francine: nuclear news. a south korean nuclear test since the kospi sliding. the beginning of something. time to get defensive. warnings rise on fed interest rates and higher inflation. draghi dials it down. the ecb holds fire on further stimulus. is the central bank experimenting with a laissez-faire approach? welcome to "the pulse" live from bloomberg's european headquarters in london. i'm francine lacqua.

we will speak to the evernote ceo and former google executive, christopher o'neill, about tech, productivity, and more. later, our weekly show, "brexit: what's next" ringing you all the news, analysis, and conversations around the vote to leave the eu. today we speak to the japanese ambassador to the u.k. first, let's check on the markets. we have quite a lot going on because a lot of global stocks are looking at what the ecb said yesterday. bonds also deepening in terms of the selloff after signs that central banks in new york and japan are starting to question the benefits of further monetary easing. south korean assets dropping following this nuclear weapons test in north korea. let's get to the bloomberg first word news with nejra cehic. nejra: north korea has confirmed that it conducted its fifth

nuclear test on the anniversary of the nation's founding. south korean president park has strongly condemned the latest provocation from kim jong-un owns isolated regime and warns its actions will lead to its self-destruction. china's factory gate deflation eased in august, falling 0.8%. consumer prices rose the least in almost a year, climbing just 1.3%, trailing estimates. the u.s. federal reserve has urged congress to prohibit merchant banking in which firms buy stake in companies rather than lend money. that was among several recommendations. onther was a call for limits wall street ownership of physical commodities after lawmakers accused banks of seizing unfair advantages in markets in recent years. viola haspaschi ceo

agreed to step down. he leads the bank in the midst of a plan to bolster the balance sheet and attract new investors. he will stay in the position until the company finds a successor. european union finance ministers need to schedule a meeting to prepare for the inevitable negotiations with the u.k. over its planned departure. so says the austrian finance minister. he reckons drafting the stands can't be left to the leaders of germany, france, and italy. finance ministers convene later today. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. francine: thank you so much. the ecb holds off on new stimulus at its first post-summer meeting as it downgrades the euro area's growth outlook. that draghi also announced

it will not run out of bonds to buy. he played down the need to commit to new stimulus for now. >> the governing council tasked the relevant committees to to ensure a options smooth implementation of our purchase program. the risk to the euro area growth outlook remain tilted to the downside. this assessment is probably reflected in the september 2016 ecb staff macroeconomic projections for the euro area which foresee annual real gdp increasing by 1.7% in 2016, 1.6% in 2017, and 1.6% in 2018. we discussed assessments of the economy and broad projections but we didn't discuss anything else. changestime being, the

are not substantial as to warrant the decision to act. the committees have full mandate . they will look at all the used tothat might be redesign the program. francine: mario draghi's move towards qe mirrors a recent decision by the bank of japan's kuroda. has monetary policy hit its limit? joining us now is holger schmieding. great to have you on the program as always. you are one of our most important guests who for a while has said central banks have been doing too much, the ecb needs to scale back. our markets finally realizing and does that explain the turn in bonds we're seeing this morning? holger: markets should be

realizing that the economic situation in the eurozone is not bad enough to really warrant significant more ecb action. we just need to get used to the fact that central banks cannot lift trend growth. i think mario draghi is absolutely right. keeping the options open but with the eurozone economy growing somewhat, there is no need for more central-bank action at the moment. markets better get used to the notion that central banks are not in the business of pushing growth above trend. francine: the mandate of the ecb is to push inflation up. can they at least do that? do they need to do more to it that 2% target? holger: in today's world, hitting inflation targets has become more difficult. more importantly, they are not in the business of doing that short term. inflation expectations are not too far away from the central

banks target, and most importantly, there is no sign of dangerous deflation hitting. in a situation where central banks have done a lot already, it is best now for the ecb to wait and see how its aggressive easing works overtime instead of saying after half a year already , it doesn't seem to be enough. francine: we also heard from jeffrey gundlach, saying that now is time to get defensive as rates may rise. let's have a listen to him. holger: well -- >> the next time the fed tightens will be when the wirp is below 50. they are going to say, we cannot be raised -- replaced by this function. francine: mr. gundlach saying this is the beginning of something. do you agree? are you still there?

holger: yes. i'm not sure that we really have the beginning of something. more likely is we would see a bit more of the same. the yields will likely stay low. growth will remain modest. central banks will be somewhat slower in acting than they were in the past as the ecb has difficulties finding enough extra paper to scale up its program. francine: i'm looking at a chart. i'll go through it. there's a blue line with a german 10-year bond yield, a white line with a japanese 10-year bond yield. in the last couple of weeks, it has been edging higher. we are very close to zero. they are almost no longer in negative territory. if they touch zero, for the german, what does that tell us? holger: it wouldn't tell us very much. it would be a psychological sign that we are no longer indeed

negative territory. but the economic significance of that would be very small. what it would probably tell us is that markets are scaling back some of their overdone expectations for ecb easing. francine: we talk about psychology a lot and the fact that ceo's are sitting on cash because they are not confident about their future. is there a direct link between the german 10-year yield going above zero and ceo's saying this feels a little bit better? holger: i don't think there's a direct link. the financing costs are very low and small variations are not going to make a major difference. having said that, if we get beyond the recent and upcoming political risks, the brexit fallout, the u.s. elections, the italian referendum, if the political situation clears up, then it is quite possible we get

a psychological improvement. that is people in market saying we shouldn't be so pessimistic, shouldn't be expecting so much central-bank easing, and company saying, let's invest. so indeed the two things could go hand in hand. a bit more business investment and somewhat higher yields. but i don't think the variation in yields itself will cause any major change in the business environment. francine: thank you so much. holger schmieding there. stay with "the pulse." sunday coming up. meet the man at the helm of one of the first unicorn startups. chris o'neill talks tech next. then, pressure from pyongyang. north korea celebrates the founding of the state with a fifth nuclear test. we are live in the south korean capital. plus our weekly show, "brexit: what's next."

we talked to japan's ambassador to the u.k. this is bloomberg. ♪

francine: this is "the pulse." i'm francine lacqua in london. let's get the bloomberg business flash with nejra cehic. nejra: bayer gets rid of peripheral enterprises. that is according to people

familiar with the matter. they said the german drugmaker is working with jpmorgan on the sale which could fetch more than one billion euros. spokespersons declined to comment. freshg has been dealt a blow amid the global recall of its new smartphone. u.s. aviation regulators say owners should exercise caution when taking the device on planes. all 2.5 million handsets which were shipped last month have been recalled due to fears the battery can catch fire and explode. 7ple announced its iphone with much fanfare but says it won't be doing the same with opening weekend sales numbers. the company insists supply will govern the results and it knows the new models will sell out. numbers,leasing the apple is holding back a key metric used by some investors to gauge the success of a launch. that is the bloomberg business flash.

francine: thank you so much. let's talk technology and its link to productivity. does it make us more efficient and increase productivity or does it actually make it more difficult for economists to measure productivity? evernoteotetaking app was one of the first so-called unicorn startups. joining us now is the ceo, chris o'neill. great to have you on the program. what is it like being in charge? chris: i'm having a blast. i had a variety of roles at google. to be at a company with such a great mission, to help people be more productive, is just incredible. we have a global business. i get to see lots of users in our community. we have an amazing team. francine: we talk a lot about productivity. i'm probably the person in the world that makes the most lists.

i'm not sure whether for an economist it is more difficult to measure, whether it makes us more productive, or whether it just confounds central bankers and the rest of the world on how you measure this. chris: you mentioned that there's both things that are helping us be more productive and things that are detracting from productivity. individuals and teams in the workplace today, productivity is under assault. you have more information, more channels, than ever before. if you are struggling to swim today, tomorrow you are going to be drowning. the other part of the challenge is we're spending up to 80% of our time in meetings and e-mail. francine: not on mobile? i feel like i'm attacking my mobile, like physically. chris: increasingly mobile devices. we are seeing higher numbers of apps, more demands on our time

and energy to be productive, but it is a losing battle for most companies. the thing that evernote does is try to help people be more successful. we make people productive by helping them separate that signal from noise. and when meetings happen, we are all frustrated when we talk about things and ideas never evolve, but we try to turn those ideas into action. those are things where technology and services can help. francine: i guess it is a crowded place. quitete expanded significantly and had to bring it back. they've put you in charge. did you expand too quickly? we often look at tech companies in the states and say, they put so much money behind that they become big. is there a danger? chris: the service we do transcends borders and languages and culture. everyone takes notes. everyone has ideas. it was quite natural when we

received a lot of venture capital early on to expand very rapidly. my first observation when i came in as ceo was, we expanded a number of different ways. we were doing too much. youoday's environment, if are not world class at things you need to be, you are going to have trouble competing with many other startups or other companies. we had a great opportunity to narrow our focus. coin, other side of the if you think of the top and bottom line, we wanted to dial-up revenue growth. there's a saying that i believe says revenue growth solves all known problems. we evolved our business model and we are seeing about 40% growth this year in terms of people paying for premium service. francine: do you want to ipo? chris: eventually. right now we want to have all sorts of paths. francine: what is one thing that

will change our lives in the next few years? we hear about wearables. we had the apple disappointing the markets a touch. his voice activation the one thing we need to look out for? we have it now, but few people use it. chris: as we look to the future, we are looking for technology to catch up and be part of the solution. right now it is part of the problem. we have the best minds in the world obsessed on productivity. one of the ones the themes we are placing a bet on his voice. if you think about what is happening, we use our thumbs to type on these small screens. even typing is not a very human behavior. francine: it is if you are a journalist, chris. chris: good point. but voice is so much more natural. mytechnologies like siri, former employer, google sees up to a quarter of their searches

now done through voice, alexa from amazon has evolved how voice is used and the effectiveness of translating voice into transcription and meaning. francine: but when will it become part of the business? siri, my kids use it to ask all sorts of stuff which i don't want to answer. i haven't seen anyone in the business environment using. chris: we are working to remove friction. we like to say we are capturing ideas and thoughts at the speed which you come up with them. the best way is to use voice. you will start to see it enter our product. we are experimenting with it right now. it is a new interaction behavior for humans. we are experimenting with different francine: ways to make it effective. francine:what makes your -- francine: what makes your life difficult? chris: if i had to say one

thing, the team you build is the company you build, and the best team wins. finding great talent, developing them and retaining them overtime, is really hard. the fight for the best talent -- francine: where do you find them? chris: we are primarily in silicon valley. but we have a thriving presence here in europe. we've had success in china. our earliest investors and community loyal users have been in japan. we've had success all over the world. talent isd retaining what it is all about. francine: great to have you on the program. chris o'neill, ceo of evernote. a next, north korea detonates bomb, saying it has the ability to add a nuclear warhead onto a rocket. this is bloomberg. ♪

francine: a little bit of market action. u.k. 10-year yields rising to 1.8%. the bond is actually dropping and the yield is the highest since august 3. now on to other news. south korea has condemned a nuclear test conducted in the north and has said it will try to develop a high-powered

warhead. the secretive nation confirmed it successfully detonated a bomb. for more, let's get to our bureau chief, peter pae. how significant is north korea's claim that it is now able to miniaturize a nuclear weapon? be veryt would significant, but i have to caveat this with, if it is true. north korea has made claims before that have never been verified. for instance that in developing nuclear missile back in 2013. and in january, that they detonated a hydrogen bomb. none of those have been verified. this time there are some significant signals that they may have detonated a miniaturized atom bomb mainly because the south defense ministry gauged that the explosion from that test was equivalent to about a 10 kiloton

bomb, which would be a significant improvement from the january test. overall, the assessment right korea serious, that north could be one step closer to developing a functional operational nuclear weapon. what can the u.s., japan, and korea do to keep north korea, or determining north korea from pursuing its nuclear ambitions. 8 the mode -- peter: the mode right now is for continuing pressure. so far it hasn't worked. north korea has continued to develop and work on nuclear technology. what i think the key for many of the analysts who observe north korea is china.

that is where the wild card is. north korea is heavily dependent on china for pretty much its economy. next willhina will do be the key. francine: peter, thank you so much. ♪

francine: welcome to our weekly brexit show live from bloomberg's european headquarters in london. every friday we round up the news and analysis that will make you smarter about what is next for britain in europe. this is "brexit: what's next." we have a little figure coming out. let's look whether it does have an impact on pound. the nikkei trade balance for the month of july, we have that. july goods trade deficit, 11.8 billion pounds. pretty much in line with what analysts expected. we have quite a lot of data coming out. second quarter construction output. it is almost just stopping short of counting that brexit vote.

-0.1%.put, it doesn't completely count the brexit vote. new construction orders for the second quarter rising some 8.6% versus the first quarter. pound, 1.3295. we will have plenty more on that. first let's get you the brexit news with nejra cehic. nejra: european union finance ministers need to schedule an extra meeting to prepare for the negotiations with the u.k. over its planned departure from the block. so says the austrian finance minister. he reckons drafting the eu stance can't be left to germany, france, and italy. finance ministers convene later today. stood by the actions of the bank of england around the brexit vote in a grilling by

the u.k. treasury committee. carney says the boe's stimulus package reduced the fence the u.k. -- the chance for u.k. would face a recession. he also said the bank has room to cut the interest rate further. u.k. manufacturers cut production in july as brexit from a rocked the british economy. output fell 0.9% from june. total production rose 0.1% thanks to a jump in oil and gas output. ubs may have to move jobs out of london in the wake of britain's decision to leave the european union. that number represents 30% of staff in the capital. the comments came a day after the lloyd's of london chairman said his firm and other insurers ofl be forced to move part their businesses if single market access isn't kept. u.k. chancellor of the exchequer philip hammond warned european

governments they will hurt their economies if they use brexit negotiations to shrink london's financial might. lose,ntries have much to even many companies use its markets to raise capital, he says. the comments came after he met top british bankers. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. francine: thank you so much. with more than $50 billion of investments in the u.k., it is no surprise the japanese government feels it has a stake in making brexit a success. the country has issued a list of demands aimed at protecting its carmakers and financial institutions after britain's vote to leave the eu. it says japanese companies could still move operations out of the u.k. if brexit makes it less profitable. joining us for more is koji tsuruoka japan's ambassador to

the u.k.. thank you for joining us. you are one of the first nations that came out. we know that your prime minister told prime minister theresa may that more needs to be done to ensure that the u.k. companies, or the u.k. government, pro-dex the interest of japan. how busy have you been? mr. tsuruoka: we've been meeting with the japanese industry leaders in london. there are more than 1000 companies invested in the u.k. and they employ 140,000 people here in the u.k. therefore they have a fairly large steak and they have a significant presence in the u.k. economy. of course that also means they are contributing to the european economy as a whole. benefit ofto the global economy. the global economic growth is something we would like to maintain, sustain, and promote

further if we can. brexit has been as a result of the referendum and the british people has taken a decision. that up for the government how we could implement those and reduce whatever risks that this may arise. that themake certain healthy, sustainable economic development continues on. francine: ambassador, there's a lot of concerns that the u.k. will lose access to the single market unless they back down on immigration requests. what would be the preferred position for these businesses that make a huge amount of money and provide a huge amount of work to the u.k. economy? mr. tsuruoka: this is one of the salient features of japanese investment. they are not just buying real estate or company stocks. they are building factories in

u.k. and they are working with the u.k. people to produce tangible products. when products are produced, they have to be sold, and not just u.k. market, but it is the european market that these factories are aiming at. therefore, if there is any problem with access to selling these products to the larger market, of course they will have to think of how they can address that. that doesn't mean necessarily that they will have to reduce or get out of the u.k. francine: have you spoken to any ceo's that are putting in place a plan b? mr. tsuruoka: there's no need to do that now. if we talk about plan b today, that may be the unwanted prophecy that people will look for. that is absolutely not the point

at this time. may hasnister theresa spoken to our prime minister and prime minister oabe has told clearly to prime minister may that japan will work with u.k. to ensure that brexit will do a successful business for all the stakeholders, including japan and the japanese industry. we would like to have the voices of the japanese industry heard and then taken into account as u.k. prepares to go for the eu negotiations. it is a point also that needs to be taken that we have also issued the same message to eu. it requires the two to produce the good result. we are always prepared to engage, if necessary, in a constructive way so that we can ensure benefit for all. francine: what is the preferred

way for japanese businesses? to wait, to invoke article 50 or is itast two years, better to do it as soon as possible? mr. tsuruoka: this is a question that doesn't have a clear answer now, because many of these issues involve unknowns. there are many decisions that have to be taken. that can only come after very thorough consideration of all complexities and difficult issues. this is going to be an issue that the sovereign state in history has never faced. it requires a lot of patience, good work, high-quality research, and then full consideration, including all the stakeholders. therefore, haste is not going to be the answer to this. very careful, very delicate actions with all inclusive approach, is going to be the key

for success. francine: you also said that japan wants to make its views clear to the eu. who do you speak to in these matters? is it germany, france, the commission? eu, onruoka: initially, economic issues, is represented by brussels. that is why we have presented our message to brussels. for now. but since it is now public, we thealso sharing those with eu 27 on top of u.k., which makes 28 eu members today. this will engage all of these countries before you can come to a conclusion. francine: another line of thought says that if brexit more to mean that the u.k. loses access to the single market, it would japan and china that would benefit because you could do

quicker trade deals. is that something you've been thinking about? mr. tsuruoka: i don't quite see the point how we can benefit of approach.d u.k. will be able to make decision on its own and not being required to consult with the other 27 on trade matters. that may be something that will be beneficial for countries that would like to have a very early , especiallyissues in the form of trade agreements. that is something that will have euwait until u.k. exits because only after that u.k. will be able to officially, with mandate, negotiate those trade

agreements with other countries. talk and we talk, or i bloomberg talks about japan, the japanese economy, governor kuroda on a daily basis. what is the question you get the most when you meet international investors? mr. tsuruoka: economy of course is one. the prospects for continuing robust japanese economic growth is a important element. i think economy also rests on political stability. surprisingly, many economic experts are also watching how stable politics are. whether domestic politics affects the predictability of economic growth or not. i can assure you that the japanese politics is totally stable, predictable, and this is the basis for the come back that the prime minister has led. francine: with many years in the

diplomatic service, what was your reaction when you woke up and found that north korea had tested a nuclear weapon? is there anything that japan with the u.s. and others can do to deter north korea from going further? mr. tsuruoka: we will definitely have to have much enhanced and stronger consultation with the china,epublic of korea, russia, those are all important partners in the six-party talk which also i have attended at the earliest stage. unfortunately, those talks have been stalled. this is first an issue that we have to look at and therefore revive a mechanism to have the dpr k, the north koreans, engage in talking to us so we can indicate collectively what they

should do. this goes back to the basics of international relations, rule of law. rule of law must be respected. if that is no longer the case, then these are the happenings going to threat economic growth. francine: thank you for making the time to come to our studios. mr. koji tsuruoka, japanese ambassador to the u.k. quick to reassure investors in the aftermath of the brexit vote. how do they feel? that interview is ahead. this is bloomberg. ♪

francine: this is "brexit: what's next." let's get to the bloomberg first word news with nejra cehic. nejra: north korea confirmed that it has conducted its fifth nuclear test. the south korean president has strongly condemned the latest provocation from kim jong-il un's isolated regime. china's factory gates deflation eased for an eighth straight month in august, falling 0.8% from a year earlier. consumer prices rose the least in almost a year, 1.3%, trailing estimates for a 1.7% increase.

jeffrey gundlach says it is time for fisting come investors -- to fixed income investors reduce the duration of their positions, move money into cash, and protect against volatility. gundlach said that while rates in the near term, he says that this is the beginning of something and people are supposed to be defensive. the u.s. federal reserve has urged congress to related merchant banking in which firms buy stake in companies rather than lending money. another was a call for limits on wall street ownership of commodities after lawmakers accused goldman sachs and other banks of seizing unfair advantages in recent years. ceo hasi paschi's agreed to step down from the italian lender. he leaves in the midst of a plan to bolster the balance sheet and

attract new investors. the 50 or world -- the 58-year-old will stay in the position until the company finds a successor. global news 24 hour was a day. i'm nejra cehic. this is bloomberg. francine: thank you so much. the u.k. government needs to provide the city with more certainty about the timing of its plans to quit the eu according to the ceo of aviva. i sat down with mark olson to talk about the finance industry in a post-brexit world. mark: most people seem to be saying, we judge it on what is happening. i think history will judge it in 5, 10, 12 years time. i think the u.k. is doing a foxtrot. the rest of europe is doing a waltz. when you are doing that, it is natural you will stand on each other's toes. it is going to take some time to work out where it goes. francine: are you concerned for

aviva because of brexit? mark: aviva is in this unique position. it doesn't impact us operationally. in allt subsidiaries these markets. i've got different regulators anyway. most people don't realize that in the eu, you've got multiple markets and multiple regulators. it is no easier for me to do business in france than it is in singapore or china. francine: i'm concerned about brexit. i'm concerned about my job, my future security. do i stop spending on insurance or increase spending on insurance? aviva typically insurance is countercyclical. what we do is, we look after people when bad stuff happens. when people look in that context, it can be quite good. francine: where do you see brexit going? the government probably doesn't

know, but you must have contingency plans. mr. tsuruoka: the impact on us is pretty modest. i think what we need from the government is a certainty of timeframe. i think it is entirely appropriate they haven't invoked article 50 yet. we need to take some time. we need to take a deep breath, to sort out what the plan is. the answers are going to be different for different industries. i'm impressed. we've got a new prime minister, we've got people in place. that is some degree of certainty. markets crave certainty. francine: are you worried that london will stop being one of the financial capitals of the world? mark: not at all. london is the home of things like insurance. for us it doesn't make much difference. london has great labor laws. it is a great place to live. it has all the systems.

that, io unwind all of think is a pretty tall order. francine: what do you need from the government? mark: i think what the investment market and us want is certainty. you can get that certainty of a time frame. article 50 hasn't been invoked. then you've got two years. we've got to look at what trade deals are and what the rules are. there's an extraordinary amount of work to do. it is up for businesses, media, to have a say in that. i think the consultations have started and will continue. francine: could you drop pearls with new zealand? like 1973 that the u.k. joined europe in terms of a market. 40% of newge, about zealand's exports came here. as of today, is 5%. the new zealand economy has been

a bit of a rock star economy for a decade now. they took a long-term view. they developed trading partnerships with china. i think that is new zealand's major trading partner. the u.k. in europe will always be close. but i think the u.k. will also now look to other markets and develop relationships, and if you think long, that could be a good outcome. francine: that was the ceo of aviva, mark wilson. you can watch the full interview next friday on "leaders with lacqua." next, british airways warned over profits just hours after the eu referendum results. the ceo now tells us how the airline is faring. this is bloomberg. ♪

francine: mark? mark: down for a second day. the two-week stretch of games, the longest since july, could be coming to an end. this bank, wanted a pesky, ousting the chief executive. investors seeking a change in leadership to back the turnaround plan. the board wants to identify the new chief executive. this is the company that has

been burdened by mounting bad loans. that is under the previous management. viola forcing to take stake funds. those efforts clearly didn't pay off. the bank still posting the biggest capital gap in european stress tests. shares in his tenure have fallen 95%. since 2007, this is the chart. shares are down by 99.7%. burberry shares down by 2% today. shares falling following reports that it cut hong kong and mainland china prices of its leather handbags up to 20%. it is a low profile move. shares down by 2%. love this chart. is at its lowest level in a year. this is a chart that shows it won't last. futures the next three months

trading at the highest level. francine: thank you. stay with bloomberg. i will be joined by michael mckee. this is bloomberg. ♪

tom: testing times. north korea conducts its fifth nuclear test. bond investors should prepare for rising interest rates and higher inflation. china's inflation slows. is the outlook stabilizing? this is "bloomberg surveillance." i'm francine lacqua. michael mckee is in new york.