betty: from bloomberg world headquarters here in new york, good morning. i'm betty liu. here's what we are watching at this hour. the markets are clawing their way back from the summit meltdown. what janet yellen's testimony before congress today, which is happening right now, throw any cold water on this rally? volkswagen is driven deeper into crisis. automaker revealing that the scandal is spreading to its gasoline cars as well. cord cutting fears unplugging media stocks as they we can strong earnings from time warner and cbs. can they reverse the tide? some headlines just crossing. services data and julie hyman has the latest. julie: this is coming in as estimated by economist.

six in 9.1 is the measure on the s industry. 56.5 was the estimate from economists and 56.9 was the september reading. if you look at the interpretation of the data, we are seeing the second fastest pace in a decade for the services industry. 59.1 was the reading here. anything above 50 is expansion. we are well above that level now. all three major averages have turned lower. there are trading higher out of the gate good and little bit of volatility as the s&p 500 gets closer and closer want to get to its record high. yesterday's close was less than 1% away from the level. the nasdaq 100 x they did close out a record yesterday. we are seeing a little bit of fluctuation as we get up near those levels. i love that the action that we are seeing today is earnings driven. we had a number of earnings from mediaports companies. cbs is gaining after the company's profits showed effects

of lower ad sales. the company did repurchase stock and that raised its earnings per share. it is also seeing lower viewership for cbs, especially among younger viewers. time warner also out with its members. the quarter numbers beat analyst estimates largely because of increased revenue at hbo, which is up 5%. warner bros. studio also saw an uptick. the shares have turned lower. on a century fox also out with its members as they are missing analyst estimates. "fantastic four" flopped in the strong dollar took its toll. i want to check on a trio of range movers is going to be selling assets in southwestern virginia or $876 million. citigroup upgraded the stock to a result from buy to neutral and it will cut down on its leverage. devon energy is rising after it posted a loss. they're going to raise output for the full year.

chesapeake energy, which is one of the worst performers this year, and the company announced a right down. it wiped out all that's profits. --ty: we have to keep on eye ri on what is going on in washington. janet yellen is about to speak. we have opening remarks right now. are the markets highly anticipating these remarks? julie: not highly because she is scheduled to speak on special regulation. it is what congress might say after she might say. people really focused on friday stocks report with an increase of 182,000 jobs. if you look at the bloomberg terminal and the fed fund future profitability now at 52%. that is what is being priced in. it was 50% yesterday. it has been fluctuating at a pretty tight range. if you look at the 10 year note,

we saw yields rise to the highest in six weeks at 2.22%. we are seeing little changed today. that's both ahead of her testimony and the friday jobs report. i also want to take a check on the u.s. dollar to see if there is any anticipation or reactionary. if you look the dollar versus various currency trading partners, we are seeing the dollar rise versus the yen. it rises versus the euro and the british pound as well today, betty. betty: thank you so much, julie hyman at the markets desk. are waitinged, we for the remarks coming from janet yellen. has filling is speaking right now and he is chairman of the house financial services committee. you can watch this in its entirety on bloomberg.com. we are going to be dipping in and out of it throughout the next few hours. we will bring you any headlines as soon as they come across. let us check in on bloomberg first were news. vonnie quinn has more from under his desk. vonnie: thank you so much.

we start with fireworks season going underway in a hamster. martin o'malley and donald trump among the first candidates to file for the primary. -- meet basicasic requirements and fill out a one-page form and fill out a filing fee. it is expected to the around february 9. an ordinance in houston that would establish nondiscrimination protections for gay and 10 to enter -- transgender people was defeated. it was soundly rejected by vote of 61% to 39%. andcity's mayor, who is gay support of the ordinance, told supporters the fight is not over. mayor of the houston suburbs are headed for a december runoff to choose houston's next mayor. of russian jets had reportedly no warning of trouble before crashing in the egyptian desert. the play black boxes include

note mechanical or system problem. all 224 people aboard were killed when the airbus crash saturday. there are taking to us back to russia after a vacation in egypt. investigators have now identified the bottom of 33 victims. thousands of iranians burned be a make and flag and chanted slogans today. is the mark the 36th anniversary of the seizure of the u.s. embassy by militant students. the organized rally group greater attention as they look to encounter the moderate presidents outreach to the u.s. and the landmark nuclear deal reached with world powers. stepped prime minister down after thousands of people flooded the streets of bucharest and antigovernment protests. the move comes after 32 people were killed in a nightclub fire last week. demonstrate his blamed officials for the incident. he will stay on until a new cabinet is installed.

at our first were news right now. you can always find the latest news at bloomberg.com. betty: vonnie quinn, thank you so much. janet yellen is about to testify on capitol hill at this house financial services committee hearing. remarks read advanced to her testimony. she is going to say that u.s. bank still have risk management lookinges as the fed is to reduce spread of some challenges. the testimony comes days after she indicated that the fed will review raising rates in december. earlier today, the bloomberg

this country would be in a much, much worse place given the events of 2008. betty: joining us now is bloomberg economics editor mike mckee. she going to come under any intense criticism at this hearing? ways there are a couple of she could feel the fact that she is there is reason for criticism. it is not really fair to blame the fed. the dodd frank act set up the post of vice-chairman of the fed for regulatory affairs. the obama administration has refused to appoint anybody to that post. jeff hester link has called her now to testify in place of this person who was never nominated. not her fault, but certainly never's of the committee are unhappy that this aspect of dodd-frank has not been carried out. it is also a possibility that defenders of the banking system will attack the fed for what they see as overly burdensome regulation.

that they're carrying out dodd-frank to the best of our ability, but the banks have criticized the regulations, saying they cost too much money and they can point to all the reductions in headcount that they are undertaking these days as evidence of how it is hurting the system. there are a couple ways that she could be criticized. to be aboutpposed monetary policy, but it is possible that somebody will ask her about that and that opens up another avenue for discussion. betty: what is the likelihood of that? mike: it is hard to tell. someone who is more junior on the committee might ask and senior members would respect the reason that the hearing was called. the jobs report is on friday. we do not know what that is going to tell us. it would not pay janet yellen make any kind of definitive statement. there is no percentage in asking unless you feel you have no other opportunity to talk to her. betty: i recognized that she is really in place there because they had not appointed somebody to represent in that role, but why exactly is she there, mike?

mike: what the banking committee wants to do is hold someone's feet to the fire on this issue of not having somebody appointed. and number of the fed for the ingernor has been spearhead the regulatory efforts and they have done a lot. notvarious reasons, he has been a point it's a vice-chairman and does not look like he will be appointed to vice-chairman. it would be better for the committee to: someone like jack lew. have other fed's biggest headache. we have dudley speaking and fisher as well later tonight. do we have any other further clues about what the fed is thinking? mike: they need a lot more further clues about what the fed is thinking. they are talking about economics, but dudley's about economic indicators and looking at those. it is not at this point likely that he is going to make any remarks to suggest where policy

is going. reporters will be there and it's possible that he could be asked. stanley fischer is more looking at central banking and it's evolution. it's an awards ceremony speech and not likely to make any comments there. that a speech at like that alan greenspan introduced evolutionary terms. betty: you know economist so well and there was a story that showed how wrong economic forecasters have gotten it when it comes to predicting what the central banks will do. 20 out of 28 have gotten it wrong. the have underestimated how low rates would go this year. why is that? mike: it is because nobody can forecast what has happened to the economy. there is always something else that can come up. nobody predicted the chinese reevaluation that set off all be charmers in china in august and push back the idea of a september tightening. the feds forecasting record has been just as bad.

if you look at wall street, they have gotten it better in terms of where rates are going to be than the fed has. the fed has been consistently higher in terms of growth and where interest rates are going to be than wall street. while wall street has not been correct about that policy, they have been closer than the fed itself. betty: mike, thank you so much. mike mckee, our economics editor, ahead of janet yellen's testimony. you can watch the testimony live on her event channel on bloomberg.com. now to developing corporate news on valium pharmaceuticals. the news that it would cut ties with the drugmaker phil would moveid it into the drug order company. drew armstrong is all over this. that that was not the end of it with a conference call last week. let us talk first about this bloomberg story. it is fascinating that they were

actually going to expand their philidor.hip with drew: we are told that the company was pleased with how philidor was doing. there was trouble being closely tied with valiant. it was seen as such a success and they taught about doing it with my drugs that they can push through philidor as well. those plans came to an end last said they valeant were disturbed by the behavior and we are shutting it down. we have seen the transfer of employees where we have seen employees leave valeant and go work at philidor. it is performing similar functions like at valeant and they are maintaining that they

are separate companies. and now here's another time between the companies. that is interesting to see as well and i washington is stepping in. betty: before we get to that, what has valeant said about this? drew: they say that we do not have ties with philidor and we adhere to the law. to learn ofleased these things. they have maintained that these employees that went over were terminated and then went apparently of their own foolish and to philidor -- will listen to philidor and perform a similar function to what they were doing at valeant. betty: inevitably washington was going to get involved in this. there was a house action on basically the rise in drug prices. now there is a group of senators who say they want to investigate valeant? drew: both of the things are related to drug pricing. the house democrats -- keep in mind they are not empowered and the majority and do not have subpoena power. they are trying to put pressure

on the republicans in the committee in the house to bring valeant and touring pharmaceuticals and compel them to provide documents or subpoenas. we do not have a timeline of exactly when that will happen. those types of politics and pressure can be very effective in washington. atty: turing was the company couple months ago that jacked up the prices. $1750.rom $13 to and now we have the company that does have subpoena power and is making a bipartisan effort. it has written to four different drug makers about it drug pricing including valeant and the many that they provide internal documents and say that we do have subpoena power that we can use if these people do not cooperate. betty: what are they looking for? drew: that's a really important question. on the face of it, they're looking for answers about drug pricing. i've covered washington for a

long time. as soon as you get to a situation where companies are asked to provide huge amounts of internal document tatian, these things can turn into fishing expeditions. they can find things that they were not looking for but have not figured out to ask yet or were looking for all long and this is their reason for getting it. it is totally possible that the situation with valiant and fillet or could start as a drug pricing inquiry and then we could see a situation where it spirals into something else if the kennedys and lawmakers decide they want to go in that direction. congress has been a broad investigative authority with these types of things and the ability to say provide all these documents. they can get all their executives up and make them testify. it's a powerful tool. betty: it can lead to other avenues and other issues. thank you very much, drew armstrong. as i mentioned, right now this testify on capitol hill in front of the house financial services committee. she says that u.s. banks still

have risk management challenges. there are compliance breakdowns at some of the biggest companies. she is reiterate what she has said before. her testimony today comes days after she indicated that the fed will review raising rates in december. yellen'satch chair testimony live on her event channel at bloomberg.com. ♪ janet yellen: the board has adopted a resolution plane rule. ♪

betty: that is janet yellen and the fed chairman speaking right now in front of the house financial services committee talking about the financial

firms and risk management, which she says we could do much better in. testifyot expected to and monetary policy. as mike mckee had mentioned, there may be some questions raised about that. let us had the two are markets desk where julie hyman has a check on some of the company movers. you are starting off in gaming losing go. -- with the zynga. julie: zynga falls into that category could social gaming as it were. the chief financial officer is stepping down and it's delaying its two games for additional work. the company's third-quarter results through the estimates and it looks like investors are reading all of this news to say that zynga is making constructive changes. the shares are higher. at the however is not higher to say the least. third-quarter revenue falling short of analyst estimates. betsy is an interesting situation is the company saw the growth. 22% increase in the total value

of all the merchandise sold. it represents a slowdown. if you're looking to some of these types of companies for growth and at sea is not delivering it at the same pace. that is why we are seeing the stock being punished. speaking of punish, there is groupon. moston shares down the ever today -- a 30% decline, weaker than estimated earnings for the sales and company. replacing the cofounder. he'll take the chairman's role. groupon has had a long string of problems. take a look at my bloomberg terminal going all the way back to early 2011. it had its ipo in early january of that year. since the beginning of 2012 and late 2011, it has traded below its ipo price of $20. this has been a long hard road. betty: people don't play those anymore. drewjulie: people are not using

these types of products. "bloomberg markets" after this break. ♪

betty: volkswagen is hit and then another roadblock. the stock is down 8% in the auto giant's fallout continues. there is revelations about their cars and piloting carbon dioxide emissions. matt: totally different pollution issue an different engines. 800,000 new cars overnight are diesel, but some of them are gasoline. the first gasoline engines, it looks like volkswagen has rigged to purposely cheat epa test. i should point out that i think a lot of car manufacturers try to massage the epa results, which is why when you see epa

miles per gallon numbers on a car sticker at a dealer, you're guaranteed that is not going to match what you get when you buy the car and drive it off the lot. i think a lot of carmakers will things to tryy do and maximize miles per gallon figures and minimize carbon dioxide output on tests. betty: but that isn't right. that doesn't make it right. matt: this is a problem. betty: and it's not an easy fix, right? ant: it does not seem to be easy fix and the diesel engines. i'm not sure of the technical details with what they have done in the gas engines. keep in mind that the diesel engines that were poisoning u s because they had nitrous oxide coming out of the exhaust were getting great miles per gallon and not releasing very much carbon dioxide into the system. if you fix those exhaust systems so that they did not release

nitrous oxide, they are going to release more co2 and get horrible miles per gallon. new issue that they pollute more co2 raises even more questions. i think the craziest thing is that they have taken the ceo of porsche and made him the ceo of the whole company. now you find out that porsche cars at issues as well. don't you want someone who is completely untainted? betty: you would think, right? there is certainly going to be more to come. matt: not that i do not love the products obviously. [laughter] betty: i understand. thank you, matt miller, r karger of you. card route here. janet yellen continues her testimony. we will follow that throughout the next few hours. ♪

betty: live from bloomberg headquarters in manhattan, you are watching glimmer television. i'm betty liu. e: we start with election

day results. in kentucky, voters elected the second gop governor in four decades. have dominated federal elections in the bluegrass state but democrats have maintained control of state government. in mississippi, phil bryant easily defeating two challengers who ran low-budget campaign's s. a daunting task ahead for terry mcauliffe. the state republicans beat democrat backed challengers to maintain a firm grip on the lower chamber. on is therats focused gop was successful, holding onto a 29-19 majority.

ohio voters decided not to legalize marijuana. neither for medicinal norv for recreational use. some backers opposed the plan because the plan to grow it imposed a monopoly. a quarrel between china and taiwan. investors had a six-month peak today -- taiwan's exchange closed at its highs level since late july. investors were encouraged by the historic meeting between the president's of china and taiwan. the first such meeting since their civil war seven decades ago. swearing-in ceremonies for canvas 23rd prime minister getting underway now -- canada's he isprime minister

canada's second youngest leader ever. that is a look at our first word is right now. can find the latest news at bloomberg.com. betty: we have breaking news out on oil inventories. another rice here for crude. julie: a bigger than estimated rising crude in terms of its inventories. 225 million barrels added to supplies last month. the estimate was for closer to 2.5. barrels addedon to supplies last month. productsr the refined has been increasing. refinery utilization reporting that as well at 1.1%. oil is bouncing around a bit in the wake of these numbers. we got some demands numbers -- fuel demand up 20% over the past four weeks.

-- .8%. going throughe the numbers turned to figure out what to make of them as we still see some volatility. this morning, the largest independent oil trader in the world saying oil will never get to $100 and barrel ever again. betty: never? never, ever, ever again. it is a big week for media companies. warner's third-quarter earnings beat wall street estimates driven by higher subscription and licensing revenue. when he first century fox dropped short on revenue -- 21st century fox. you have walt disney out tomorrow. for reaction on the numbers come i want to bring in our media expert, paul sweeney and david westin.

let's talk time warner. channel,eir premium doing well. >> their cable network business has done very well for them and that continues to be the big driver for this complacence they've invested everything else -- hbo is going direct to consumers with hbo now. they signed of jon stewart, bringing some programming onto hbo now. they are trying to embrace these new technologies, trunk to compete against the netflix of the world. given the success of hbo itself, will that be enough to save this bundle? david: the ceo knows the business well. he helped build it. it strikes me that hbo might be a real example of what a media property could do to succeed in the future.

they have a powerful brand, they can go over the top with it. they are investing in it big time. this is really investing in hbo -- raises questions about the rest of their business. hbo is a great example of what can succeed in the new world of media. fascinating, find investors and analysts are so focused on the digital properties of these big media companies but they are small parts of their business. why this huge focus? paul: if you are in media investor, you make sure the companies you are invested in are really trying to maximize the cash flow of their existing businesses. the core cable business, cable network business, broadcast business, those are driving the cash flow today. we also know that consumer habits are changing. people are consuming more and more content online, digital formats.

the big media companies also have to be placing bets out +++ the future of media consumption is going and have to figure out models that will make money in this new digital worlds -- those new digital worlds. on the one hand, you have hbo, a very powerful brand. game of thrones alone is enormous. traditionally near cable -- traditional linear cable don't have that same advantage. betty: they are growing a lot of cash flow. david: the growth is harder to see. this cable subscription rates are not going to be going up a lot in the future. it will be interesting to see how they lay that out. betty: you were the former president of abc news. disney will be reporting tomorrow. bob eiger set off the whole

media maelstrom earlier this summer when he talked about the unbundling of the cable package. what do you think he will have to say this time around? >> i don't think you will be as controversial as he was last time. -- he will be as controversial as he was last time. most people who do this industry would not have been shocked at what he said. he said the rate of growth for espn will be coming down. nobody thought yes been could to growing at 12% a year forever. -- espn could be growing at 12% year forever. quote.let me read that a nice reminder of what he said and why the media world blames him for this. eventually espn becomes a business that is sold directly to the consumer. there is an inevitability to that but i don't think it's right around the corner.

a few years ago, people thought espn was insurmountable and undefeatable. paul: they've had some subscriber losses and that spooked investors last quarter. that caused disney to lower the profit forecast for espn modestly going forward. that is what spooked investors. this is a huge cash machine, still growing. their programming rights for the sport continue to go through the roof. if you are disney, you have lots of other growth drivers. you have your theme parks where they continue to do very well. of course, you have star wars, which will be released in the fourth quarter. there's lots of drivers for the disney story. it has been a cable network driven growth story and investors are trying to reassess what the growth rate is. betty: disney buying into vice. smart move?

david: sure. they did not buy the whole thing. piece --en ownership they have an ownership piece. if it takes off and is a better mousetrap, they will learn from that and have participation. it's not like buying lucasfilm or pixar. credit fors a lot of diversifying the company beautiful he. they have these other things coming on stream. any business sooner or later, the koeppel flatten out. -- the curve will flatten out. bob has brought those along and lucasfilm, we're just beginning to see -- we have star wars in december. they've invested a lot of money in that property. we have not even begun to see the revenues from that. let alone the theme parks in the cruise ships. betty: are you fans?

david: huge fan. betty: thank you so much, david westin and paul sweeney. much more ahead on the bloomberg market day. what it's like to work with steve jobs. inside apple. our activist investors good or bad for companies? we will look at that ongoing debate and janet yellen testifying on capitol hill. the fed chair was questioned about whether fed officials attended bank board meetings. it is conceivable they attended meetings. she was asked about whether the bankers will told not to discuss stress tests. she doubts that was the case. an update on what she is talking about. you can watch her testimony live on bloomberg.com. is -- you asked about the timing of such a move. thatommittee does feel

moving in a timely fashion, if the data and outlook justifies such a move, is a prudent thing to do because we will be able to move at a more gradual and measured pace. we fully expect that the economy will evolve in such a way that we can move. ♪

betty: welcome back to bloomberg markets. we are watching the house financial services committee hearing where janet yellen, the fed chair is the sole test the sole test fire in front of this committee. froms taking questions members of the committee. she's been asked questions regarding monetary policy makers trade policy.

she says the market should focus on the entire rate path, the journey of great increases over time -- rate increases over time. the economy will justify a gradual tightening pace. no decision has been made on hiking rates in december. no major surprises on that front. she is reiterating the stance of the fed during this testimony. whereead over to europe mark barton saw a rally after mario draghi's comments about supporting the euro area economy. mark: you said it. stocks up for a third consecutive day, risen to the highest level since august 18. china unveiled that five-year plan to bolster the economy. since the stoxx 600 fell to a january low, it has rebounded by 13%.

it has rebounded on the premise the ecb will add more stimulus and the fed will not raise rates this year. that makes the job support all the more interesting. these are the big moving stocks today. volkswagen down 8%. it was down 11% earlier. this is the preferred stock after it admitted the admissions -- emissions scandal had spread from diesel to gasoline cars. shares have fallen 38% since it admitted to cheating on emissions tests in september. that is 24 he billion euros. glenn core top of the leaderboard today. full-yearned its profit forecast thanks to a rebound in treating commodities. --sold its shares of silver the stock has climbed 80% since fallen to a record low in september. you mentioned mario draghi at the top. the euro is falling against the pound, falling against the

dollar today. it is falling against the pound after we had a survey showing u.k. services accelerated last month. what does that mean for the bank of england? we will find out tomorrow when the boe releases its rate decision. back to mario draghi, what he said was the level of monetary accommodation provided by the ecb will be re-examined in december. it was only a few days ago he gave this interview 20 italian newspaper saying it's an open question whether further policy stainless will be necessary. is he the flip-flopping man or what? betty: possibly. confusing the markets. we will need more clarity. mark barton in london on the european trades. let's head back to the u.s. abigail is live from the nasdaq.

we are talking food. wendy's. abigail: wendy's put up a great quarter this morning before the bell, beating street forecasts for a third quarter. nine cents versus eight cents. they talked on revenue. the strength was driven by the franchise model. cameame-store sales comp up 3.2% versus 2.2%. the company also sees profit guidance for the full year at the high-end of the range. shares up more than 4% come investors like this news and shares are up the most since 2013. a stock in the red, papa john's. stock down after the company reported its third quarter yesterday after the bell, they met earnings estimates come a missed revenue slightly. is guidance.y they see 2015 earnings at the low end of the range between 204

and 210. consensus at 208. we talked about the stock on monday, how bloomberg has done work recently about the short interest rising for the highest level in six years. with this sort of performance, premium valuation perhaps help to explain why. tech for as stay on moment. emily chang sat down with the father of the ipod, the current ceo of nest to discuss his time at apple working alongside steve jobs and the future of an applecart. -- apple car. >> you will see some dramatic changes in the way we think about these cars. we are still 7-10 years away from a mass switchover. emily: what can apple do for the car market? >> a car has batteries,

computer, motor and mechanical structure. if you look at an iphone, it has all the same things. if you scale it up and go, oh my god, i can make a car with the same components, there is some truth to that. it is all software and services -- when you look at either google's self driving car program or the alleged apple thing, it's all looking through that lens of software first. >> did you talk to steve about building a car? >> i did. we had a couple of walks in 2008 -- if we were to bold a car, what would we build? what would a dashboard be? how would you feel it or power it? ,e are so busy, so constrained

it would be great to do it, but we can't. emily: wednesday was alive, was the something like, we are not doing this right now -- >> there's a lot of things we said no to. why wasn't the ipod turned into a really great video camera? tvs was another one. what had the biggest room at impact on the world? cell phones. we will focus on ur energy on that. -- all of our energy on that. let's focus on the big market that can have incredible impact steve's rain sco. >> google is taking it on with self driving cars. ceo.ign as >> regardless of whether it's a , mostr uber or lyft

people who drive do not know how to drive. they are not professionals at it. >> how do they make these cars safe, drive well and well-designed and desirable. uber is a self driving car, but it happens to be a person is driving it. they've already made that choice. how do we make it even better and even more pleasurable experience? miss the full interview at six clip p.m. eastern time right here on bloomberg television -- six -- six.m. eastern time 0:00 p.m. -- ♪

betty: it was investing is bigger than ever. our outspoken activists good or arefor business --

outspoken activists good or bad for business? you wrote today about activists finding it a lot easier to get heard in the boardroom. this plenty of examples of that, right? >> yep it we found multiple examples, particularly this year . it has happened in days or weeks and months rather than what has been a much longer drag in the past. betty: cisco gave up their board seat to nelson felt -- nelson peltz in less than a week. carl icahn given to directorships in 18 days. those are record numbers. why is there this shipped to please these activists?

-- shift to please these activists? >> they are also getting more and more iss proxy backing when .hey nominate candidates on the corporate side, the advisors to the company, the used toand bankers who call themselves activist defense teams are calling themselves activist response teams and advising ceos and chairman to sit down and have a chat with the activists and consider bringing them in on the board so that contentious conversations can happen behind closed doors. betty: is there a downside for shareholders? >> some of the advisors we've spoken to say the story did express concern that activists may be settling too early. and not getting enough influence

on the boards they are joining to come push everything they want to accomplish. which opens the door for a second activist to potentially come and finish the job. that is one of the downsides to the rapid settlements we're seeing. betty: we appreciate you writing that story for us. ahead, joe solomon joining us. we will hear his outlook on u.s. and global macro yo conditions. ♪

betty: it is 11:00 a.m. in new york and midnight in hong kong. welcome to bloomberg markets.

good morning. i am betty liu. here is what we are watching at this hour. janet yellen sends a warning to congress. big banks still have risk management problems. will lawmakers like what they hear? tesla lost more money than expected last quarter. why exactly are investors bullish about the stock? wall street investing another strong quarter for facebook thanks to its global advertising business. is the stock getting ahead of itself? janet yellen is testifying on capitol hill, telling a house committee that the fed has made no decision yet on its december move. the economy justifies a rate increase. they will continue to monitor economic numbers.

economy anding the she believes the focus of the fed is on making sure that they have the right rate path overtime. she's voiced concern over the pace of job gains slowing recently. you can watch her testimony on bloomberg.com. julie: we have seen some reaction, mostly outside of the stock market. people are keying in on her responses to questions here as meaning that december is still on the table. a december rate move is a possibility. holds up. that is something the fed has held fast to. stocks have turned a bit more negative peer. -- here. i wanted to look at other asset classes. we are seeing more of a reaction, more of a noticeable reaction. the 2-year note, we saw an andck in the two-year asil

n made these comments. was seeing at a six-week high yesterday. today, even above where we were yesterday. still not a big uptake come only to basis points. still an increase that is significant here. as shelar strengthening reminds people, december could happen. a basket ofersus currencies -- gold going in the opposite direction. if it does finish today lower, the fit straight decline. -- fifth straight decline. we saw a slightly larger than anticipated build in oil inventories last week. sending oil prices lower.

we saw a drawdown in gasoline -- if you take a look at my bloomberg terminal right now, i've been watching energy stocks. earlier, they were the worst-performing group in the s&p 500. now, that distention goes to health care. consumer discretionary also helping pull down the major averages. betty: courtney has more from our news desk. era inew political arro canada. in as trudeau being sworn the nation's 23rd prime minister. he led the liberal party to victory. decade of ruley by the conservative spread -- by the conservatives. kentucky's governor elect says

he will not take health insurance away from this who have it. businessman defeated jack conway in yesterday's election. he is a tea party favorite and a fierce opponent of the health care law. expandednt governor medicaid under obamacare, which extended medicare to 12% of kentucky's population. a win for mississippi's incumbent solidified the republicans's hold on the seat in the south. the latest national presidential poll shows the current front runners in a dead heat. a hypothetical match between ben carson and hillary clinton. each drew 47%. clinton would be any of the other republican candidates. the sent will be for 149

days and the house for 111 in 2016. american works 230 days a year. that is a look at our first word news right now. you can find the latest news on bloomberg.com. betty: thank you so much. stocks are mixed on this rate rise. warning trades -- i want to bring in michael regan and vincent. thank you so much for joining me. we are lower today, but near a record. >> we've had quite a rally. the big question is, what has changed with the market from now and earlier this year? we were stuck in that trading range for most of the year through august. the 2130ish level was the lid on

the jar. as we powerback from the volatility in the summer, it's not surprising -- it will take a lot to get through that top of the range we saw. i don't think it's an impossible outcome this year. just from the occam's razor perspective, people get in a bullish mood in the fourth quarter. the holidays come everyone is happy, you get a year end bonus. we've seen such a good flurry of m&a deals coming up to wonder what is in the pipeline. we didd not surprise me poke through to a new record. it's not something that will just happen with a natural trend up in the market. betty: there might be a headwind, the stronger dollar. the dollar bulls might say maybe

we've seen a top here -- others are saying no. out.ruskin as a chart they are saying it's too soon to say there is a top here in the u.s. dollar. against the seven major counterparts, it has risen quite a bit, but look at the orange line, a broader trade weighted index. still well below against the other seven majors. maybe perhaps there is more closing of that gap that needs to be done. the street is littered with folks who try to call tops and bottoms of all kinds of assets. happen. can it is way too soon to call a top in anything. betty: if we see the dollar continued to rise, will that be a headwind for the market? >> certainly, especially from

the earnings perspective. -- the dollar has not broken through new highs. treasury yields being the other issue, we seen a pretty remarkable rise in yields with people getting more comfortable with the idea of a fed increase potentially in december. stops not been enough to the stock market rally -- the valuation has gone up a bit. yieldsand treasure rising together. it is a noticeable pickup and that. you up wonder the higher yield will start to be a headwind. wonder.ave to so far, so good. betty: on the currency sign, what would continue to propel the dollar higher?

vincent: if we get an above , the decemberdata rate hike, that continued monetary policy divergence between most other central banks in easing would definitely lend that harry yield -- higher yield. if it does move much higher from here, will that have a huge impact on the economy? vincent: it will affect corporate earnings. tend to bereasurers slow on the drop it comes to their hedging in foreign currencies. on the other side of the coin, it would keep inflation up. betty: that might mean the fed does not need to raise rates. >> a bit of a catch 22. a stronger dollar does hurt projections. betty: most strategists right now see the index ending higher

at the end of this year? >> a bit higher from here. not a whole lot -- i don't think it's a whole lot much higher than this, read about 2100 right now. not a lot of upside. it's interesting what has really let us back here. a weird mix of value stocks like exxon, chevron showing huge dividend yields after the volatility in the summer. being aristocrat companies that back tocut dividends -- the smart growth type of stocks. stocks in the tech the s&p 500 technology index is .ack up to a 15 year high consumer discretionary index back up to a record.

what is lacking is what led us there in the first place, health care. of the sectors with the strongest growth potential. it will be interesting to see if concerns about pricing these as we get to the end of the year -- ease as we get to the end of the year. betty: think you for joining me on the markets per much more ahead in the next half hour. musk says seats will be holding production back. the year of megamergers. what will the end of 2015 be like for dealmaking? janet yellen is right now testifying on capitol hill. there's been no decision on a fed rate change for december. the fed is looking closely at the data. we will get instant reaction from the head of one of the world's largest credit rating agencies. ♪

betty: good morning and welcome back to bloomberg markets. let's head back to our markets desk where julie hyman has a check on the company movers. and consumerer company is coming out with earnings. michael kors having a positive reaction stock wise to the company's earnings report come up 11.5%. the company's second quarter profit was above what analysts had been anticipating. it is adding new retail locations internationally at a quicker pace than it did in north america. that has been helping the company, its revenue managed to increase 7% given the stronger dollar.

happen beense would 12%. same-store sales defaul -- did fall. has been better this year could you have to put again in context. avon products down sharply. the company had posted an unexpected third-quarter loss. it was hurt by the stronger dollar, getting most of its sales internationally. those shares down by 16%. the ceo has been trying to snap a three-year string of losses. dsw shares down by 9.8%. a discount shoe retailer, not so much in her -- ,he company cut its forecast named a new chief executive officer. there's concerns been expressed

about the company's performance. very different situation at lavrov liquidators, the company also announcing a new ceo, pointing the chairman john presley as its new ceo. those shares are going up. -- lumber liquidators. the market is greeting the new ceo news by buying the stock. shares sold off sharply after that 60 minutes report way back in march. betty: julie hyman outing me at the markets desk. tesla shares flying high after the company promised to deliver 50,000 vehicles this year. remains on track to reveal the model three in late march. l ride.on a downhil the stock got hit by three downgrades and the model s lost

its consumer recommendation after owners complain about a range of quality issues. elon musk addressed those concerns during a earnings call. data.s is early it is very positive. of many accidents that were prevented. we are not aware of any that were caused by autopilot. this is still early. it is a good indication. betty: joining me now is that -- you testedr at out the tesla autopilot features. will that put to rest some of the worries about this feature? >> the biggest worry about the autopilot feature is not the carpet the people operating the

system. you use it in stop and go traffic, that's not how it's meant to be used. it is meant to be used on the highway. it was wonderful. i tested it on the west side highway in manhattan and it performed stellar. her cds and volvo have similar systems. -- mercedes and volvo have similar systems. betty: what was so great about it? >> driving in manhattan is kind of crazy. you see on the dashboard of the car, the center's firing off. you see the car in front of you. it performs really well, even with crazy taxis coming in. it avoids any collisions, it's really good. betty: is this something available in the model three? >> it is already available on the model s come a coming to the model x.

it is supposed to be on the model three: entry-level luxury car. betty: they reported a loss yesterday. rangelso narrowed their of how many cars they will be able to deliver by the end of this year. the stock is still up about 10% right now. what gives here? -- hen musk has promised said they will not be profitable for a few years. investors know that and understand that. there will be hiccups. they had a problem with their seat posts in the model x. they are bringing that production in-house. what is going to happen, the model three will bring it into profitability. betty: i have test driven the model x. in september.led

there were a lot of questions -- did we get more clarity here? >> that's been the issue from tesla in the past. elon musk usually delivers big things, but they don't always come when he says they will. supposed to see it for the first time in march of 2016. the model x we were supposed to see a lot earlier this year. ofsought the beginning september. the people who have it so far seem to be happy with it. betty: thank you so much. much more ahead on bloomberg markets. ♪

>> welcome back to bloomberg

markets. testimony with janet yellen continues. the conversation is now on the financial system and what will happen in another crisis. right now come the fed plans on emergency lending rules. the fed isntions looking at the cost-benefit analysis of those rules we talked about yesterday. , banks canf a crisis bring their get into equity and convertingut -- their debt to equity and not a bailout. they are not envisioning a steep rise in interest rate. employment in the u.s. is continuing to go up. incomes continue to rise as well. on moderateis still footing but headed in the right direction. earlier today, the bloomberg team today did -- debated

the subject with roger altman. think on for the federal reserve. it bothers me to see the federal reserve increasingly politicized in so many respects. calls for auditing the federal reserve come all the criticism you are referring to. god for the federal reserve. without the fed come of this country would be in a much worse place given the events of 2008. there's two basic arms. monetary policy and regulation. on the regulation and supervision side, the federal reserve and other regulators have an enormous lapse in 2008. they failed. what would have been easy -- since that time, they've been climbing back and tightening and controlling larger banks of all

kinds, increasingly tighter and increasingly in a straitjacket of sorts. in general, they've done a good job of that. the question you asked for teens about the europe this pertains to the european institutions. regulation is being tightened all around the world in the u.s. and europe. european regulators have been even tougher. the banks are restructuring themselves in response to it because certain types of businesses are less profitable and not excessively profitable as a result of this much tighter regulation. banksape of the largest will be quite different. some of them will be quite a bit smaller, some will be much less focused on the investment banking side. i don't think it makes a lot of difference for our business. we don't trade securities.

we are just buys her's. -- we are just advisers. it doesn't make much difference for us. this is an ongoing restructuring , not finished, many of these institutions will look a lot different. that was roger altman, the founder and chairman of ever core. still ahead, we continue to monitor janet yellen's comments on the hill where she was talking about the financial system and the regulation of the financial system. we will have the chairman and ceo of fitch group to get his take on these comments. ♪ the only way to get better is to challenge yourself,

and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20.

it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. betty: live from bloomberg world headquarters in midtown manhattan, you are watching bloomberg markets. courtney donohoe has more from

our news desk. >> with the year and four days until the presidential election, tenants will start signing up for the first primary. new hampshire's filing period expires today. candidates must prove their eligibility, fill out a form and pay $1000. the projected primary date is paper nine. virginia's governor could hit roadblocks during the last two years of his term. republicans predicted their narrow majority in the state senate in voting yesterday. -- protected their narrow majority. faced with a pair of marijuana proposals yesterday, ohio voters just said no. a plant for growing it also failed. a tragic fire brings down romania's government. the prime minister resigned

today -- the fire killed 32 people and provoked huge protests. as they have every year since 1979, iranian hardliners held a death to america rally. this year, iran's supreme leader to u.s. policies, not as people. you can find the latest news on bloomberg.com. betty: we've been hearing comments from janet yellen all morning long as she testifies on capitol hill. ellen has said the fed has made a decision yet on its december move. they are looking at the economic data very closely. carl riccadonna joins us now with more highlights. we knew she was going to be

asked about the economy. she did not give much more than what we know already. the fed did not have much additional information since the october fomc meeting. it would be foolish to make any bold proclamations ahead of the october job support. big questions over the underlying momentum in the economy. we are in the soft patch, but seeing some evidence that that soft patch is firming. that --ome sold in so subtle hints of that and a much stronger result out of the service sector today. the economic data should start firming more appreciably through the year-end. will it happen to a sufficient degree for the december meeting? it will be largely determined by the tone of the employment report. betty: josh wright was saying that so far, external indicator

say we may see a soccer job support on friday. -- a softer jobs report on friday. there was not sufficient time for hiring managers to digest everything happening in early september. the survey and don't fall for that month. we will see an even softer print relative to what we've seen in the prior two months. it will get worse before it gets better and the jobs numbers but we see these leading indicators telling us the economy is not rolling over dead, just having a bit of a soft period. the jobs numbers should firm as well. we have a two track economy, the service sector performing quite well, manufacturing sector on the brink of falling into contraction. can upsetl economy

the drag from indexing. drag fromthe manufacturing. betty: how is the fed doing on regulating the financial system? carl: they are moving in the right direction, but if they transparent --t it is a joint effort. it's a number of regulators. the banks are safer than they were in 2007. it is a learning process. betty: staying on the impact of , howal-bank action central-bank to regulating the financial system, paul taylor is the chairman and ceo of fitch group. good to have you. pretty timely given janet yellen's remarks about the fed.

she is defending the stress test by the fed and some of these new rules where they require banks to convert their debt into equity in the event of a financial crisis. what you make of that? does that make for a stronger financial system? paul: first of all, we have to consider where we started from. there's no question that regulation is required in many aspects of the financial system. the pendulum swung a bit too far. the policymakers globally are starting to have the debate about what is the right levy break, what is working, what is not working. the fact that the discussion is going on is the most important to me. s&py: your counterpart at

had written a report saying they are looking at downgrading the ratings of the biggest banks in the unites states because there does not seem to be that purity best guarantee anymore for banks should there be another financial crisis. is that a view that fitch group holds as well? paul: we certainly hold a similar view to that. this is a trend that has been going on for some time. we've moved from a situation of sovereign support for banks to a much more complex a jewish and of individual bank strength -- complex situation of individual bank strength. this uncertainty about what -- there is a lot of debate going on. the trend away from sovereign support has been a clear one. betty: there is no implicit

guarantee anymore. paul: exactly. it is different in different countries around the world. different countries have moved to different degrees of support. betty: what is your view on the economy? they may be about to raise interest rates at a time when using.t of the world is usi -- easing. paul: i don't think there should be any surprise we start to see interest rates in the u.s. go up. december is the likely date. if it doesn't happen in december, it will be in january. there will be a move back to normalized interest rates but that is pretty clear. when you look outside of the u.s., it's europe and japan when we see continued loose monetary

policy. we don't expect that to change. we don't expect that to become any different in the coming months. they are still not seeing signs of inflation in those markets. we've seen several countries and industries within those countries, their credit positions are deteriorating because of what's going on. we've can credit agencies like yours put them on notice, downgrade these companies or industries or countries. that has public criticism of these rate agencies. the u.n. put out a recent report saying the three rating agencies are subjective. how do you defend your firm? paul: we are subjective. ratings are an art as

much as a science. it's about protecting the future. they say it is too opaque. paul: i would disagree with that. publish a huge amount of information material around our decisions come around the individual rating decisions. we explain our rationale come explain the fact is we look at, the way we look at them. we even build and what if scenarios now. gone back to our original comment -- the increased regulation, we've been encouraged to move down the path of being far more transparent and how we explain our credit rating decisions. the industry as a whole has made great progress in doing that. betty: you are convening a summit in new york

where you are bringing in ,ondoleezza rice and others talking about strengthening the capital market system. paul: it's focused on emerging markets. event, we call it the y forum. it is designed to bring investors together with thought leaders to talk about longer-term things. we are driven so much by short-term volatility in the markets. sometimes we need to step back and think about what's going on on a fundamental level. today is largely around going outside, thinking through away from the current negative sentiment around emerging markets and look at the longer trends and decide what does that mean for us and for credit ratings as we look out over the coming years. betty: thank you so much, paul taylor, president and ceo of

fitch group. facebook out with their earnings later today. the company seen tremendous growth in a particularly from instagram -- the company seeing tremendous growth, particularly from instagram. ♪

betty: welcome back to bloomberg markets. let's head to europe where mark barton saw a rally for european stocks after mario draghi's comments about supporting the euro area economy. mark: european stocks rising for a third day, getting to the

highest level since august 19 after mario draghi left the door open for further stimulus in his speech in frankfurt. companies on top of the leaderboard. since the stoxx 600 hit its lowest since january at the and of september, it's rebounded 12%. the services industry accelerated in the last month, bolstering speculation the bank of england will boost interest rates in the not-too-distant future. the bank of england unveils its latest rate decision and unveils the quarterly inflation report as well. have a look at the big movers across european equity boards. volkswagen down 9%. sinking the most since september 22. the mission's scandal spread from diesel to gasoline cars, 4 billion euros of market value

wiped from the stock. -- the emissions scandal. glencore with problems of its own in recent months. the company maintained its full-year forecast thanks to a rebound in trading commodities. it sold the bulk of future silver output. the world's biggest maker of chocolate, the worst-performing stock. growthecast for volume -- the financial year will be challenging due to a difficult cocoa market. betty: mark parker new london. back here in the u.s., teslas net loss more than tripled in the third quarter. the stock is rising.

abigail doolittle has more on the numbers out from tesla. seem to be does somewhat of a conundrum with this company, this electric car company missing on the earnings, even talking about trimming its deliveries of the year. the company reiterated its full-year guidance around the production target of 50,000 vehicles for the year. that is behind today's surge. x, the company did hint that production issues there. kevin and tanner said the model x could hold the key to turning around the companies casper and situation -- cash burn situation and meet eiland mosques -- elon musk's aspirations to be cash flow positive. we are making steady progress every day of the week.

even with a 27% short interest there and this sort of quarterly performance, investors really continue to like that sort of confidence. abidjan scum the stock down after the company missed third quarter -- the john's -- pop a apa johns, the stock is down significantly. betty: abigail doolittle at the nasdaq. facebook's third-quarter earnings will be announced today after the close. huge growth over the past year, investors will be focused on mobile and how instagram is driving revenue. cory johnson joins us live from san francisco to break down everything on facebook. a lot of it will be instagram and what they are doing with instagram? usy: facebook has never told

what the instagram user numbers are except when instagram hit a , which they did recently with 400 million users. we don't get the quarterly updates, we don't know what percentage of their business it is. it's interesting to look at what facebook is doing and compare it to twitter. growth has been picking up a little bit for facebook after a steady slide. 3.2% in each of the last two quarters. that is impressive when you think about what's going on in twitter, which has a much smaller base and more room to grow. facebook is growing faster. their sales growth is slowing 40%. down to the revenue per user has been increasing. one of the most interesting things in mobile and what they've done a run mobile --

they said they had nothing in mobile when they went public. not so much anymore. betty: what about mobile video? cory: mobile video has been huge, mobile gaming has been nonexistent. what's interesting about mobile users, they've grown to 1.3 billion last corner. what is more interesting to me is that there are more daily active users in mobile than there are in any other outlet for facebook. more people are now using facebook daily than merely monthly. if you're on facebook, the odds are you are on it every single day. facebookw dominating as a percentage of sales, the revenues are going up and same

time. they had figured out mobile advertising. they have their free cash flow and now they need the revenues to make it work. betty: many companies would want those numbers and trends. ventures'd, google ceo joins bloomberg west tonight. ♪

betty: you are watching bloomberg markets. let's get to today's options insight. join me as the senior equity derivatives strategist at bgc partners. ,e heard from janet yellen talking mostly about financial regulation. decembereiterate the

-- that december is a live meeting, data dependent. we saw the reaction in the markets which is surprising given that this is not different than what she has said in the last statement. that there is continued strength and domestic consumption in the u.s. and housing. that already accounts for a huge portion of gdp. the big red flags, growth in emerging markets and the issue of manufacturing in the u.s. and export links. the things that have caused the theet price and lower -- fact that we have seen showinguring data stabilization in manufacturing means those red flags are not waiving any more. julie: she is acknowledging that.

outow that you are looking toward the end of the year now, 1020 dissipate what stocks are going to do -- trying to anticipate what stocks are going to do. you have janet yellen speaking , ecb, another fed meeting news coming down the pipe, friday's jobs report. there is a lot to consider and a lot that could derail the rally. >> it's possible. there are two likely scenarios to think about. the first one, economic data remains mixed. in that case, all the s&p and it is webzine stocks rally -- enough to fuel a big rally into the end of the year. the second scenario is economic data remains strong, the rest of the world remains stable.

which could be bearish for stocks. in that kind of climate, when you have decent scenarios for both directions, that is tough. when you use options, you can position for both possibilities. --are looking at a straddle vix two or three points higher than it is now. it make sense to own volatility into december. julie: you are looking at s&p -- we willhe have that swing one way or another. what exactly is the straddle? regular december expiration it gives you exposure to the fed meeting. buying the 211 put and call. you will make money on that kind of trade if the market moves a significant amount in either direction.

julie: what if it doesn't? the risk muddle along, is limited to the premium you pay for that position. 12% implied is not a hard floor but a level at which the risk reward figures being long volatility ahead of the possible moves that might come up. scenarios various before the year and as we hear janet yellen speaking before congress, giving testimony on financial regulation with a couple of monetary policy comments. thank you so much. we have more bloomberg markets coming up after this short break. ♪

alix: it is noon in new york. welcome to "bloomberg markets." ♪

alix: from bloomberg world headquarters in new york, good afternoon. i am alix steel. here is what we are watching at this hour. the market moves as janet yellen talks about a december rate hike and under the words live possibility. deke liquidity is the hot buzzword for investors and how will central-bank action change your portfolio. got a prescription for valeant damage control? of a philidor expansion before ties were severed. conducted a close witchhunt. a volkswagen emissions crisis could get worse as the automaker justls gas cars and not diesel had underreported co2 emissions. what it means for the brand and who knew what when.