>> burberry shares plunge as retail sales miss estimates in the company warms of lower earnings or a second straight year. bank of america swims into profits but guide monahan says jobs will go. the economic data around the world brings the odds of a rate hike to a record low. good morning from our european headquarters. i'm francine lacqua with tom keene in london. tom: it has been a quiet couple

days. francine: it is all about the fed, and those odds about them hiking just got that much lower. tom: but i would also suggest it is about the real economy. john norman joins us from bank of america merrill lynch. this is a real economy discussion filtering in. francine: let's get to bloomberg's first world news in new york. isnie: president obama pushing back his timetable to bring americans home from afghanistan. the white house is expected to announce today that they will keep at least 5000 troops there 2016.2016 according -- the taliban and has stepped up attacks since the u.s. ended combat operations in afghanistan left december.

more problems for volkswagen. they see some -- they face a mandatory recall in germany after cheating on omissions tests. regulators rejected their proposal for a voluntary callback. at majore delays airports across the u.s. last night because of a computer used for terror watch lists. the outage lasted 90 minutes. authorities don't think it was intentional. donald trump has a new target -- bernie sanders. after the debate, the republican front-runner says that he is a "socialist communist" pushing clinton to the left. >> i watched her to the -- s he has to give everything away because this maniac that was standing on her right is giving everything away so she is following. that is what is happening.

they do share certain positions -- they both rail against the influence of money in politics. report says that the london skyscraper rose 11% in the first six months of the year. london is now the third most expensive state to rent office space, tied with tokyo. the most expensive is hong kong, 67% more than the second place of new york. you might have to move down a lever. tom: we are sleeping in the park under the theater pan monument. it makes central park look cheap. good morning. francine: good morning, tom. tom: i will be here to order is -- this is great. we finally got a day to check that works. francine: we love data checks --

let's have a look at currencies. tom: futures are up 15, equity markets disassociated. a lot of company news with burberry. i would go right to the bond market -- a 10 year yield right now is now under 2%. the bloomberg terminal -- you can see it in currency markets, the dollar-yen i would go to more than anything. omics, and he will be visiting our headquarters in new york and a week ago he was talking it up. you can't do abenomics with a 118.39 yen. will be joined by mitsubishi in a while to give its perspective. francine: great data check. tom: my data check is real simple, folks. bloomberg is great in london.

francine: there you go. joining widely -- blocking thank you for coming on. we will talk about the data checks in a second, but carson, you put a note out 50 minutes ago saying that the stock prices down -- why are you shorting it? arson: we are shorting it because it is known at this company, as well as the stands, centrally asia, that it has some problems. but the problems are actually far worse that investors seemed understand. this relates to widespread corruption that has occurred in pretty much every single one of its markets, which was operating in central asia. francine: do you have evidence to back that up? we have spoken to the spokesperson -- he says they are

trying to be as open and transparent as they can on all issues. carson: i take issue with that. that is part of the thesis here. has muchpresume, better information about what has transpired then it is given the markets. francine: you have evidence for this? carson: we have a list of payments that were made in numerous countries, that in many ways make no commercial sense. the is totaled about 2 billion u.s. dollars. we think there is a good chance that these are corrupt payments. it is impossible to say which ones are corrupt, but we think telia needs to provide a lot more information to investors in order for them to make decisions. francine: carson, so that all of our viewers are hearing -- it fell 3.3%. if the price decreases, you make money off this.

carson: yes. sure. tom: you make a lot of money on do you take -- positions shorting before you announce the securities research? are you in the shorts as you come on that set this morning? carson: yes. we are always very clear that we research companies, take positions, and communicate our views. tom: but you took the position before you disseminate the research. do you think that is fair trading? is just a most doing that? -- is jim stables doing that? carson: we are activist investors. tom: fair. carson: short-sellers given a much harder time for what they are trading -- tom: you are going to hell, that is what the world bank's. -- the wolrd things. carson: people blame shorts.

tom: you are speaking to two other major auditors. it has been deloitte -- tom: are you saying on the balance sheets there are issues of good and bad well? carson: we think that write-downs could approach. if the company were going to be intical as an accounting the past it could approach to $.5 billion usd. francine: there is also an investigation going on. tom: is this fair play? i think it is great, the research you have done, you have worldwide acclaim, but is the process of what he is doing appropriate to come out with the disseminated research somewhat after taking the short position? >> he is putting his money where his mouth is, and i think that

is totally fair. what he is saying to the public at large is there is a problem, we think there is a problem, we are battling our view by trading in the marketplace it being very transparent. i see nothing wrong with that. do you have to stay outside the united states because you are worried about regulation? carson: not at all. wet to explain the bar that have to clear with every single sentence that i write in a report, i assume every time a release a report that i could be looking at civil litigation from the target company and that i will be dealing with the hostile regulator. i have dealt with regulators numerous times, usually my approaching them. i would never characterize anyone of those interactions as hostile. i haven't been too bad. it is a very high bar. have never met anybody doing

equity research for charitable purposes. my model has a lot of turbulence. there are the legal issues that come up when companies sue -- not takingn sachs is positions, they are doing security research -- look, golden for the privilege of sitting in between, the public and the market, they have to segregate research from sales and trading. tom: but you are not segregated. carson: no. francine: that's clear. james: we should also talk about what is not moral, the corruption -- the public are -- or conversely, he says you should buy these shares --

be --ould francine: i want to try and understand -- know how many shares you have short right now among you and the clients you have. carson: first of all, we don't have clients. this is internal capital. we don't talk about our actual size. drancine: do you hold -- woul you look at shorting it because carson is here telling us that we should? carson: i find the short -- james: i find the short selling process difficult anyway because there is a risk that you can buy a company going down in price and be taken out. new management can have a whole different outcome. tom: are you going to have a field day in the commodities space? if you see commodity balance sheets, the next six months, will that be fun? carson: i think we should differentiate from other

commodity traders. the way that our research process works, we are not taking macro views. i am not directional on commodities. i focus on companies that are not being transparent, or that are misleading, if not defrauding, shareholders. francine: and you have done a lot of work with china, in these chinese companies, that had questionable results trying to reverse. we will talk about china next. tom: we will talk about the challenges that china is facing. later today, david blanchard will join us, formally with the blank of england. the markets haven't moved to a lot to talk about, but particularly the real economy. stay with us. ♪

tom: good morning, everyone. tom keene and francine lacqua. vonnie is in new york and she gets us started with a business flash. vonnie: netflix hit a speed bump, reporting third-quarter u.s. subscriber growth missing estimates. netflix is making the introduction of the new chip taste debit cards. they can collect from customers who hadn't updated their account information, which led to a bigger than expected turnover in subscribers. tesla begins distributing autopilot software for its model s electric car. it would help drivers stay in their lanes or change lanes for them. it would also allow them to park themselves. drivers will still have to grabbed the steering wheel every 10 seconds to keep it from slowing down. luxury goods maker burberry is forecasting profit lows to drop for the second straight year.

falling sales in asia. they get more than 30% of its revenue from chinese consumers. that is your bloomberg/. -- your bloomberg flash. francine: we are back with james you cannot with the news that you are shorting a stock and talking about corruption. we knew that there were some challenges after a law firm took a look at corruption accusations but this isught -- not enough. you say this goes further. we haven't been able to independently verify it they are selling it off, so why do we care. result basically, as a of how widespread the problems are, they are not going to get that much money for these businesses they are divesting. backing up, distant vestige or

seems to be a knee-jerk reaction. it was announced the same day that a swedish journalist announced she was publishing a ia.k on telly a so -- even if they did do something wrong, they are now getting rid of it. and they have new managers in charge. carson: it's an interesting point. they have announced that they will continue to make dividend payments to certain highly questionable parties and altered by john -- in oz or by john. i think they could end up paying settlements in excess of $1 billion. tom: those are very important allegations, and if you look at allegations -- those are serious allegations. how will the company address your allegations question mark what will they look for? carson: these allegations are

not new. there is a investigative journalist who published on this starting in 2014, and now -- tom: you had it didn't view on the company. carson: do i expect them to react? hopefully they will. we are calling on the company to be significantly more transparent, and the fact is if there are problems in the financial statements, and we believe there are, the genuine to publish accounts that have not really -- tom: this is important. on financial statements, which line item are you most concerned about. is it a question of revenue recognition or a balance sheet? takere looking for them to major write-downs against what appears to be very constructive potential. carson: most of it is coming from these eurasian businesses. are going to be able

to receive when they sell these eurasian businesses is a fraction of what is implied. in addition to the fact that because of its structure it is consolidating it as though it owned 100% of it, but the actual number is much smaller. they will probably get about $2.3 billion for this, a fraction of the value implied. an ongoing business or is it lump sum payments that are coming out of these nations? carson: they have to repatriate the cash in order for it to be real. they have had problems both in the pol and is pakistan getting cash out, and that, we would argue, is a function of a business relationship. francine: we spoke to the spokesperson in the last 10 minutes, and we need to make sure we give their side of the story.

they say they are trying to be open and transparent them all issues. we will talk china next. up, the head of rate strategy joining us. ♪

francine: this is bloomberg "surveillance." we are looking at live pictures from hong kong, where it is cloudy but hot.

we are back with the muddy seller,ounder, a short -- is it more difficult to make money for selling in this environment? carson: yeah. i mean, a lot of times, people are leeward in by valuation charts. when you have an environment where there is lots of money ,lowing into get these bubbles they can be very enticing -- that is very difficult. with china specifically, it has been difficult to short china because you ask yourself -- where do i short equities related to china? isg kong, the problem there there has been a lot of stock manipulation. i have called this the biggest pump and dump in the history of humanity in aggregate terms. a lot of the stocks have very small floats and have been pushed well above the billion. mainland china are putting

people in prison for shorting their so we probably don't want to do that. francine: you have made a lot of enemies in china, but also a lot of money by going after chinese companies. are you now more welcome now that there is a 90 from campaign? carson: i see this anticorruption campaign is being cosmetic. i think it is a ploy to consolidate power and i don't think things have changed. bloomberg has done stories on the wealth of the president's immediate family and it seems to me that this guy is the cleanest liver. james: when i look at chinese economy, i find it difficult to get economic growth -- the official numbers, 6.5% comes in percent, where are you? just a field -- are you at my

level around 2%, or normal level? it is different. --son: i would -- the thing the headline number, i would be more in line with 2% of 3%, but it is the quality of growth. a long time, 20%, 25% has been going into what i call excess waste or inflation in a bubble. inflation growth is probably flat. tom: thank you so much. next, we will speak with the bank of tokyo mitsubishi on a stronger yen. stay with us. ♪

francine: this is "surveillance." let's get to bloomberg's first word news. vonnie quinn is in new york. vonnie: america's longest war

will now last beyond president obama's term in office. the administration has pushed back the timetable for a withdrawal. u.s. troops will stay there after 2016. the white house will make the announcement today. the reason is stepped up attacks in the taliban. the residents had hoped for all the 1000 troops to come home by 2017. the u.s. will send 300 u.s. troops to cameron to fight the militant group boko hoar aam. they have killed thousands of people in neighboring countries over the past few years. investors want -- they won't have a combat mission, they will conduct intelligence and surveillance. in israel, hundreds of soldiers are on the streets to settle a month-long outbreak of palestinian attacks. eight have been killed this month and 31. palestinians. that the newd

security step will make matters worse. isn't as bearish as someone it comes to oil. we were told that there is less than a 50% chance of it falling to $20 per barrel. he sees it rising to $60 by the middle of next year. >> i think it is important to look at the near-term to medium-term. think about the more near-term issues facing the market has demand out of the emerging markets that have been substantially weaker than what we initially anticipated. turn to supply from low-cost , evens -- all surprising against our aggressive assumptions. vonnie: those are your headlines. tom: as you can see, $20 per -- no misses the idea of one is on that but certainly here at west texas intermediate,

crude is $49. it's a good time to speak with derek on foreign exchange and particularly on the linkages. did they -- do they have soap operas in england? francine: they do. . am: the drama gives me to stronger yen. you are with bank of tokyo mitsubishi -- where's the brightpoint for mr. abe? where does abenomics begin to unravel? derek: first of all, you can just pick a number -- you also have to talk about the speed and the general volatility. if we that into context, were to see a rapid move toward the 110 level, i definitely think that -- certainly rhetoric and some uncomfortable feelings. tom: eyewitness the wall street journal emerging-market spread -- the basic idea of speed of

movement. are you seeing first and second derivatives right now to get you going toward instability or is it just annoys? derek: if you look at dollar yen it has been incredibly stable where broader markets have. points i am highlighting to my customers is the potential risk that the , itsese yen could take on old characteristics of being a safe haven currency. it is interesting to see that. francine: and we also have this great story -- one of the best analysts whose foresaw the bond markets, saying that the yen could go to 100 in the first quarter of 2016. that would be quite wrong. derek: i don't agree on a level that far, but i think the offset -- if it does take on safe haven

characteristics because of a huge expansion of the japanese surplus this year compared to we stillyears, but have substantial capital outflows in japan and since the beginning of 2014, it has been 21 trillion. tom: can you be a global investor right now with the dynamics that you have? james: i think you have to be. you don't understand where deflation is coming from or where it will go. norman suggested that the united states is the big domino -- are they immune from the discussion? james: i certainly see a bifurcation, with the relatively strong domestic economy. abenomics, i would argue, the significant evaluation is essentially tempting to take business from other players in the region. francine: right, but on that basis, they aren't going to work. james: we have never had

adequate closure on the third area. we have not seen companies come to the table and say we want more shares. francine: of all the great financial experiment work, yes or no? i know we are waiting for time, but at the end the day, we have had it for enough time to be able to make a call. worry is that the whole reason behind it is to tackle the size of japan's debt to gdp. there hasn't been in my opinion much of a focus on tackling the long-term fiscal structural deficit and by that i means tackling social security payments which will continue to widen significantly in the coming years -- difficult decisions. tom: can you still do and fx carry trade where you buy one short the other?

or is the shell game of a couple years ago over? carson: the differentials are not as they were so i think one of the reasons the euro has performed so well is that in the first half of this year it was a very attractive currency. it was a great attraction and you're using the euro -- in using the euro. now that is reversing. tom: what is so important is the idea that the yen reverts to being the litmus paper for this. francine: we also go back to the idea that there is a danger in europe if it continues going higher, that we will be the next japan and get stuck so it doesn't go anywhere. that is not your scenario. james: i do think one of the interesting features is very much of volatility adjusted carry trade. volatility has come down again i think it will back off. is there someplace where

the bank of tokyo can help me make money so i can get cap fair? b fare?fai james: well i would go long japanese yen at the moment. carson: we could easily get to the lows tom: -- i think that is a good enough call. but don't expect the taxi driver to take yen. francine: we can try. tom: where will he be in five years with this experience of domestic risk? are in aell, if we situation where there is failure at that point i imagine it would be difficult to last beyond that. thatnteresting thing on point is that his approval rating very recently had just

turned negative. if we see continued failure on it could certainly be difficult for him to last. i wish we had more time. let's come back and talk about it. francine: derek help any stays with us. --next, the president talking german yields and the fed. this is bloomberg "surveillance, " streaming on your tablet and phone. ♪

francine: this is

"surveillance." rose, and this is, as the market speculative, the stimulus boost from the european central bank. let's bring in hans verno. it seems like we are in a risky situation where the fed doesn't hike this year and we are stimulus,more simila but we are seeing a filter through the real economy. hans: well, the ecb has hopes moreits qe program gives inflation that it actually did. i would not be so pessimistic because the core inflation rate, which takes away the influence -- this isprice, what the ecb alternately wants. francine: are you concerned about negative yields in europe?

hans: yes, of course. world. somewhat strange i think we have already gone beyond the point where the zero low interest policy is useful because it artificially drives that asset prices and keeps them to high. even in america the earnings ratio is very much above the long-term average. the world has to learn to operate with normal interest byes -- one cannot postpone simply putting the interest rates to zero. give us an update on what intellectual leaders in germany deal about the will to keep europe together. adamant thatn

there is a reason of politics to go through the monetary exercise -- you really push against that. update.an more germany of course has incense and moving toward the euro as a- a united long-term goal. for the time being that means the same thing and that is the difficulty, so all these bailout programs that have been done in the last few years, through the -- and the rescue programs and now we have the refugee accepts where germany every two days as many refugees as britain promised to accept until 2020.

germany has difficulties to ask for solidarity in europe, and there is very little solidarity at the moment. tension quite a bit of between the fiscal demands on the one side and the unwillingness to participate in the refugee crisis. tom: thank you so much. a great skeptic on the future. let me go to u.s. the ugly american here. i look at the front covers of the british newspaper and you see in immense tension between the u.k. and europe, but the same tensions are within europe as well. this will this be after for mr. draghi. carson: there are clear economys -- the running

has a ragged difference to each other and yet not a single fiscal authority. the real european agenda ultimately has to be a single fiscal authority and therefore -- tom: are we anywhere near their question mare? -- i think i am inclined to read the fragmentation that currently exists. there is a narrowing of the differential versus the court, so you could argue that there has been some improvement, but overall you are still looking at a lot of difficulties. francine: i want to pick up on something that he said. he said that because interest rates are so low that means it is difficult to have a controlling function to

differentiate between possible -- be askingshouldn't central banks to play the part for government and that is what happening. they don't have the policy -- francine: right. they kept us together so far. james: i would say italy has surprised very positively. they hunt reveled a lot of red tape that strangles the entrepreneurial vigor of the italian people. and there is good news coming out of spain. it is not a gospel of desperation. tom: you both see relatively good news coming out of the united states. the walmart shock yesterday, the challenges of the fed, disrupting great work. carson: the retail sales figure -- it was weaker than expected, but the reaction of the market was exaggerated. report yesterday, we already knew that personal consumption fell so far. goods back in the

september, perhaps it is 2.5%. you have to look at the four quarters on average, average person consumption to 3.3% quarter on quarter, the strongest since 2005. the consumer in the u.s. is doing well. tom: but we are buffeted by the news and the walmart bombshell -- hold that thought, we will talk with james bevan. derek will talk rugby as well. john norman will join us. stay with us. ♪

tom: good morning, everyone. francine makua and tom keene. francine has advised me to stay away from vivian westwood. it will lighten my wallet. i am watching that carefully. she looks great in vivian westwood -- let's go to vonnie quinn in new york. vnonnie: it would look good with the platinum blonde. today of -- began trading

after the biggest ipo of the year in the u.s. the company raised less than it wanted. first data's owner didn't sell any of its stock. 27had taken ftc private in -- 12,007. plans a 67% increase over the last fiscal year. that moreloomberg sales to women are the key. it says that the women's business will more than double in five years. is claiming the high ground in the airline rate hike. it says it will be the first carrier to offer free high-speed internet access on all of its planes. all planes will be wi-fi capable by this time next year. so you can't work on the plane home this time tom but maybe next time. tom: anywhere you go now -- you

have wi-fi. you do it better here than we do. francine: let's talk luxury fashion. andl with us is james bevan derek helalpenny. burberry is disappointing but this has nothing to do with the brand. they have huge exposure to china and not enough in japan. james: the other issue is that they have tried to diversify their books. not a word on other goods whatsoever. francine: we have a chart -- we like a burberry chart. you will give us the mark -- francine: this is when he left the company. she was succeeded by the creative director. the share price hasn't done so badly. there are issues about whether he is creative enough or if he takes enough risk.

if you grab burglary burberry and looking at that charge, what do you do? -- i: the key plus points think the share price will rally hard. we need to know what the company is a strategy will be. 20 times earnings doesn't leave a lot of room for error, and i think we will see a significant markdown. tom: you know whether it is london or new york, it is about asian tourists -- they are feeling poor. there is a demonstrable view that the asian consumer is less consuming. that filters into the world. carson: i was in tokyo earlier this year, the monumental numbers of chinese tourists in these top brands -- right. theese at home don't have means to purchase the genuine products. going somewhere like tokyo, where it is a lot more attractive -- tom: anecdotal here, i was

no onean acquisition -- in the store spoke english except me. francine: burberry stores here -- one of their big selling point is they have a lot of chinese leakers and they will do it on the ipad, and they are digital. tom: have you been in walmart? francine: i have. tom: have you seen a blue light special? francine: they need to become more e-commerce friendly. tom: we will cover this in the next hour. james bevan, what a shock to see the extent border confront amazon. walmartthe news from mor -- we knew for a while there was going to be a big shakeup. i do think that walmart will be a winner.

i worry about target now because that is in the copout. the commitment to raise wages and have bigger store openings i think ultimately is a sign of the times. i think it will succeed. tom: we were talking with carson earlier about the income statement -- if you look at walmart's income statement, amazon is all about unit growth. -- can they take elements of that style? james: walmart is indicating that it is not intended focus on floor format anymore. i think that will ultimately drive a better consumer experience. francine: what is your favorite retailer? luxury, high-end? cheaper? and, where top margins can be sustained, where there is not an overly aggressive expansion program. francine: top end. that is where we are.

tom: scarlet fu -- good morning, scarlet. she is costco. i heard the walmart news -- i thought it was stunning. we need to say thank you for james bevan and derek for a wonderful conversation. james norman will join us in the next hour, and gilles moes as well. thank you. we will be back. another hour of london. ♪

tom: it is the new normal for

walmart. bentonville enjoys higher wages. a failed strategy against amazon. the market vigilantes tell janet yellen to look well into 2016. the yen is stronger. the dominoes are following. big domino may be the united states economy. good morning, everybody. this is "bloomberg surveillance" from london. i think it is the world headquarters. don't let everyone know. with me is francine lacqua. francine: we are watching bond yields. tom: i was watching aberdeen. aberdeen. francine: we are talking a lot about yields. we are talking about the ecb and stimulus. she doesurgeon says not rule out another referendum on the independence of scotland.

when david cameron has no opposition, it seems like risky business. tom: i'm reading about queen and of 17 -- anne of 1703. francine: perfect. tom: nicola sturgeon. we need to go to vonnie quinn in new york. she has the first word on news. vonnie: thank you so much. president obama is saying that troops will stay in afghanistan past 2016. a white house announcement is planned today. afghan troops and police are having trouble controlling the taliban and al qaeda. vws have thed 2016 cheat software. recall is ordering vw to

nearly 2.5 million cars. for the second time this week, a computer glitch delays flights. checkseral program that passengers' names against a terrorist watch list crashed. donald trump is: bernie sanders a maniac, even though they share some political positions. he slammed the presidential candidate yesterday. >> i watched hillary. the poor woman, she's got to give everything away. this maniac standing on her right is giving everything away. she is following. among other things, they both rail against the influence of money in politics. we will see whether the mets are the dodgers will face the chicago cubs.

the blue jays were the first team to win a five-game series after winning the first two games at home. they will play for the american league title. mets thatg to be the are going to win. talk about is the "back to the future" prediction. tom: it is great for baseball. baseball has gotten boring and to see some new teams, the shock of the kansas city royals and the chicago cubs, lots of new teams and faces. fors plus, plus, plus baseball. let me do a plus, plus data check. futures are up. many other markets are soggy with the weak real economy news around the world. exactly. 2% turning over the

last few days. the german 10-year with a negative statistic. it never goes away. francine: it doesn't. hans werner sinn was saying this will have an impact on balance sheets. startt has been a soggy to the week. john norman fell asleep at the desk at jpmorgan. [laughter] tom: we have had terrific fun this week talking to some of london's best smart minds on economics. withntinue that this hour j.p. morgan chase's head of norman.mmodities, john ethan harris is that bank of america merrill lynch. these are two bright minds to lead the discussion for us.

you both agree on a new terminal value. there is this grinding down to the new-new. in the european and u.s. economy , is that a single digit world for investment returns when you look at the new lower single digit world of economics? >> well, i hope not. what i still hope in my side of the equation is that we will get enough support from the central bank to upset the fact that the economy's real signals are getting on the soft side. if you believe that qe is a bubble making machine and that is how it works, if we get qe2, then you could continue to have another slight disconnect between where the real economy is going and markets which would continue to be supported by -- ,om: within the disconnect john, you see so much of the linkages and correlations of the market.

how tight is the correlation of the market? >> within currencies, a lot of the correlations are breaking down. are also breaking down somewhat in commodities because you have different supply development. we are seeing quite a bit of d correlation across markets -- de -correlation across markets. francine: gilles, how much do you look at politics? tom: we just heard from donald trump. francine: oh yes. certainly, there is political risk. how do you model it? >> those risks have changed a lot. what we had six months ago was about the backlash from years and years of low growth. things have changed. what happened in greece was a

very interesting experiment, in a way. i think it has dented the narrative that the left was offering throughout europe in greece, spain, also in portugal. when we have radical left movements making inroads, the threat to the eurozone is becoming less existential because they are changing their views. they are focusing less and less on the economy. of a nationalmore nature. you are mentioning catalonia and scotland, but it is not so much about how the system works, how capitalism should work in europe, that was more of a conversation six months ago. tom: i look at the domino theory that you have. how much is janet yellen central banker to the world? frontys have been way out with ellen zentner.

of the newdea terminal rate, that is a big domino in the united states. >> it is a huge one in terms of currency markets, for sure. you think about what has been driving the dollar. it is the prospect of interest rates going up. the more dovishness we hear from yellen, the more distant that prospect of rate hikes seems. it is a big deal whether they are going up and three months, six months, 12 months, or never. francine: this is about the south korean yuan, everything every trader does every hour. are we putting too much focus on it? >> not over the short term. this is the big issue for q4. if you think out six months, 12 months, if the fed is on hold, what kind of world is making the fed so dovish? you could still get movements up

in the dollar, down another currencies even if the fed is not part of the picture. there is stuff going on medium-term. tom: what is your confidence level if you look at an equation of all of this? .here is just noise what is your confidence in your call right now? >> it is low. tom: thank you. >> when we look at different drivers of markets, there is very little visibility on some of the issues. you are getting an inconsistent message from various fed officials. when you think about china, there is very little visibility on the rebalancing process. my confidence level is low. francine: what about you, gilles? we look like we are in the binary markets. >> that is the issue. the market needs to decide and it has very few data points to decide that. if whether or not what we have

is an air pocket, mainly due what is going on in the em. maybe we could have some technical delay from the fed, we could have the ecb giving us a small form of qe2 and the market can be happy with this sort of environment. or what we have is not an air pocket and it is headwinds. this is why the market was so hit last week. we had the first signs that it was not just about manufacturing. tom: i want to get on a house call very importantly as we go to the notoriety of citigroup global. is there a sense of global recession out there? >> i would say the risks are rising. you are starting from a perspective of imbalanced growth across economies. there is not a lot of cushion for shock.

tom: what is the official bank of america called? >> we are not there. we think there is definitely a softening of the data, especially in em. we have been building consensus for a while. , we think it is a number of headwinds. we are resigning into a sense of the fact that we are losing momentum. at the very least, for europe, it is clear to me that what i was hoping is that we would have this sort of acceleration or momentum that we are losing. tom: very good. later today, i will speak with david blanche of dartmouth college. look for that. we will talk to mr. blancheflower about rugby and austerity. "bloomberg surveillance." ♪

francine: this is "bloomberg surveillance." i'm francine lacqua with tom keene in london. here's vonnie quinn in new york. vonnie: thank you so much. netflix has hit a speed bump. it says many subscribers did not update their accounts and the company could not collect on them. tesla is starting to distribute autopilot software for model s cars. it keeps drivers on course and helps them change lanes and helps the car park themselves. burberry predicts profit will

drop for the second year in a row. falling sales in asia is the problem. they get more than 30% of revenue from china. i didn't know if either of you knew, but ernest shackleton wore burberry when he went to antarctica. tom: i did not know that. thank you so much. burberry struggling as well. what are we going to do now? francine: this is the main issue. the slowdown in the world's second-largest economy. joining us now is our chief international economics correspondent. hike areof a rate going lower and lower by the day. ofwe saw comments this week real angst intention within the heart of the fed. francine: we have a chart for you for the odds of the fed rate hike. tom: a surprise chart.

there is the probability of the december meeting. we were sitting in the saint ago -- how years close are we to sweat within these international institutions over the decline in the real economy? >> i certainly think there is some concern about what is next. there is not a crisis situation, but there is a feeling that they don't have a complete grasp on what is next. the other worry is do you make the mistakes of hiking and coming back? every major central bank that has hike it's the crisis. -- hiked since the crisis. francine: if you are the fed, are you concerned about credibility? is reversing the end of the world?

>> if you have to do it, you have to do it. you have lost a bit of credibility. your communications power is undermined. yellen wants to go when they feel they can go and carry on through. increasingly, you are talking ewert a later move and fw hikes following. tom: i will put this on social media. bring in this killer quote from simon. bond traders are betting on the weakest outlook with inflation expectations lower than where they were before the fed and its major counterparts began their last round. 52% of bonds yield less than 1% and 15% kerry rates of zero or less. rates of zero or less. this was not in the textbooks, was it? >> no. tom: what has been the impact of

steve major's call? thatthink it maintained consensus quite a bit over a long period of time. agoou had said five years to look at the size of the fed balance sheet and look at whether interest rates are, a lot of people would be panicking about inflation and high yields, but they never got that traction. tom: deutsche bank had a killer chart out on twitter yesterday. francine: yeah, that is the reality. tom: we are getting this a lot in america. yield curves. francine: i like it. i like it. simon kennedy. tom: the article is great. look for it at bloomberg business.com. francine: coming up tomorrow, we are joined by barclays head of fx strategies. this is "bloomberg surveillance." ♪

tom: good morning, everyone. "bloomberg surveillance." we are thrilled you are with us. many different views here. francine lacqua and tom keene in london. a different angle of hong kong. we will get there about 9:00 a.m. new york time. for the morning must-read, we go to new york and vonnie quinn. tom.e: yes,

i picked an op-ed from "the financial times." we know that institutions don't have to look at the federal reserve. with the mosts recent declining relative influence of the world bank and bank hashape of the changed. it needs more money less than it needs a new mission. tom: absolutely. this brings up the dartmouth connection. , this is theflower big headache at the world bank. francine: i was actually talking with the head of the aiib and this is a bank that the u.s. was for a long time

and now they say, we thoroughly welcome it. china wants to be accepted. easier make it possibly to see how we should deal with china. it seems that china wants to be closer to the world. they want to be taken seriously. do we need to give them a hand in welcoming them so that we also get what we need from china? which is a country's skewed toward consuming. >> definitely. the ecb was on a fact-finding mission to assess what the chinese were about. it is all about this transition. whether or not this transition can be done without going through an air pocket tom: we have a new trade agreement here. i go back to stiglitz's

globalization and discontent. what is the view on globalization? your bank is hitting on all cylinders right now. it is an international bank. what is the new globalization that you see? >> i think we would proba globa, what might sport growth -- for growth going forward. it might be a global version of immigration. these things might lift growth on a structural basis. we are not seeing it very quickly. we are not very optimistic on how globalization plays out. the things that would be important and helpful are not really evolving. francine: you also need regulation to handle any kind of systemic crisis across the world. when we look at the u.k. banks being under pressure, whatever we do, there is more globalization, you need a common voice. tom: you are exactly right, francine.

it seems like we are getting back to every nation, every bloc for itself mentality. >> idle think we are coming back to that, but that we never really left that. it is just the case that for some years, between 2008-2012, we were so synchronized with our interests, that we managed to have economic policies that were remarkably similar. this is changing quite a bit. tom: i need to play dominoes with john normand. coming up, delta on the american economy. it is surveillance and." -- it is "bloomberg surveillance." ♪

tom: we say good morning. "bloomberg surveillance." our first word news from the first word desk.

vonnie: thanks, tom. america's longest war will last beyond president obama's term. at least 5000 troops will stay in afghanistan until 2017. afghan troops and police are having trouble controlling the taliban and al qaeda. about 300 u.s. troops will be sent to cameroon to help fight islamic militants. boko haram has killed tens of thousands of people in nigeria and neighboring countries in the last few years. u.s. troops will help with surveillance and intelligence, but not go into battle. secretary of state john kerry is headed to the middle east, hoping to diffuse violence. violence between israel and palestinians have taken 40 lives in recent days. rentsstest-growing office in london are around the highest

in the world. london is now the third most expensive place to rent office space, tied with tokyo. the most expensive is hong kong. which costs 67% more than new york. ft yesterday. congratulations on them for the memo yesterday. the amount of money coming into francine, there is no equivalent in the united states. francine: i will give you the spirit of london right now. there are not going to be higher rent prices for skyscrapers if the u.k. leaves the eu. tom: it is very different here. certainly since the beginning of the crisis. we did not talk dominoes in 2007 or 2008, we talked survival. of now it is the linkages

the global economy. john normand joins us. john, i love your allusion to dominoes. do they tip over in linear sequence or is it going to be an ugly domino fall? >> they have been moving in a linear sequence since 2011 when chinese growth peaked. -- was followed by the peaking of a lot of asset prices. now, global equities. it is not a foregone conclusion that they all fall over, but it is certainly the case that a lot of them are wobbling and the gwen's and the most important one wobbling right now is u.s. economy. tom: what is your thinking in the research on how they follow her stand up? -- fall were stand up? >> it is all about the underlying leverage issues and imbalances in the economy.

the u.s. is pretty good odds of remaining upright simply because the household sector has deleverage and the corporate sector has large cash positions. you do not have the underlying fragility you had in 2007. i think it is way too extreme to bet on u.s. recession. you can bet on weaker growth or delay to the fed hikes. ,hat is a big market event certainly for bonds and for the dollar. s, do you worry more about this domino effect or external shocks? this could be a china hard landing, bad loans, or another credit crunch? >> we have two separate brands of risk right now. one clearly comes from the outside, at least from the european point of view -- we are looking at the signals we are getting from em, from the u.s. demand, as well. those are well quantified and identified and we can see how

they are materializing in the data. the other form of risk is how our domestic machine is operating. i would say that we don't really have a problem with real growth in europe. we have been doing ok for the last two or three quarters. we have a problem creating this transmission from real growth to co-inflation. that is what is missing. if you are at the ecb, you are looking at the external shocks and you are looking at the domestic economy and you are thinking, growth is ok, but we are not at the point where we gentrified -- generate interest rates. tom: that fiction of negative interest rates -- friction of negative interest rates, can it be solved? >> i don't see the point of raising rates simply to get off the zero bound. tom: ken rogoff of harvard agrees with you. >> are we just in an indefinite

period of central-bank delays in the states and what does that mean for asset prices? francine: do you worry about bad loans? lagardeand christine have said that the fed needs to wait. >> the reason the fed would wait is because of the absence of inflation and managing the external risks. francine: are you worried about bad loans in emerging economies? >> yes, that is certainly the forced by with -- which growth is going to be lowered. as a globalties price went to the dollar to some extent. commodities, stability up or the breakdown that some predict -- fuld in commodities into the dominoes standing right now. , i'm going tohand give you conclusions. on the one hand, it should be neutral.

we are seeing that quite nicely. we have a very good propensity to spend this commodity price. the problem is that when you are so close to the situation of zero or negative inflation, any kind of additional negative risk .ecomes a big issue , there is the qe sentiment that if we allow asset prices to adjust themselves to where the fundamentals seem to be, we are going to get into trouble. we need to generate a situation where asset prices are going to be above where the perception of fundamentals what happened to be. if you are a struggling country with a lot of debt and inflation falls and the dropping prices

feeds into long-term inflation, then the problem you have is that the erosion of real debt falls. that is why you need to give us some extra. tom: we will continue this conversation. also, john normand with us from jpmorgan. tomorrow, a great supporter through the financial crisis desk carl weinberg will join us on high-frequency economics. look at that on 11:00 a.m. in london. this is "bloomberg surveillance." good morning. ♪

tom: good morning, everyone. "bloomberg surveillance." from

london. time for a single best chart. i haven't looked at this in a while. this is iron ore. down it goes. in london this week. everybody from new zealand is here talking about the collapse you see in commodities. -- in irhan an iron o on ore. which weight is iron or break -- way does iron ore break? >> i think it goes lower. tom: what is the correlation of copper and other us -- other industrial metals? >> probably 75%. tom: that tells me we are going to have a lot more angst. i knew you cannot comment on glencore per se, but it comes over to a regional balance sheet toustment of anything having

do with minerals and hydrocarbons, right? >> we are seeing that already in the news flow from australia. we are seeing that from latin america. the question at this stage is who is the most exposed to the lack of demand? job isancisco blotch's most exposed. it is a joke. [laughter] >> i think it is it -- it is an interesting discussion. e.m.,have a problem in the thought was that it would be a problem for europe, but if you look at the metrics, the u.s. is quite exposed. if you think about the dependence of companies like canada and mexico, this makes it a real issue on the trade links for the u.s. germany traits quite a bit with china, but the rest of the e.m.

world matters slightly less to us. francine: when you look at commodities and we go full circle back to inflation, how much do we know about what is driving inflation lower? we say this is energy prices, but is it only energy prices? >> we know a lot about what is driving headline inflation. the core measures we don't fully understand. this is partly a function of understanding with the relationship is between unemployment and wages and inflation. when will it go back up? we don't know if we don't understand the correlation. we can expect them to go up a percentage point next year because of the basic facts of commodities. tom: did you guys, within your academics, you're in for a time where we move away from a core analysis and look at all inflation from topline and patient? this rationalization that i don't need to worry about

commodities in japan, set or a -- etc., are we going to drift away from that back to a topline analysis? >> in terms of central bank targets, they vary across countries in terms of what they explicitly look at. when they are trying to decide what to do with policy, i think they are looking at a dashboard and not just the one explicitly in the mandate. it is just that all the ones on the dashboard are quite depressed. tom: what is the behavior of the ecb right now? it is a new institution within the scope of the central banks we speak of. do they have confidence in their path? >> i think they are increasingly concerned. in the beginning of the summer, they were quite happy with qe and the way it was generating positive effects on the economy. i think they are clearly more concerned and the issue is not so much about whether or not we need to do more qe. increasinglyng

central. there is an issue of timing. there is an issue of what they would put in additional programs. the speakers from the ecb we have had lately are, in general, voicing a higher level of can earn. francine: because of what? because they are not managing to get euro lower? growth is weak. >> it is a combination of different things. i think that if you look at asset prices, qe has worked. if you look at growth, qe has worked to a large extent. it has helped rekindle credit creation in the eurozone. it is on this transmission from better economic situation to any kind of proper inflationary pressure that they have a problem. if you add to the mix some concerns about an acceleration in growth from where we are today, this is where the company is. tom: then the euro gets in the

way of that. the euro really gets in the way. >> certainly, a euro closer to parity would be a lot more helpful to meet the inflation. tom: can you effect or impulse a euro to that level? >> not if the fed is on hold. if the fed is on hold indefinitely, the euro is not going to parity. tom: that is a big deal. six months ago, they were telling us parity, parity, parity. francine: no parity. tom: parity. let's go to photos. vonnie quinn is in new york. what do you have? vonnie: photo number three, we start with baseball. the kansas city royals celebrated a their win against the houston astros. next up, they face the toronto blue jays. the last time the royals won the world series was 1985. i'm

telling you, it is such an underdog series this year. tom: it is wonderful. a lot of new teams. vonnie: they got off to a slow start. there they go. moving on. leaders -- may hit theaters in december, but r2-d2 is going to hit skies next week. airlines released three "star wars" themed jets. i'm not seeing too much r2-d2 echo there. we are sending tom to japan on his way to new york just the you can get on that plane. tom: get the confidence builder. next. vonnie: you will recognize this face. the london mayor travel to japan for a trade mission.

not quite sure what he traveled on. he did not pass up the chance to have a little fun. he went to a tea house and tried on shoes. he wants to secure olympic contacts from japan for london. that, is he al lame-duck mayor right now? is he on a victory lap? francine: we saw a picture when he was knocking over a 10 euro child while playing touch rugby. he is an ambitious man. if i were david cameron, i would be looking over my shoulder. he wants a top job. i don't know if he will get it. we understand it. tom: do i understand that james is going tois son run for mayor? francine: yes, he got the top ticket. tom: it just all comes around again. francine: i'm agreeing.

it does. should we talk about rugby? tom: goldsmith was in prison. francine: how do you actually model rugby or a boris johnson win? a brexit? >> it is one of those things that is impossible to incorporate in a normal model. was at theing we did time of the general elections, the actual proof, the actual conclusion of the elections will be on the brexit. tom: what you just saw there was an economist that does not want to talk about brexit. that is what we saw. david blanch flour will talk about brexit and breakfast. i need some more espresso.

"bloomberg surveillance" from london. ♪

tom: a touch of rain yesterday

in london, but it has been beautiful in october. we say good morning to you. francine lacqua and tom keene in london. i will be back in new york on monday. how about a forex report? we need to go only as far as dollar-yen. a real interesting conundrum of a stronger yen. you see that 1.17. we break through to new, stronger yen. i go on to sterling, as well, karen, if we could come approving i can't shop at harris today. -- harrod's today. francine: you are on air, tom. no time for shopping. tom: let's go to new york to vonnie quinn. vonnie: i think you need a burberry bowtie. offering wasublic the biggest in the u.s. for

first data. a revenue target of $50 billion by the year 2020. that will be 67% in its last fiscal year. they're counting on women to buy more sporting goods. jetblue says it will be the first u.s. carrier to offer free high-speed internet access on all of its flights. it will make its entire fleet wi-fi capable by this time next year. tom. tom: vonnie quinn, thanks a much. i've got to run off to radio, francine. what is the exposure, the leverage of derivatives off of notional value? is it anything like 2006 or 2007? or is it a more cautious or on leverage derivatives market? >> it has been reduced

substantially. that is not where the fault line is in the global economy. it is much more in the bank lending channels as opposed to derivatives. francine: tom is going to radio, gilles, what do you worry about the most? you talked about china, inflation, risk, political shock -- if there is one thing that is actually in your control and that you can model, it is inflation, the lack of? >> the lack of. tot is the biggest threat the credibility of the central banks. we are in a situation where we used all the conventional tools and we moved to the unconventional tools and if we cannot demonstrate that those unconventional tools can do the shift toen it may finding the limits of monetary policy and the conversation has to be on fiscal policy. in europe, talking about fiscal is always much more complicated than the u.s. francine: this is the warning

from the g 30. we cannot expect too much of the fiscal policy. ,he u.k. -- the pound is strong too strong for exports. the bank of england is stuck between low-inflation and not about labor market. >> the big issue for the pound is the extent to which the labor market will push up wages to the extent that the bank of england starts the normalization process. it is almost analogous to the situation with the fed and the dollar in the united states. tom: an interest rate hike here is going to come eight months after the fed moves? >> i think it is probably six months after. that is because there is a lower level of headline inflation for the next year in the u.k. >> we are in may, actually. it is conditional. with everything going to plan in the u.s. the domestict

problems, if there is a country where you could they, this is really working, the relationship between the economy is normal, it is the u.k. there is a strong case for normalizing here. francine: guys, thank you so much. gilles and john. , -- this ister "bloomberg surveillance." your tablet, your phone, and bloomberg.com. it is all about risk-taking on the markets. the fed will not be able to raise interest rates this year. ♪

stephanie: a bailout for perjury go? -- puerto rico? u.s. officials say no way. ♪ stephanie: welcome to "bloomberg ,go.." david: you had a parent-teacher conference. stephanie: those little desks, that notetaking. ask the questions on your own time. we are going to be asking and answering questions. who is going to help us do it? are bloomberg contributing editor