack Geography Team said, you do not know what you are talking about. Stanley fischer, the former vice chairman of the fed came from northern rhodesia, which is zambia, not zimbabwe. That was my mistake. We thank mrs. Fisher for emailing in. She does know what she is talking about, taylor riggs. Taylor Senate Republican leaders are hoping the third time will be a charm for obamacare as they try to end the individual mandate to pay for deep cuts in their tax overhaul bill. It could calculate pavlyuchenkovas in both chambers. Senate republican leader Mitch Mcconnell is looking at replacing roy moore if alabama elects him next month. Mcconnell says hes did not run due to allegations of sexual impropriety. Mcconnell has discussed the idea he iselling moore if elected and having Jeff Sessions appoint his old senate seat. Russia is not convinced opec needs to decide this month to extend oil output cuts. Russia Still Believes it is too early to decide, but there is disagreement over how long an extension is needed. The current cutbacks expire in march. In the u. K. , Prime Minister theresa may is set for a showdown over brexit with members of her conservative party. He says the law would force britain out of the e. U. And hundreds of other treaties, even if there is no deal on a trading relationship. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Riggs. Ylor this is bloomberg. Tom very quickly, target showing the retail challenges, out with earnings. It is an earnings beat. I am not really sure what to make of that, but, sales are extraordinary. You talk about , sales are extorted comp sales are extraordinary. Target showing the challenges of retail across the nation. With us is Richard Haass, a student of trade dynamics and Gary Shilling, who really full the annex into the economic equation. Ambassador, lets get to it. Tom friedman was brutal and the New York Times as quote in terms of the great criticism of the imagery of this trip without much substance. The president went out and showed that asia still matters. What we do not know is what if anything might have been accomplished on north korea. That will unfold over the coming weeks, but other than that the substance was negative. The United States isolated itself, not china, distanced itself from their principal trading ally in the region. Has your Washington Office black and white photographs on how the cfr started, things lessons from world war i and world war ii. Are we going to induct the tensions because of a 0 trump mercantilism . We are going to hurt americans regardless. We are going to forfeit the opportunity to set certain roles , forfeit the opportunity to. Orce china to come our way instead, they will have their own alternative trading packed and will try to get people to go their way. We are doing this to ourselves. Something we have negotiated was not perfect, tpp was not perfect but it is a much higher baseline. Francine at the same time, when you look at the president s trip to asia language was softer than it couldve been. Not on trade the speech he gave at the apex conference was a reprieve of the inaugural america first. Any trade agreement ties your hands and you get others to tie their hands. The only area i thought he was a bit softer was on north korea. The trip was filled with distractions about russia, the criticism of former intelligence officials, and the last stop with the philippines, the idea that an american president would cozy up to a thug like that who has been associated with thousands of extrajudicial killings, what does that say about the principles that ought to inform american foreignpolicy . Francine when he went to china and talked about the trade deficit he said there was a huge problem but it is the problem of my predecessors. It is not chinas fault. Which again was a mistake. There are real problems with china. We ought a about false transfer of american technology, property theft, chinese subsidies. There are structural things to address with china, so the problem is not us, it is what china is doing. Tom you have a great diplomatic cadence and i believe you called a leader of one of our great allies a thug. How do you explain Human Rights Violations to someone that you call a thug . If i had to go to the philippines for a multilateral meeting i would have said you not agree to a bilateral meeting , or if you are going to have a bilateral meeting with somebody te, hydraulically and privately send the message that the United States disagrees. Tom i understand mr. Mnuchin was in washington with a tax game. Where was our secretary of state within the deep tax apparatus . That was a joke. He seems more concerned with the dismantling of his own department than with aspects of american diplomacy. I do not know if you told the president to go ahead with this meeting. I would have argued against it. Francine breaking noise news out of Deutsche Bank. The german lender which has been struggling for quite some time to stage a turnaround, has attracted a new top investor. We do not know the identity of the investor but we know they own around 6. 8 in Deutsche Bank. That is being held through Morgan Stanley. We probably should assume that we will know the identity of this investor in the next couple of days. There is speculation at the height of the crisis for 9, 10he bank, maybe 8, months ago it would be someone from the gcc states, it may be somebody completely different, but i would keep that in mind. Tom to be super clear, because i saw a banner go across, not that it was confusing but to be clear, this is not Morgan Stanley with a 7 holding. Francine the investor stakes, the secret investor stakes are being held through Morgan Stanley. We know so far the composition if you look at the biggest shareholders there is chinas hna, the qatari royal family and blackrock, and we understand this would be somebody new. Tom may be alpha computer does not know what to do with their cash. Apple computer does not know what to do with their cash. That was a joke. Gary shilling with us. You write a detailed 20 page memo with lots of charts and you always have china, you always have trade. You have done threepart s8s threepart essays on china. Gary what do you think . It was more a ship what do you think. Gary it was more of a show will flag than anything else. The thing about china, we have probably given them a tremendous advantage in trade over the property. Intellectual the interesting thing is if you look at the u. S. In the wetworld war ii period, basically allowed the rest of the world to revive at our expense, and that was a bulwark against communism. That is no longer applicable. It was cheaper than garrisoning u. S. Troops around the world. Tom i love having you here. We took George Herbert walker bush on the pacific. He was the last one out and there were one or two other pilots in the water that we knew would drown, and we have a president in china telling us past president s screwed up our relationship with china. You worked for George Herbert walker bush. How did you react . I never like it when an american official goes abroad and criticizes other americans. Where we perfect with china . No. I actually think there is a legitimate criticism that the United States allowed china entry into the wto on terms that were to generous. We wanted to integrate china and we did not hold them to hire enough standards. Tom Gary Shilling and ambassador haslinda says, we will continue. Much to talk about today, and your morning briefing in your car. Bloomberg radio, sirius xm channel 119. New york, boston, san francisco, and washington. This is bloomberg. Taylor this is bloomberg surveillance, i am taylor riggs. Just breaking in the last year minutes, Deutsche Bank has attracted a new top investor whose identity will be probably revealed within days. Is investors stake reportedly held through Morgan Stanley which reported holding 6. 86 yesterday and the lender. Germand of unicredits candidate is the leading candidate to be the next ceo at deutsche. Theodore weimer would replace carson can get her as the german at the german exchange. He is stepping down after becoming embroiled in an Insider Trading investigation. Hisen buffett added to stake in apple and reduced his ibm holdings. Berkshire hathaway bought another 4 million shares in apple and the stake is valued at 21 billion. They kept trimming their shake in stake in ibm. That is your Bloomberg Business flash. Francine thank you so much. Another day and another challenge to the u. K. Prime minister. May seems to be heading for a showdown with her own party over her plan to write the date of brexit into british law. Dominic grieve said he would vote to stop the proposal. A brexit bill faces a second day of detailed debate. With us is eddie buckle. I have a million questions for you. What should we be asking ourselves now, whether theresa may can survive, whether we get a transition deal in december . What is the main thing you want to know to find out whether this will be a success . Eddie the comments yesterday underlying the difficulty she is going to have getting her legislation, this flagship brexit will through parliament, we are at a very early stage and we are not going to be coming to any key votes for maybe another couple of weeks. Yesterday underlined that there were maybe 10, 20 of her own party who are definitely willing to vote against her demand that they set a brexit date of march 29, 2019. That is something she has proposed recently, something she may have to go back on if she wants to get this will through the comments. Francine how weak is she . Can she survive until christmas . Eddie she is very weak but she can probably survive. Other Prime Ministers in past, James Callahan and john major have been in week situations with slim majorities or no majority in parliament. She has a majority on some key issues with the help of Northern Islands democratic irelands democratic unionists. She may have to give up something on this brexit bill to get it through parliament, but there is not much appetite for a leadership challenge. They do not want to be in a contest between a remainer and a brexiteer to further emphasize the split. Tom you dealt directly with Northern Ireland for this nation. How do you run a Border Crossing between ireland and Northern Ireland, given the United Kingdom leaving europe . That issue has been coming up again and the issue is if and when brexit goes ahead, do you have to resurrect some sort of border . Do you give Northern Ireland special status . There is no consent on this. It is just one of the 86 ways this was not thought through and this is a debacle, not for europe but for the United Kingdom and it complicates the future of Northern Ireland, which has not had local government is editions for about a year. Institutions for about a year. Tom how does our brexit team frame for the weekend into next week . And is the core theme you Emma Ross Thomas are working on . Eddie the end of next week, that is a long time away. Harold wilson said a week is a long time in politics. It is hard to know where the next difficulty for theresa may will come from. She has had to lose two key. Inisters in the past 14 days she has actually gone a week without losing a minister now. Who knows what the weekend papers might bring in terms of new problems for her government, because they are living from crisis to crisis at the moment. It is just hanging on. Francine is there something she can do to regain control . I do not know if there is an ally in the government or outside that she can count on. Eddie she needs to get as many of the tory potential rebels on board as much as possible. That may mean smoothing the wording of the bill. The government has said a are willing to listen and will be listening to debate in parliament. This bill has got another seven days of debate to go, and it will be spread out over quite a few weeks so there is time for the government to change things, except amendments, reword amendments. She has time to play. Tom ambassador haleys . Richard we now know the russians were involved in the brexit vote and what this is going to do i think has further raised opposition to the outcome. I am not sitting here forecasting any revival of the serious remain issue, but i think the russian involvement almost like the meddling in our poisons, will further the political environment of brexit and increases the odds this continues to be messy and it ends badly. Francine we also have some news with venezuela possibly signing a restructuring deal with russia. Eddie, thank you so much. At a buckle and Richard Haass here. Gary shilling also stays with us. If you have questions about venezuela, russia, or anything in between, just email us. We will get to that in a couple of minutes. This is bloomberg. This is bloomberg surveillance. Coming up shortly is daybreak americus. What are you most looking forward to . Are obsessed with tax reform and particularly the senate where a have such a narrow margin and every single senator counts. We will talk to the senator from West Virginia who is for tax reform but is most concerned about the middle class. I want to ask her, how will that work when you say you have to give up health care for tax refunds . Tom it is quite a surprise. I am sure that will be interesting. Avid westin how about a single best chart with breaking news and headlines, venezuela. Now, russia says they have agreed 3 billion they have agreed to extend that debt and there is that word, restructuring. The single best chart paints a picture of the angst and the market. Venezuela, we come down to . 27 on the dollar. Richard haass with us and he has the luxury of shannon no kneels shannon oneills expertise. We cannot help them given the economic sanctions in place so anything they do will have to be with china and russia directly. This is not the paris club. It is offline because of the sanctions. Francine richard, what does that mean if russia plays a bigger role in venezuela, is there a linkage to how Foreign Policy in the u. S. Needs to adapt . Richard the real question for us is whether we up the sanctions. The we introduce the oil others to joinet in . I think we are probably moving in that direction. The real question, china and russia, both have considerable exposure in venezuela, do they essentially pick up the slack . If they step in for the international market, that is my prediction. Francine what exactly is the Trump Administrations Foreign Policy dealing with south america right now . I do not know if you can hear me. I was wondering how you see the Trump Administrations dealings with south america, whether that is a hindrance or advantage. Gary i do not know that it will make a great deal of difference, but one of the things about venezuela that interests me is oil and whether they have got enough chaos in that country but they will end up shutting down. They have the biggest reserves of any country in the world but have obviously mismanaged it. If they get into a chaotic situation, does it shut off that as a source of oil for the world . Richard i would say if the administrations policy is something of a hindrance, the president s comments about intervention in venezuela isolated us. The overhang over everything is nafta, what this administration will do and it is possible in coming weeks or months you will have this administration pulled the plug on that. Of commerce talked about american leverage over mexico and canada, that we can. End them to our will on nafta those kinds of Public Comments increase the odds this negotiation does not succeed. Francine Richard Haass, council on Foreign Relations president and Gary Shilling, both will join tom keene on radio. Also on bloomberg radio, Dennis Gartman at 8 30 a. M. In new york , 1 30 p. M. In london. I am looking at the markets, a clear risk off mood. Stocks are declining globally, oil down, euro gaining, and gold advancing. This is bloomberg. Jonathan they risk off wave leads through financial markets, Global Equities retreat. Deutsche banks john cryan finally get some good news, the german lender attracted a new top investor. Investors wait for u. S. Cpi. With tradersash over whether inflation is poised to move higher. , i is bloomberg daybreak am Jonathan Ferro alongside david westin and alix steel. A mild risk off tone ripping financial markets, futures a little bit softer, down by one half of 1 . Yen strength and euro strength, the euro on its sixth straight day of gains, up for tens of 1 . A bull flatten or in the treasury market, the 10 year yield down for basis points. Alix steel, it has not gone missing, crude starting to crack. Alix