confronts the immovable force of deflation. children, andwo one free trade zone. the you want surges this -- the yuan surges this morning. hours ago, congress disposes of the budget measure. now speaker ryan can go trick-or-treating. it morning, everyone. this is "bloomberg surveillance tom: live from new york. it is friday, october 30. i'm tom keene. jon ferro, international news overnight. jon: japan unchanged, on hold. we know that. a different approach to the word "disinflation" and the effects of energy. the transitory nature of it going into next year, and the ecb unwilling to do the same. tom: you see the headline coming

across bloomberg hd, the idea of europe with 0% inflation or deflation right now underscoring where we are. we will have that as our single best chart this morning. right now we need our single best news. here is vonnie quinn. vonnie: rising 0%, a scary proposition. thesenate make sharing -- senate making sure the u.s. will not default on its debt. of $80ases budget caps billion over two years. hascentral bank of japan kept its monetary policy unchanged even though inflation is not going above the 2% target. oil prices fell in december for the second straight month. more than a dozen countries are wrapping up the most ambitious attempt yet to end syria civil war. john kerry was one of those trying to broker an end.

attempts to find a political solution has -- have been stepped up. after aees are dead boat trying to reach turkey sank overnight. -- the rescue came one day after the country's coast guard rescue 242 refugees after sinking. view when says 400,000 migrants, many of them from syria, have reached by see this year. china's territorial claims have been challenge for the second time this year. a u.s. navy ship sailed into the 12-miles own around china's man-made islands earlier this week. one of those islands may soon be the base for an airfield. a retail group says americans will spend $6.9 billion on halloween. tom: are you kidding?

upnie: the cost of candy is 4.2%. that is sugar, i believe. trick-or-treaters will be gathering goodies tomorrow night. tom: i have been ordered to go as a panda. bamboo., it is like whole foods had a thing of bamboo for me to chew on. vonnie: scary, tom. tom: let me do a data check and get to our chart. tim craig joining us from asia. right to the dollar-renminbi, if you would. on a friday, this is what gets your attention. usdc ny, 6.31 handle. that is strengthening in the chinese yuan. here is what you need to know. a managed currency -- china gives it up. appreciation -- d

valuation, appreciation -- the biggest move since 2005 of you on strength today. vonnie: we are getting all those headlines. offering up lots more. tom: there it is, off the bloomberg terminal. yen-one -- the surprising husband. tim, what is the free trade zone in shanghai? prada storehe and the chanel store put together? the shanghai free-trade zone is an experiment that was out some time ago, back quarters ago, and there have been various experiments that have been put in place through the free-trade zone, a lot of them financial reform, and the issue that came out today was a nod that they

will allow domestic investors to have more freedom to buy overseas assets. funny as it is, if you think about that, in and of itself, that was just more outflow, which would be negative for the yuan, but the idea is this is all part of financial reform, currency reform, which gives the ,mf reason to put it in the fcr which will create more demand for the yuan. a dumbt me ask you question for friday morning, and you are into saturday in china. has there d valuation been successful? the devaluation has been a long-term managed weakening. if you go back to where this started a couple of months ago, it is only 1.9%. backwardsce rallied 1.9.

it has been marginal at most. we think over the course of the next several years you will see more weakening, but it is not going to be a devaluation of 20% or 30%. tom: what will you focus on this week? us athe core for bloomberg intelligence is thinking about the big document that will come. case so far got a that emphasizes things like technology and innovation, environmental protection, the , ining shift in the economy manufacturing to consumption. figureill be a much seven documents that will come out over the next week or 10 days, and that is what we are looking to get our hands on, to see what is the more precise blueprint that takes off from the third plenum a couple of

years ago. tom: tim craighead, thank you so much for staying around in hong kong. bring up that chart again. this chart is so gorgeous. george got tears in his eyes looking at it. 2005 ofession from china depreciation -- do you notice how the red line goes through the middle blue circle? euclidean god. right through the second appreciation. wells fargo, and he tears up like i do. can they manage their future through their currency? george: i think they are doing a pretty good job of it so far. if you look back over the course of the summer, the big swoon in stocks was really led by the downtrend in fears about growth out of china.

the market seems to be clawing , backrom those concerns up to where we started. the currency is starting to rebalance, and other markets are leveling out as well. to take your allocation of credit markets in the united states -- take it abroad. when people like you throw out this word "liquidity," whether it is china or japan, or the challenges that europe faces in central banking -- is liquidity and issue? is the oil in the engine an issue? george: liquidity is an issue especially in credit markets. that is what central banks are trying to do, lubricate the system, accelerate the flow of money. the central bank in the u.s. has been successful in doing that. they were able to kick up bond market activity, loan activity that filters through to the economy. the ecb is trying to do it. the bank of japan is trying to do it repeatedly.

the chinese are doing it as well with more cutting rates rather than qe. but the cumulative effect of all of this liquidity is that it creates dollars and currencies that are being pushed back into the private sector. that is what we focused on, is how does that impact the ,orporate sector in the u.s. what are companies doing with it, and where does that money ultimately go? when i look at what is happening with credit, the last five years, an explosion in dollar-denominated debt, i see if we are i wonder about to experience a boom in euro denominated debt. is that the space you see in the credit market? markets havet different leads and lags. the european credit zone is probably six to 12 months behind the u.s. now. we have seen a substantial increase in corporate borrowing in the u.s., and i think it is

reasonable to assume that corporate borrowing ticks up in europe as we go forward, pushing down yields, encouraging lending has been a tenant of what the ecb has been trying to do. we have seen some of that come through as economic activity picks up. the need or desire to leverage up those earnings is going to increase. corporate europe will start to borrow more as we go into next year. that youcompanies speak to, where they thinking about the supply issue in the u.s. and are they looking at europe? is that something that you are seeing with those corporate at the moment? george: u.s. companies, very much so. if you look at the pattern of issuance this year, there has been a tremendous amount of euro-denominated that issued by u.s. domiciled companies. that was a pattern that was quite significant earlier this year. it slowed down a bit, but it is relatively attractive.

that is particularly true for international companies, for global companies. ande multicurrency revenues liabilities, tapping the euro market i think has proven to be a pretty attractive source of funding for them. and a way to diversify their traditional u.s. denominated debt. the wells fargo column, the 10-year yield, year out -- where is the 10 year yield? 4%? 5%? george: not quite. by the end of next year we are around 2.5%, 2.6%. tom: good luck with that. we have heard that before. we have to look at international economics and relations today with the news out of japan, and of course out of china. coming up from washington, ian bremmer's eurasia group -- nicholas will join us. we will talk about truly a surprise key announcement out of the chinese.

vonnie quinn in new york. jon ferro in london. "bloomberg surveillance." ♪

jon: this is "bloomberg surveillance." i'm jonathan ferro from london, tom keene in new york. this is the bloomberg business flash with vonnie quinn. vonnie: beer drinkers are apparently going for more expensive brands. premium beers are better than expected. a proposed takeover of sab miller by and has -- buy in bed by inof sab miller bev.

and a dispute about the future of air traffic control. membership ended its in america. the group wants to privatize air traffic control powers. everyone.morning, upstream, downstream, you know it is about hydrocarbons and makes for great cocktail conversation. there is a reality to knowing what you're talking about. has spent many years diving into not only the this ise minutia -- exxon in his report this morning. but also what they are doing within the dynamic of upstream and downstream. we are caught midstream with peter pulikkan with bloomberg intelligence. downstream is where all the glory is right now. you and i know that always ends in tears. are we going to have overproduction, a screwup in refineries again? peter: there is definitely a possibility for that.

the refining business has been bolstering all of these businesses. will really see pain is in the upstream business. that is where these companies have a massive funding gap. for several years their operational fences and cap -- their operational expenses and capex have been more than their balance flow. tom: where is exxon, down to the littlest guy you know, going to adjust their balance sheet? peter: march of -- what happens with the bike refinancing from the rollovers? -- the bank refinancing from the rollovers? they have great assets in terms of reserves, and a lot of these loans are based on reserve-based lending. the smaller players are cut from followthrough. you will start to see the pain

increase. we did not see it this time around, but coming into 2016, these companies are reaching the end of their rope. jon: i want to go really big picture and go back to 12 months ago, a shift in shenzhen from saudi arabia and opec to say we one volume, we want to keep it, we do not care what happens with price over the next several years. is that strategy in place still, or is it too early to say it is failing? peter: i would actually say it is succeeding. essentially what they are trying to do is push out higher cost offshorend expensive bases. what they are doing is working. where they miscalculated is that it is taking longer for them to push these players out of the market. december 4 is the next opec meeting. we will find out whether they are going to cut production. my bet is that they continue

with existing strategy and produce at current levels are higher. jon: to your point then, it is happening in a longer timeframe inn expected -- $60 crude is the projections and that is what they are shaping balance sheets around. i recently saw an imf report saying that saudi arabia has five years left of low oil prices essentially. five years since they fix this problem. but the reality is there is very low debt to gdp. what you will see is the weaker players in opec get hit first. countries like venezuela. do not do buy or sell with bloomberg intelligence. but let rake a rule today. sweeney is not watching -- he is watching duke football.

here, twoe down standard deviations down. is this a general statement about big oil so you do not end up in the timeout chair? almost aok at this as generational opportunity to climb on board the oil? peter: i do think in this downturn -- if you think about what this downturn resembles in terms of analog, it is 1985. what happened in a can a five was similar to this. in these prolonged downturn's, potential lost decades, where you want to be is exxon, chevron , and those kinds of players. tom: gracefully he got out of that. , we will discuss balance sheets with the former president of shell oil. he says things that would get him in trouble if he were still running shell oil.

that is at 10:00 a.m. this morning out of new york. jon ferro is in london, i am in new york with vonnie quinn. we will talk about interest rates later in the hour. this is "bloomberg surveillance." ♪

tom: good morning, everyone. "bloomberg surveillance." futures are quiet to the market. the big news, rending the -- renminbi moves are in washington moves as well. it must be time for the morning must-read from vonnie quinn.

vonnie: i get them morning must-read from "the financial times." bush talks about paul ryan -- he, too, believes in fairer taxes and regulation and rejects subsidies for corporate entrance. saying paul ryan is making republicans look a little bit better, and there is a potential solution in terms of a wide spectrum of social and economic ideas. tom: i am looking at the cover of "the new york times." i thought his suit had a little bit of lantus to read in it from "game of thrones." basically the guy is working in total chaos, right? vonnie: exactly. it looks like there might be some kind of way forward.

through some kind of tax overhaul. tom: he was in front of a railroad car like four years ago, and he is a guy who likes big plans. he likes a plan. how do you do a plan? yeah, it is a great read. at least he can improve the republicans' image and not go with the moral or grassy -- the moral orthodoxy. here is jackc idea kemp was from another time and place, from another gop politics. vonnie: exactly. george, it is into the markets that we are basically going to have the -- not going to have the show not that we might have had. george: it is one more concern that has faded away. there is a little bit of anxiety about it, a little bit of talk,

but it proves to be a lot of nothing in the end. and the market is getting better looking through these political concerns. maybe someday it proves to be a legitimate issue. but for now, it is one more minor blip on the road of markets. tom: we are going to come back with george bory from wells fargo. what do you want, folks? i cannot talk any day of the week as well. we will have an important conversation on a most interesting rate environment. and nicholas consonery will join us on the bombshell news out of china over the last 48 hours. worldwide from new york and london, "bloomberg surveillance ." ♪

jon: this is "bloomberg surveillance." i'm jonathan ferro, with tom keene in new york. that morning to vonnie quinn

with your first word news. vonnie: another deadly attack reported in syria. opposition activists say at least 40 people were killed when government missiles hit in a suburb. more than one dozen countries are meeting to get -- meeting today in vienna. secretary of state john kerry is taking part. for the first time, so are saudi arabia and iran. a consultant working to improve u.s.-iranian relations has been arrested. is awaitingt in sentences -- awaiting sentencing. approval onve final the spending and debt deals. it boosts spending and ends turmoil among house

republicans per japan's interbank says there is no need to add stimulus to the economy. at the same time, the bank has postponed its timeframe for weakening 2% inflation. a champion is taking his final bow tomorrow. the triple crown winner will retire from racing but not from ernie. he could bring in -- from earning. those are the top headlines. tom: i do not know much about the breeders' cup. .aded papadopoulos will join us -- david papadopoulos will join us from bloomberg radio. he can lighten my wallet like nobody. we have breaking news, and this from russia. a bit of a surprise -- jon ferro, the ruble dances. russians do not cut rates. it stays stable here.

i am taken by the headlines on inflation as well. jon: i am trying to think through it. clearly she wants a little bit of space left. there was concern that they wanted to cut rates. the central bank governor did not discuss it at that point. russia as we are on well. we go to american banking, and this is the merger derby everybody has been waiting for. keycorp -- an interesting regional bank turnaround through the financial crisis. the buffalo sabres lost to the pittsburgh penguins less like. keycorp the buy first niagara. it is a $4 billion transaction. gerard capitals -- chirag saiddy of rbc markets has -- we go back to china within

the news flow. nicholas consonery holds news conference calls. what a plenum. i thought i would be boring -- i thought it would be boring, but i was wrong. the idea of china shifting, whether it is two children, one children, or whether it is a free-trade zone in shanghai -- it is about the people of china at the end of the day. what do these announcements signal to the demographics in the sense of the scale of the people of china? nicholas: we -- have an indication that this administration is truly a reform oriented administration. the plenum reinforced that. the one-child policy relaxation is a piece of that. clearly this government is trying to be more proactive when they think about the challenges they face over the longer term, and the demographics is a big piece of that story. 6.5%how critical is that gdp level to the politics of

beijing? nicholas: i do not think it is that critical. the economy is growing well below the 8% redline that everyone said if you grow less than 8%, china will have massive falloutment and a huge with instability. i do not think we have that. jon: 6.5% is not a low growth environment. highercoming off a space. in the years to come, a lot of people are concerned about the 6.5% annual growth target concern is there is no room for error at all. can they achieve that and reform at the same time over the next five years? nicholas: i think there is some room for flexibility around those numbers. the government is trying to single that directly -- to signal that directly. now they call the targets around

6.5% or 7%. i think there is a recognition in beijing that for slower growth structurally, it is unavoidable. i am not so worried about the trade-off between reform and growth. i think they can manage it and focus on a reform agenda right now. jon: the people that dig through the headlines this week see all these marginal tweets, from big things to little things. what stood out to you out of these meetings in beijing? the one-child policy relaxation was not surprising. it has been in the works for years. i am focused on waiting to see what comes out regarding the five-year plan, this big agenda setting document through 2020. we expect another announcement from the government over the next week. that could involve provocative convince. -- provocative commitments. tom: what the hell is a deliverable?

nicholas: a document that lays out the five-year plan. to see,t are we going capitalism 101? nicholas: the government is intensifying the role of the party in the control of the financial sector, so this is very much a state-oriented approach. br: your thoughts and dr. emer's thoughts on ships rolling through the china sea? nicholas: i think we will see a lot more on this. the obama administration has concluded they need to be more aggressive on the china issue. much more to come. i think the south china sea remains a hot spot in 2016. jon: for a lot of people over the next five years, they presumed the state would have to take a backseat, or comparatively more of a backseat. you do not see that? nicholas: i unfortunately do not

see that right now. i do not think that president xi jinping's administration has gotten that message. nicolas, thank you so much. nicholas consonery here with us from -- the keynote speaker at as imf in a number of weeks, thee prasad truly one of experts. look for that on bloomberg markets in the 2:00 p.m. hour. stay with us. "bloomberg surveillance." ♪

jon: good morning. this is "bloomberg surveillance ."

i'm jonathan ferro, with tom keene in new york. it is time for the single best chart with tom keene. tom: we will begin our discussion with george for a of wells fargo -- with george bory for wells fargo. mann inning, catherine paris. g7 inflation. then there has been this great moderation, and we have now taken a new leg down. the financial crisis. obviously that was a leg down. there was something deeply disturbing about this for all americans. george borate is with us from wells fargo. deflation fold g7 into u.s. investors? george: the question comes down to whether that number, that chart is transitory or is going to continue downward. and whether it is going to

continue to trend down. if you look from 1994 over, there is an average that is flatter than perhaps the downward trend was suggest. the question is, as a central , the which do you follow transitory nature of the recent drop, or the trend that it might ultimately come back up next year? phonic open which is it? george: i think you will see inflation pickup. the downtrend in commodity prices -- what in commodity prices will make that happen? services are starting to kind of stabilize, and also rent in this country is picking up. tom: rent is picking up, jon ferro. did you know that in london? : you do not want me to start up on rent in london. willing to look

through the energy impact, and in ecb that is unwilling to do so. who has the right approach? isrge: i think the jury still out, but i would side with the doj and the fed and assume for now that is going to be transitory. how long that transitory. lasts -- how long that transitory period lasts is certainly open to debate. it should start to drift higher as we get into next year. tom: policy changing higher? george: potentially. the fed wants to believe that. the bank of japan is willing to ecb is not.e the ecb has told you that they are facing deflation and they are going to continue to act and they want to leave the market in that direction. the fed and the bank of japan are a lot less certain. debate,ry much up for and you are starting to see that come through in the markets.

the markets are getting a little bit -- they are lacking a little bit in direction, and i think that will continue to weigh on folks. make thatoint yet you the point that you make -- if the ecb pulls the trigger in december, are they stepping into a policy era -- into a policy error? george: i think it would take you a good six months to determine that. if they were to start to ease now, or apps that would be premature. on the other hand, it could help boost markets a little bit and certainly help credit conditions in europe, which i think is a key component to what they are trying to do. tom: george bory, how much does repression last? lasts as long as the central banks remain in easing mode. it has been longer than most

expect. the fed has been dragging its feet for six months. the bank of japan recently, as in today, said they are on hold, but the ecb is telling you is full speed ahead. my guess it is well into next year. tom: we have to go to our photos. there are no halloween photos today? vonnie: not yet. there will be monday. you cannot just go as a slasher panda. kelly and his coworkers lasted seven hours and six team minutes outside the international space station. tom: gorgeous photos. vonnie: is the 189th at the iss. -- scott kelly has been in space longer than any other astronaut.

jon, you have our second photo in london. jon: i do. i have a picture of 200,000 600th gathered for the of the battle of adding in court -- the battle of agincourt. gaunt'sthat john of sword? jon: i do not know. of "gameare episode 2 of thrones." a serious moment for -- for europe as well. kenneth branagh told me to say that. he is coming next year, by the way. time for our top photo. time for a little halloween spirit on "bloomberg

surveillance." nine acres of jack-o'-lanterns lit up for the holidays. 6000 volunteers. the great jack-o'-lantern blaze last from october 3 to november 15. tom: i saw some ginormous pumpkins on 2nd avenue or 3rd avenue. they were huge. do you take them home? vonnie: are you carving pumpkins? tom: i am carve-free. a two-day festivity as well. panda. next on bloomberg radio, this is an important interview. hugely respected among european economics -- we will do that at 7:00 a.m. on bloomberg radio. stay with us.

"bloomberg surveillance." ♪

tom: good morning, everyone. "bloomberg surveillance." if you are in the financial

business, there is only one thing to focus on today, and that his movement with the chinese renminbi. let's begin our forex report with dollar-yuan. a stronger yuan, 6.3174. 6.352 cups of coffee ago. timothy craighead with bloomberg intelligence with smart insight in hong kong, that the currency should have done the other thing . but it does not, it can't found the simplicity of analysis and shows stronger -- it con founds -- it confounds the simplicity of analysis. mention euro yen, what the pros looked at as well -- 1.34, 1.33, stronger against the weaker euro. vonnie: news emerging about her take over in regional banking. has agreed to buy

bancfirst niagara. is headquartered buffalo. apple has opened its first stores in the arab world. two stores in the united arab emirates. apple wants to reach customers directly. products went to resellers or non-brand. tom: this is the most important conversation of the day. we are doing a lot of international relations and will summarize our conversation with lord desai in a moment. george bory is in the trenches of your financial repression. it continues. it has killed everybody, whether you know it or not, whether it is the 401(k) or the little bit of savings that you have. i look at it, and what i notice

is a two-part economy, which is full faith and credit, no yield. a little bit higher yield, and everyone is a yield hall. are we being yield hogs in a correct manner? central message to credit investors is that you have to be very careful in this environment. there is a lot of excess savings out there and a lot of cash chasing a limited number of investment opportunity. tom: but we are not yield falls like we were 20 years ago. it is different now. george: i would agree with that. people started to move up in quality last year. they have become more selective of where they are willing to place their money. and they are willing to go with the highest quality borrowers. those are governments, higher-quality corporations, and increasingly lower quality companies are having to pay more to borrow money. that is tightening up credit conditions. what do you do?

george: i think you have to do two thing spirit you have to be realistic about what is available. it is recognizing that there is a -- you have to be realistic about what you are going to get in returns from the asset class. vonnie: what returns are you thinking? for an investment grade investor, you should not be thinking about more than -- tom: the printed responsibility assumption of investors is totally different from what george bory just said. george: that is what people would like it to be. reach a 6% or 7% yield, you have to go deep into emerging debt and highly structured products. you would have to go into emergency -- you would have to go into emerging currencies. in this environment it is pretty risky. tom: i do not know what the phrase is in london.

what is a yield haunt? what is that phrase in the city -- what is a yield hog? what is that phrase in the city? jon: what we learned in september is that the federal reserve -- what we learned this month is that the federal reserve wants to move in december. how sensitive is that decision to another backup in financial timing? george: initially the market has been very anxious about a first rate hike, so it is unclear how the markets are going to react. we have had so much lead time up to this point, the market lacks confidence into whether or not the fed is going to move. see.nk it is wait and typically when the fed starts to raise rates, the front end of the curve stevens a lot. the back end starts to flatten -- the front end of the curve

=epens a-- ste lot. then there is conviction that the fed is going to carry through with what they said. tom: george bory, thank you so much. a great firstt two hours of "surveillance." we have three more hours on radio. my weekend reading got blown up. i have to look at the side. this idea of his thinking on economic thought and where we are eight years into this financial crisis. what are you going to look at this weekend? jon: what i learned from lord desai is that with the old ammunition, going into next --k, there is a big deal on the huge investment they have in banks, the market has detached itself from the mpc and the

thinking of where rates can go with the bank of england. about mark carney and janet yellen next week. tom: we have much more to talk about, the news out of japan and china. moving into next week as well. "bloomberg " will be on bloomberg television here. holger schmieding well discuss central-bank -- holger schmieding will discuss the central bank as well. michael mckee and i will continue the dialogue forward on economics, finance, and investment. stay with us on bloomberg. good morning. ♪

stephanie: inflation at a standstill. europe hot central banks get ready to add -- europe's central

banks get ready to add stimulus. rent.s space is for the nba will experiment with putting advertisements on players' jerseys. stephanie: welcome to a very special halloween edition of "bloomberg ." i'm stephanie ruhle. david: i am david westin. i notice you are in orange. what a surprise. i was hoping you would be in costume. stephanie: i would like to, but the man sitting with us today, bloomberg editor in chief matt winkler would not be willing to sit here while i am in costume. matt: no comments. david: let's start with the first