Independence and we are live for the tory party conference. We also have an allstar guest lined up, john fraher. Ellon we speak to jim mal on his new book. We are live in moscow, where john fraher will leave a Panel Discussion with Vladimir Putin. In the meantime, we have a packed data check. The dollar is slipping. Global stocks seem to be a little bit mixed. What all to do with investors are trying to figure out, who the next fed chair will be. We understand the president has a shortlist of candidates, but they all have very different policy agendas. You have some hawks, you have some doves and they are trying to figure out the most likely will get it. I am also looking at spain. Stocks are resuming their decline after the king criticized the catalonian separatists for unaccountable disloyalty. And if you look at spain, the nations bond yields are rising. In the meantime, we are getting breaking news out of the eurozone. Pmi is rising a touch more than expected. Predicted a rise were pmi services, 55. 6. This is for the month of september. They actually rose 55. 8. Well get plenty more data throughout the day. Lets get now to the bloomberg first word news with Sebastian Salek. Sebastian donald trump suggested the Government Debt accumulated by bankrupt puerto rico would have to be wiped clean. These comments came after a visit to the island, where people were seen without power and Drinking Water. Comments by theresa mays government are already estimating the reconstruction costs will be antias 106 2 billion. Theresa mays government are worried they will crash out of the eu without a trade deal. Time s stoking fears that will run ou t. David davis says he is still aiming for a good deal, but warned the country must be prepared. The u. K. s trade secretary says the eu and britain have made some progress on World Organization quotas after brexit. We spoke to the conservative Party Congress in manchester. The countrys constitutional crisis was weighed in on by spains king. Rajoytervention comes as is fighting to maintain control after 2. 3 million catalonian residents voted for independence. Irans oil minister has insisted that opec and nonopec members are working well with the agreement. Totalthink we have compliance. Of course, some of the member thetries and some of , compliance is not there. Sebastian global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im Sebastian Salek and this is bloomberg. Francine thank you. President trumps advisers gave him a short list of candidates to become the next fed chair. Alongside current you janet yellen and gary cohn, trump is believed to be considering mr. Powell. And now, gundlach has his own idea about who will be the fed chair. I think it will be neel kashkari, it was not a traditionally trained phd economist, but he happens to be the most easy money guy today. That is why i think he might win. Francine joining us now is alberto gallo. Great to have you on the program. When you look at the fed possibilities, i guess you have to put yourself inside the mind of donald trump and figure out whether he wants somebody loyal to him and that will most likely be kevin warsh. Or whether he actually wants a dove. What can we figure out in all of this . Alberto i think probably both. Candidates have been critical of the trump administration. View toomes down in our warsh or powell. The first is a bit more hawkish, could be candidates that would work in tandem with the administration. We are probably not going to have a Federal Reserve that acts against what the administration is doing, which means a very low turnover rate. Already it is at the lowest ever. Francine let me bring you over to my wirp function. Looking at treasuries. What i am concerned about is if you look at the probability of a hike this has a significantly been repriced in the last couple of weeks, and yet, you look at the bond prices and treasury yields and there has not been that much of a difference on how they expect the fed to make a difference. If you are the market and are expecting normalization, are you certain this will happen . Why dont the bond markets believe the fed is there to start normalizing and continue normalizing . Is, why the real issue are market so relaxed, especially in the long end of the curve . Maybe because they expect a few hikes. But they dont expect acceleration. They dont expect the terminal rate to go up. A very gradual normalization. We see a lot of complacency at the long end of the treasury market and a lot of carry trade that depends on the dollar. Emergingmarket currencies continue to be very well followed by investors. Francine what does this mean for bubbles . Alberto it means they are still floating in the air getting bigger. Our job is to distinguish w hich assets are overvalued, but still investable. Within the overvalued world, they are some assets that are dangerous for becoming bubbles. Francine which . U. S. Highyield, where spreads are at record lows, but companies are doing very exuberant things, like buying back stock that issuing dividends. Andike buying back stocks issuing dividends. All these things depend on Interest Rates staying lower and stable. Tit could be that we remain in a low Interest Rate environment for a long time. Some is a risk some that there is also a risk that some inflation comes back or that treasuries will rise and th is carry trade will be this rapid. Francine at this point in the economic cycle, does it work on inflation, or on gdp. Lets say there was a tax cut for 20 . Alberto it works on gdp, because it benefits the 0. 1 . We know that part of the population is not spending the money they get. The trickledown effect is a hoax created to perpetuate the idea of the american dream. You could get to the top of the pyramid and be happy. But the reality is, the more wealth accumulated in the 0. 1 of the population, the less gets redistributed because it some point, you become a harder. You become a horder. Francine when does it get repriced . Does there need to be a second hike, maybe early next year, for them to say, this low rate environment will not stay here forever . Alberto it could price a little bit more. What we are worried about, for the carry trades and the long end, it depends on Corporate Tax reform visavis a tax cut or fiscal stimulus. Will the economy be able to breach that 2. 5 growth, or are we in a goldilocks environment, where you have 2. 5 growth . For investors, it is very difficult because growth is good. Weve got a very nice recovery, but at the same time, most assets are overvalued and activity is pushed lower by Central Banks. Theres a few bubbles as well, so investors have limited opportunities. Francine alberto gallo, thank you. Stay with surveillance. Paris, where we speak exclusively to the chairman of bnp paribas. Also coming up, politicians and Business Leaders gather in moscow for Russian Energy week. President putin will be speaking during a discussion moderated by bloombergs Senior Executive editor, john fraher. This is bloomberg. Felipe viking criticized catalonian separatists for unacceptable loyalty. Looking for example, at the 10 year spread between bunds and spanish bonds, that gap is definitely widening. As we were saying, the spanish king weighed in, calling what the separatists are doing unacceptable disloyalty. He vowed to keep the country together. The catalan Regional Government has broken the democratic principles of every rule of law and have undermined the coexistence of society. The authorities have rejected this their irresponsible behavior, they are threatening the economic and social stability of catalonia and spain itself. Beenine bloomberg has covering the story with maria tadeo. What does this mean for the Prime Minister . Hes looking for allies. Maria i mean, this was just crucial for rajoy. The king stepping in is unusual. He likes to stay out of politics, but yesterday, he was crystal clear. He said, the Catalonian Administration has gone completely rogue. Its time to take action and that means national unity. For rajoy, who has come under a lot of pressure, it paves the way for the rest of the Opposition Party to back him up if he needs to take cover measures. The king stepping in and saying, this is not about rajoy or politics, it is a matter of state. A little breaking, we expect the wealonian government, expect the press conference to happen by midday here. We will bring you any breaking news we get out of that. Francine thank you so much, maria tadeo. Still with us, alberto gallo. Im looking at the spreads. If you look at the ibex, numerous performers are the spanish banks. The spread between the spanish 10 year and the german tenyear is widening. How ugly can this get . Alberto we need to understand how much is bolstering, versus real options. Catalonia is the richest region in spain, but real independence encounters a lot of hurdles. One, catalonia would not be in the eu, and they would have to pay part of the spanish debt, its portion. You are talking about a region that wants more economy. Were not sure whether there will be a declaration of independence. Then, obviously, there is the hard option from the spanish government, which could be triggering article 155, the suspension of autonomy, which has never been done before, with the potential for a lot more noise politically. A lot of investors and markets tend to focus on politics, but the reality is, economics are going really well, if you look at todays pmis in spain. They are still above target. We continue to see strong growth. This is not yet a breakup scenario. Francine what is going on in the markets . Im trying to figure out, there seems to be complacency when it comes to european Political Risk after the election of emmanuel macron. And then we had a small slap in the face for merkels party. Italy is next. Do we need to be much more careful about the unpredictability of european politics . Alberto idling so. Thinkis always i dont so. There is always a tail risk in europe. Theres always a home bias and a tail risk when it comes to the eurozone. The bigger the tail risk, the cap year i am because we have been taking the other side. Francine as long as they dont play out, right . Is it kind of like short volatility and short negativity that you like . Alberto that is not always the case because, if you look at afd, they won 13. 5 in germany. The extremist party, no agenda, but they are not going to be in the government. Ok, i agree with you. Theres a bad scenario that could happen, which is a le penne scenario that europe would break up. There, your to get have a lot of bad things that need to happen. The probability of catalonia getting ugly is now overstated by the market. Francine a lot of the indicators are showing that italy is on a better path and yet, you have the northern league, and then you have the unknown party. Alberto this year we have a 1. 6 to 1. 8 growth. We have nonperforming loans, which were the bottleneck to the banking system, finally declining. They went down 10 in one month, in august. You see a lot of demand. Politics have been stable. The reform pace over the next two years. Thats what i worry about. I think they will be a central Left Coalition and a central right, and a mix in the government, which will result in some reforms. My where is these reforms will not be enough in three or four years time. Francine bloodstock a little bit about the lets talk a little bit about the u. K. Concerns are growing over the potential brexit deal. Ministers are worrying the country could crash out of the eu as the two sides blame each other for the slow progress of the talks. The trade secretary says the eu and britain have made some progress in splitting World Organization quotas after brexit. As we leave the eu, we have to agree on methods of dividing up the quota britain should take. We have agreed on methodologies. That is a step forward. It is also a sign that we can make progress when both sides choose to do so. Francine is it more likely or less likely now that we crash . And seems once again, it is the conservative Party Infighting that is dominating headlines, and why the investors choose to focus on the brexit negotiations. Alberto the eu is about to make more offers to the u. K. These are contingent on freedom of employment for eu citizens. The issue is within the tory party there are two wings, a hardliner wing and a moderate wing, which are arguing about these issues. I think the hurdle to get a deal here is exactly within the conservatives, which have not been clear on what they want to citizens, and that is one of the hurdles, plus other hurdles like ireland and borders and so on. I think unfortunately, the party is not aligned, even though theres been some retracement by force johnson. By Boris Johnson. There is a lot of speculation that the Prime Minister might leave. Until these issues are clear, the eu might not feel they have a negotiating party to negotiate with. Thats the frustration. The best case is things get longer than expected, especially because the German Coalition government has not been formed. The worst case is there is a breakdown and we do not see this priced into the sterlingpound valuations. We dont see this priced by the bank of england. Francine is the only way to hrough the pound, or do you also look at gilts . Alberto we can look at a number of things. The pound had a strong moment in the last few weeks. In gilts, we think the bank of england is being a bit too optimistic. Its communicating to the market more than a hike. On the other hand, that affects the shortterm. In the long term, more fiscal spending will need to be done in the u. K. , both by conservatives, or by labour if they win. There will be a spending explosion in that case. Finally, consumers, consumer equities and Consumer Companies are going to suffer. Francine so, do you need to start pricing in the possibility of Jeremy Corbyn as Prime Minister . That would reshape economics in the u. K. , and make your job more interesting. Alberto i think you do. The u. K. Is priced when markets as stable. But there is a chance if we had elections today that Jeremy Corbyn would win. That means potentially more spending, higher taxes. It means more spending, further losses in the Credit Rating of the country. It probably means some people would be happier, the people who have been left on the sidelines. It probably means he would have more investment in education. It will cause an economic shock to the country. Shock is the economic it investment being pulled up to the, point where there is a recession . Alberto no, i think it is about spending and inflation and public debt, where gdp would go to about 100 . Country hit 105 in a where private debt is already pretty high. When you are talking about spain, it is going to be lower than the u. K. Public debt in t he scenario where Jeremy Corbyn wins. Francine what happens if there is a leadership challenge and Boris Johnson becomes the Prime Minister . Is that a shock to investors . Alberto i think it would increase volatility and what we have seen with the hard brexiteers, and particularly some elements of that party is there is a gap between reality and the policies they want to achieve and the numbers that they have. So, it would potentially continue to push forward the d ream of a good Economic Situation while consumers get hurt. It would delay the inevitable but at some point, the inevitable comes next year, when the deadline for negotiation hits, which is october. I dont think it is a good thing, it could just delay bad news. Francine alberto gallo, thank you so much for joining us. Are live in paris, where Jean Lemierre joins us exclusively to talk about risk in europe and Monetary Policy driving future growth. We talk a little bit about that ecb normalization. Later on, we speak to jim mellon. Then we speak to Stanley Fischer and of course, the panel with putin. It is a packed wednesday here on bloomberg surveillance. This is bloomberg. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. Francine good morning, this is bloomberg surveillance. I am Francine Lacqua. Donald trump suggested that the government accumulated by bankrupt puerto rico would need to be wiped clean to recover from the devastation from hurricane maria. This is after a visit to the island where they have been without power and in many cases Drinking Water since the storm struck on september 20. Some in the government estimating reconstruction costs as high as 60 billion. The British Government is growing concern it could crash out of the European Union without a trade deal. According to officials the blocks refusal to discuss a trade fact is stoking fears time will run out. Stilldavis said he is aiming for a good deal but warned the country must be prepared if negotiations fail. Insisted thatter opec and nonopec members complying with the