To the president ial election. The pound is falling through a three decade low against the dollar, mounting investor concerns that the uk is headed for a socalled hard brexit. This follows theresa mays weekend announcement that britain would trigger its exit from the European Union in the First Quarter of 2017. David our top story is the slide in the pound and the path toward a hard brexit. Joining us from london, guy , and inand jon ferro france we have caroline hyde. What is going on with the pound . Bring us up to speed on the markets. Is this all because of theresa may . Uy basically, we are a lot warmer over here now in the united kingdom. That is probably the message around the world. The town has been bubbled tumbling. We are back to levels we last saw in 1985. We were pretty poor them. It is not summoned to write home about. Financial markets believe we are going to be seeing a harder exit than had been previously priced in. The market has been pushing down toward a 125 level. You see the data. The market is very short sterling. It is happy to see it going down. But it seems to be the politics that have moved it. There may be an element of the fact that the chancellor yesterday indicated he would not be pushing as hard on the fiscal policy story as we maybe thought. Thetary policy might push pound lower as well. Theresa may said Uk Financial Services companies will not get special favors during brexit. The city of london versus the rest of the uk. Talk us about the dynamic in the market. This is a very different government we are seeing. What theresa mays closest advisers say is the city felt like it had a cozy relationship with the previous conservative government, with David Cameron and his circle. They really need to rethink that. What theresa may is tapping into a little bit is the populist sentiment of western electorates. People have had enough with bankers. It is good politics, certainly, to be hitting bankers over the head. You are seem to be very tough. The big question is this is a big gamble to take. She and her people seem to be gambling that no matter what brexit looks like, the city and the big banks will stay in london. It may be true, but it is a risk. Jonathan theresa may setting the stage for the united kingdom. How is the eu reacting to that . The president of the European Council said this is against its interests. What are we hearing from europe . Caroline they can see the hard brexit ball coming their way, and they are willing to throw it right back. You heard from the deputy chairman of the cdu, angela in germany,ty saying, you want hard brexit, you have hard brexit. No passporting rights for your banks. You also heard from the dutch Prime Minister, saying they hear from theresa may that this is a harsh line she is spinning. Im not only in terms of new passporting. They are also saying you cannot have prenegotiation. It is all about once you trigger that article 50. Then you can negotiate. Piecemealual, discussions before that march 27 deadline you speak of. We heard from lithuania, denmark, poland, sweden, the eu, all saying you cannot speak to us individually, because they are worried you will see cracks start to move within the eu 27 that are left. David the negotiation between london and brussels, where does the power lie . Yesterday, a Prominent Bank percent, do not be sure the ball lies on the european side. Europe may have more to lose than the uk . Therene there john is that view. You can argue that once they start the clock ticking in march of next year, you have two hours to negotiate the deal. Two years to negotiate the deal. Once that happens, the power will be with the eu. They can wait. They know the uk has to do a deal. Eu could go slow on the negotiations. The closer you get to the end of the twoyear deal, the argument goes, the closer theresa may will, to do a deal. The argument on the other side, the brexit side, is it is not in the eu interest to negotiate a punitive deal with the uk. Interests at stake. German carmakers, french Industrial Companies they want to do this. They do not want big tariffs imposed on the united kingdom. Asis not quite as clear cut all the power has to lie with brussels. Thethan for investors, brexit concern reignited. Sterling weaker. Straight out of the gate, the bank of england, the only institution with conviction. What does this mean for them . The consensus was another cut. Are we still there . Guy probably not. We will get Services Data tomorrow, which is probably the most important component of the uk economy. For the moment, the economy seems to be doing very well. The reason could be a significantly cheaper pound and Single Market as access. In some ways, the british economy has the best of both worlds right now. This is what the bank is trying to do. It is trying to assess whether it should deliver more Monetary Policy early in the process or save it for later. At the moment, the data are coming through fairly well. That has surprised many people, including the government of the bank of england. David thank you so much. Lets get an update on headlines outside of the business world. We turn to emma chandra with first world news. Taxes theld trump focus. Hillary clinton ripped into him over a report he may have paid no federal taxes for years. She said he represents the same rate system he claims he is trying to change. Trump boasted about the way he is the tax code. Businessman and real estate developer, i have used the tax laws to my benefit and to the benefit of my company, my investors, and my employees. Brilliantly e i have brilliantly used those laws. Trump also said people who make the mistake of underestimating him are in for the biggest surprise. No one is expecting fireworks in this debate. The Vice President ial nominees, tim kaine and mike pence, square off tonight. The debate is being held at the Longwood University in virginia. Kaine and hence are considered two of americas most mildmannered political figures. You can watch the debate live on bloomberg tv. Hurricane matthew may be catastrophic for haiti. The storm skirted jamaica but has started to hit southwestern haiti with lifethreatening wind and torrential rain. Haiti is the poorest nation in the western hemisphere and is still recovering from its deadly earthquake that hit in 2010. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. This does bloomberg. Relatively flat in the u. S. , but in the uk you have a monster rally on the ftse, sitting around record highs. Uk bank stocks also moving significantly higher. Hsbc up 2 as well as royal bank of scotland. Part of this is because they get a lot of revenue from outside the uk. The weaker pound actually helping uk bank stocks, as by the fact that Prime Minister says banks will get no special they undergo brexit. Moving to Health Care Providers in the u. S. Cvs pharmacies will be removed from the tricare network, which services u. S. Military and families. Getting a downgrade this morning by Credit Suisse, saying other Health Care Providers like walgreens will lose business now that cbs is out of that tricare system. Pandora getting added to violence over at goldman sachs. Significant upside to subscriptions for premium radio plans. Pandora up over 4 in the premarket. But it is brexit in the pound really moving the markets. Jonathan the ftse 100 just points away from an alltime high, with the cable rate down to a three decade low. The dollar an exclusive interview. Cleveland past president said the case is probably strong for a november hike. We are joined by the Fidelity Investments director of global macro. Jonathan from new york city, im jonathan ferro. Attention on Financial Markets in the city of london, with the cable rate at 1. 2764. You can take it all the way back to 1985. We dropped through the postbrexit low. We have not been here since three decades ago. Equity the story in the markets. Futures in the United States marginally positive. The ftse much higher, up 121 points, and almost at an alltime high as we blast through 7100 for the first time in 16 months. Alix the other big story is, forget the summer. How about a november rate hike . Member who dissented last month said the november hike should not be off the table. Investors spoke to Kathleen Hays in an exclusive interview. Kathleen i thought the case was compelling to take another step on the path. If the day to come in consistent with my forecasts over the medium run, i would expect the case would remain compelling. Of course, we are going to look at all the data that comes in between now and november. Alix we are joined by jurrien timmer, Fidelity Investments director on global macro. Is november on the table . The fed mayhink have missed an opportunity in september to wrestle away control from the market. It is like the fed has a dance partner with the market, and they both want to lead. And the fed wants to lead, but the market is leading because the fed is concerned about financial conditions, so they to the cede control markets. That is the dance we have been in. Alix today, we have a dollar index over the 200 Day Moving Average. Dollaryen continuing to rise. We have fiveyear breaking Inflation Expectations starting to move higher. The underlying data seems to point to a Stronger Economic condition. Jurrien and the december probability is about 60 for a hike, the highest it has been in a while. A year ago, in december, when the fed did go, it was about 70 . The fed, in all likelihood, is going to go. Whether it is november or december remains to be seen. Going into the september meeting, the burden of proof is on the data to be Strong Enough for them to go. It was not, because we had the payrolls and the isn. For december, the burden of proof is for the data to be weak enough for them not to go. 4i16,nt to lock one in it is still later than they thought at the beginning of the year. I think it kind of set the market up for that inevitability. Jonathan the ftse 100 going through a record close on a closing basis. We bless through a record high. The intraday high is another level to account for. The Federal Reserve and the they seemight now to be running the show, saying there is an asymmetric risk. If you want to cut off upside risk, we cannot respond. The Downside Risk if they do becomes real. Is that going to be the argument for the next six months . I think in september, the reason they did not go i think they could have gone if they wanted to was this asymmetric Risk Management approach, we like you said it is much easier to fight inflation than deflation. I do not think the fed wants to go through the negative Interest Rate conversation. They are in do no harm mode and we do not have enough growth. At 1. 4 is growing percent. Earnings growth in the s p is negative. It is very hard for Interest Rates to move higher in the absence of both. We have a disproportionate impact on market valuations. ,f rates go up without growth the market becomes overvalued. The market goes down. You get back into financial conditions, the unspoken third mandate the fed is stuck with your. David does that mean the fed is caught in a squeeze . A president from cleveland sees potential inflation, and we have to keep ahead of that. On the other hand, gdp keeps getting revised downwards in terms of growth. We do not see underlying growth. Isnt that a squeeze . If we someday i am not saying we will. If we get into a stagflation environment if you look at brexit and the localization movement, we might go there. Then, the fed will be caught between a rock and a hard place, cause its dual mandate is low inflation and price stability. If they get higher inflation without the corresponding growth, they have to choose. They are sort of in that mode now. They look at phillips curve models and say, we have to normalize policy. The market does not seem ready for that happen. Alix there is the big risk that if you see a pickup in inflation, what does that do to Asset Classes . The u. S. 10 year yield and world equities are moving together for the First Time Since june. The risk of course is that if you do get inflation, you do get growth, the market is not expecting it, you could get a washout of both equities and bonds, a temper tantrum. Is that the beginning of things to come . Jonathan with traders long everything and volatility low, the worry is that people have bought up leverage to a level that it is going to bite in a big way. Do you subscribe to that argument . I do nothink think the market is overly leverage. Theour point, alix, interplay of growth and rates is important. I want to discount i am on a discount cash flow model. If you say the 10 year goes up 100 basis points in yield without Earnings Growth, the market will be 20 overvalued. But if the 10 year goes up 100 basis points at 6 Earnings Growth, the market would still be 10 undervalued. To your point about growth getting hotter and inflation starting to run with break evens going up, as long as there is growth to correspond to rising inflation, i think we will be fine. The fed normally does not have any problem raising rates, because usually when they are, the economy is overheating. And nobody really cares about rates going up when there is enough growth to offset it. There is the absence of growth and the pressure to push rates up that is giving the market these taper tantrums we have been seeing. David is there too much complacency . Volatility has been low, equities, debt, Foreign Exchange. If there were a turn up or down, what is the exposure . Jurrien if the term is up, if we finally get escape velocity, which is a term we do not really sure about anymore [laughter] [laughter] like i said, i think it will be fine as long as the growth is there. We look at Earnings Growth, to q3, there are green shoots there. It is still negative, but less than it was last quarter, which is less than the previous quarter. If we get a return to nominal growth, i think the fed will have much more of a green light to go. I think the markets will be fine if that happens. Jurrien timmer, Fidelity Investments director of global macro. Thanks for being with us. The one andt is only Vice President ial debate, down in farmville, virginia. What should we expect, and how much will it matter . That is next. David this is bloomberg. You are looking at washington, d. C. The Vice President ial debate will be in virginia, but they are going to be trying to move to washington, d. C. In january. Mike pence and tim kaine debate in virginia. They are facing very different challenges. Megan murphy joins us to tell us what we should expect. We have to say this is against the backdrop of a fairly extraordinary week for mr. Trump, leading up to the tax debacle, or what he thinks is a genius play. How will this affect things . Megan it will be interesting to see how governor pence handles this. We expect this to be a focus tonight. At least on the questions that come through from the moderator. Tim kaine is going to try to get them as hard as they can. World, this is an xml of what a brilliant strategist he is, being able to reduce his federal income tax. Loss in andn whether voters care about this issue has been hard to pick up in the polling. This will be one of the first times we will have to check that out. David who has the more difficult task, mike pence or tim kaine . Pence will be faced with the challenge of putting donald trump into he has always been the influence that moderates that influences the campaign. A speaker who comes across as folksy. He has a charm. He is across as a christian, a conservative. Gets family values across as well as a conservative economic agenda that was a hallmark of his time in indiana and congress. The challenge is putting the yin to Donald Trumps lessfocused message. Kaine, can he breakthrough . He does not want to make a mistake that damages the campaign. They are looking for him to not blow it tonight. David how close is the race . Bloomberg politics had a poll showing north carolina, a critical swing state, is not and that. Is neck and neck. Win statet is a must for donald trump. There are few paths to the white house for him without north carolina. He has kept his margin in ohio, another critical swing state, where it looks like he is still up 35 points. Since the national debate, where donald trump was considered to have a dismal performance, National Polls have widened. That is a big difference between the neck and the National Polling we saw going into that fracas last weekend, to what we see today. The signs for his campaign are that he really needs to close that gap. Been able to close that margin before. We do not have much time left until november. Card, johnson, could he make a difference in a close race . Megan we have a fantastic piece this morning that looks at that. What are the swing states that could make a difference . We are looking at colorado, new jersey, and even new mexico, where voters not attached to either candidate may go for a thirdparty candidate. David megan murphy is our Washington Bureau chief. She knows everything about politics. Senator tim kaine and indiana governor mike pence will face off in the first and only Vice President ial debate. Special coverage begins at 8 30 p