francine: it's the european paper tantrum -- is the european paper -- paper tantrum in the works? chicago fed president evans says he expects it rate hike this year. rockets selloff. -- markets selloff. bank -- banks fight back on brexit. 10 billion pounds of tax revenue at risk. ♪ francine: welcome to "the

pulse." live from bloomberg's european headquarters. let's get straight -- some breaking news. to 51.2.falling the initial rating was 52.1. they are pretty much in line with where economists were expecting them to be. repressing them a touch on the back of this great bloomberg ecb scoop. currencies from emerging markets falling. monetary policies are turning commodmmodity of -- itive. the vixx index pretty much unchanged as well. watch out for that amazing scoop out of frankfurt. our team there led by paul

gordon. it will to paul in just a couple of minutes. let's get to the bloomberg first word news with nejra cehic. told aecb officials bloomberg the bank will wind down bond purchases before ending its program. that may happen in temps -- in steps of 10 billion euros a month. the euro climbed to a three-year -- mario draghi said qe will continue until next year. --frey good like says jeffrey goodlatte says it may help prompt central bankers to reconsider their approach. you cannot save you faltering economy by killing your financial system and one of the clear poster children for this is deutsche bank's share price. by's presidential

candidates have attacked -- the u.s. vice presidential candidates have attacked each other. tim kaine slammed donald trump on taxes. mike pence hit out america's role in syria. >> i think he is a running mate for hillary clinton, because in the wake of a season where american families are struggling under the weight of higher taxes and obamacare and the war on coal and the stifling avalanche of regulation coming out of this administration. hillary clinton and tim kaine want more of the same. >> we trust hillary clinton with the most important thing in our life. we have a son deployed overseas and the marines right now. the thought of donald trump as commander-in-chief scares us to death. nejra: global news, 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries. cehic.jra

this is bloomberg. francine: the european central bank is likely to gradually wind down bond purchases before the conclusion of its program of quantitive easing. that is according to ecb officials that have spoken to bloomberg. it may happen in sets of 10 billion euros a month. paul, this is an amazing bloomberg scoop. this doesn't mean that tapering is a near, does it? paul: it doesn't. this is an important point to make. the talk of ecb is whether to taper perhaps by 10 billion euros a month. that will take you down to zero over eight months. when that will start is not yet decided. according to the ecb, it has not been discussed formally. what we are talking about here is informal chat.

that is a very important thing to note, because the ecb has said it will continue with his bond purchasing program as long as needed. you can tip -- you can take a look at the bond scarcity issue. withhat the ecb is dealing as it reviews whether it needs to just structure of the qe program to make some and eligible bonds eligible. eligible -- you've got a delicate situation here for the ecb. the pmi numbers tell you the economy is still weak. inflation is nowhere near the golden standard. there is a need for more stimulus. xc the thing is coming from that the ecb would like to see -- the ecb would

like to see stimulus coming from the government's -- it will run out of firepower at some point. that is why this is delicate. francine: paul, thank you so much. let's welcome our guest for the first how -- first half hour of the show, richard jeffrey. thank you so much for coming on the program. what do you make -- i don't know if i want to ask you what the ecb is going to do or the market reaction because it is clear whatever you think of ecb, the market is pretty nervous? richard: i think the market is rightly nervous. with ecb seems to be a knowledge and is its monetary policy decisions over the past two years have been a failure. what we have seen going on in the banking sector over the summer's -- over the summer, you can link to the failure of the ecb.

they have been touring money into -- they have been touring money into the european economy. with no real objective. ofhout a full understanding how that edit liquidity is going to influence economic activity. there is no transmission mechanism so the point is what the ecb should have been doing is rather than just pouring money and -- pouring money in his looking at the weakness of the banking system. that is what happened in the united states. it happened later in the u.k. it has not happen in the eurozone. mario draghi would completely disagree with you. say i gave an opportunity where i am trying to spur growth. it is up to the fiscal side of things to take over. you may not say this is a failure, you may say i am pretty

confident that governments may -- the mandate is not fixing the banks, it is getting the inflation up to 2%. richard: the euro is acting as more of a constraint. the are structural issues as well in the eurozone economy that need to be addressed. monetary policy is very important. it is not being used effectively . rather than buying high-quality assets -- francine: you would have not done qe? richard: i would not have done it in the same way. you need to take the lower quality debt out of the market. i don't think there's any positive result from taking the higher quality debt out of the market. you need to clean up the banking system by taking the lower quality debt out, because then you free up -- you free of -- you free up the banking.

francine: the problem is that if you are the central bank and you decide to buy corporate bonds, would it not be to spur ceos to spend more cash echo richard: -- spend more cash? richard: the negative interest rate policy has also undermined economic performance. the conventional wisdom is that if you cut interest rates to very low levels, you will encourage industry to invest more. francine: and to spend. richard: it is not that easy to borrow if you have a week banking system -- if you have a ak banking system. also, there is another factor here which i think is important. low interest rates have an influence over behavior in the economy. francine: psychology.

richard: particularly in the corporate sector. there is no challenge for them to grow profits. bond yields a very low. given yields are high -- dividend yields are high. the dividend yield is higher in most cases that you would get out of running yields from a bond, in which basis there is no pressure on companies to grow their profits and dividends. that is the problem. if everything went as the ecb thought it would, we would have very high capital investment numbers. they have to explain why their policy has not had that impact. francine: richard, thank you so much. lotill speak to richard a more about ecb policy and whether mario draghi made a mistake. in terms of what we are seeing on the foreign exchange market, the pound will erase the days losses. i think we have a chart up for the pound.

i will make one up and get it to you. stay with the pulse. negative rates will eventually bankrupt the banks. we'll talk interest-rate policy --the future of the european 70,000 jobs. we speak to the co-author. less than five weeks until america chooses a new president. what were the highlights of the one and only vice presidential debate? this is bloomberg. ♪

francine: this is "the pulse" -- "the pulse." welcome back. >> and m group has offered to buy delta lloyd to boost its scale and the insurance sectors. delta lloyd has rebuffed the unsolicited offer. they are trading lower on the news while delta lloyd is higher. tesco has reported first half earnings that beat estimates sending shares higher. operating profit rose 60% before one-time item. chief executive officer dave lewis's plan has gained traction. his brought growth by cutting prices, narrowing audit ranges and improving customer service

amid a price war. google is embarking on a wholesale revamp of its mobile phone strategy debuting. it will go head-to-head with the iphone for the first time. they are the first phones that were conceptualize, design, tested in-house. they feature a virtual assistant. that is the bloomberg business flash. francine: make -- thank you very much. jeffrey goodlatte has sounded off on the to bank. it's not -- it highlights the impact. yesterday at the investment conference, goodlatte said that if you keep these negative rate policies for a future period of time, you are going to bankrupt these banks. deutsche bank shares have felt. richard jeffrey is the chief economist.

richard, thank you for staying around. mark, you have a great piece on bloomberg view. he goes to the fact that we keep on speculating about that banks because it is cool to go back to england. +++ theology which is about the end of days. it is the end of -- i have this worry that because we do not see 2008 coming. there were some warning signs. i pointed to stuff in the press that raised a few alarms. now we are so keen to see the next crisis coming, we jump at every single shadow. you will miss the big one.

if a surfer jumps in every big wave, you will miss the big one. remember the catch of at -- catch up add, good things come to those who wait. richard: i think there's a lot of truth that we are jumping at shadows. it is not only people in financial markets. i think central banks have waited far too long to begin the process of normalizing monetary policy. the source of policies which have been pulling out by the ecb, but also elsewhere, are giving the impression that it is bond going for everyone. there is thinking that growth should be stronger up to the 3% mark. it was 3% growth that was the problem. it is not the solution. the source of growth rates we are seeing now, such a banks -- francine: mark, i just don't see what is rosie out there. if you look at the banks, it is

not the end of the world. the business models don't work. smaller bankd a sector and fewer banks. we still have an efficient functioning banking sector. razzmatazz. francine: maybe the share price will have to adjust. mark: as long as the banks have enough capital, there is a difference between solvency and share price. they are not really linked. i don't care if deutsche bank loses 45%. francine: a lot of people do. richard: if you are an investor, you do. the real point here is rather than helping the safety of the banking system than central banks have undermined it -- have undermined it. people are beginning to understand that this undermines

the banks financial model. they have not taken bad debt out of the system. they have let them fester. they have been festering while interest rates have been very low. francine: there was a big investor, a central banker and there was a banking ceo. it was very clear that the central banks take offense by the fact there is trouble in the banks in terms of business model probability. the share price tanks and people turn to the central banks in people say guys, this is your fault. how much damage our rates actually doing? mark: they say look at your dividend policies over the last four to six years. the reason your balance sheets are too weak -- look, the size of deutsche bank's balance sheet is half the economy. it should not matter if it is $5

billion, $15 billion or $20 billion. richard: we have not taken enough steps to clean up the banking system. case.ack to the counter in the united states they acted much earlier. mark: the banks raise capital much quicker. richard: they started lending. that caused the economy to revive their. way that thea european economy has failed to do. at the core of this, it is the euro. trying to have one monetary policy umbrella over a sub optimal area. francine: that is what we will be talking about next. what happens to as the merkel if she doesn't become chancellor next year. both stay with us. an exceptional rate of job creation is causing problems for the world's central banks.

that is the view of our guests, richard jeffrey. we'll talk global growth. we will focus in on the eurozone. that is next. this is bloomberg. ♪

francine: welcome back to "the pulse." i am francine lacqua. my guest this morning saying very weak growth in western economies have created a dilemma for central banks.

richard jeffrey. also with us, mark gilbert. you can find his columns on the bloomberg. what is wrong with the world, richard? we talked about central banks. you say the eurozone is not efficient. the you want a smaller group for the eurozone? -- do you want a smaller group for the eurozone? richard: if i could rewind it back, i would not have introduced the euro. the underlying economic after buttes of various other countries are very different. put greece and germany together and pretend they are the same sort of economy. that is what you do with the benefit of hindsight. there are current ways of looking at the world economy that are not helpful. as i said, this is an idea that

we should get back to the growth rates that we saw prior to the crisis and recession. those were abnormally strong. those were the growth rates that led to the huge imbalance buildup in the economies that was supported by so much debt. they required that amount of debt. a more subdued rate around 2% should be normal. we have to adapt to that. picture, theher low productivity growth -- productivity rate. high employment growth is not a problem. you want to see it in conjunction with decent productivity growth. if you don't get to two together, -- you get more people employed, which growth is very low. wage growth comes from that activity growth. -- from productivity growth. it is not just staying in the eurozone. richard, richard basically wants some sort of checks and balances.

a central bank -- the markets behave in a proper way. richard: my answer to my nottion is there is a enough -- there is not enough challenge for companies to grow profits. they are giving the cash back to investors. francine: ceos are adults. a should look at what they need to do and want to grow more -- they should look at what they want to do and want to grow more. mark: if you can generate sufficient growth to keep your share price steady or rising as a ceo, happy days. it is not about being stupid. every time the investors -- every time you invest it is a risk. if you can take no risk and deliver to your shareholders -- also because strategists choose between bonds and equities because bond yields are so low. they have to going to equities. i don't have to take any risk at

his -- risk as a ceo. francine: i need two hours with these two. up next, the banks battle brexit. a new report shows oh hardbacks it will destroyed many of jobs. ♪

francine: welcome to "the pulse" live from bloomberg's european headquarters in london. we are getting something out of the u.k. for the september services pmi. this is a huge component of gdp. this goes back to the banks, finance, and insurance companies. falling for the month of september, but stronger than economists had expected. we estimated 52.2. it came in at 52.6. it was not as strong as august,

which was 52.9. there is a little bit of movement on pound. it was a little bit volatile and yesterday we had quite a selloff in pound. we will have plenty more on brexit and the u.k. economy. let's get to the bloomberg first word news with nejra cehic. nejra: ecb officials have told bloomberg the bank is likely to wind down bond purchases before ending connotative easing. they say that may happen in steps of 10 billion euros a month. the euro climbed to a three-year high against the pound. mario draghi has said qe will continue if necessary. jeffrey come lack says deutsche bank's something -- slumping share price highlights the region's lenders. he says it may help central bankers reconsider their approach. he told a conference in new york, you cannot save your

economy by killing your financial system. down in shares are 2016. the u.s. vice presidential candidate attacked each other and they went head to head in their first and only debate. while tim kaine slammed donald trump on his taxes, michael pence picked out hillary clinton's e-mail controversy and america's role in syria. >> i think he's a very fitting running mate for hillary clinton. when american families are struggling in this economy under the weight of higher taxes and obamacare and the war on coal and the stifling avalanche of regulation, hillary clinton and tim kaine want more of the same. with trust hillary clinton the most important thing in our life. we have a son deployed overseas in the marine corps. we trust hillary clinton as president and commander in chief.

the thought of donald trump as commander-in-chief scares us to death. nejra: the international monetary fund has upgraded its outlook for the u.k. this year after the economy proved more resilient than expected following the brexit vote. the imf remix -- predicts growth the fastest in the group of seven. the fund cut its 2017 forecast from 1.3%.on the organization feels the pound needs to weaken further. for the u.k., the situation is quite uncertain. they have a very large current account deficit. it is unlikely they can sustain the flows of inward investment that have allowed them to run that deficit. there needs to be an adjustment

of the exchange rate. we've seen that starting to happen. as the reality of brexit sinks in, as it has been this week, the currency is depreciating further. nejra: global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. i'm nejra cehic. francine: thank you. britain crashing out of the european single market could cost banks and businesses almost 40 billion pounds in lost revenue according to a report. joining me now is the report's co-author. also with me, bloomberg columnist mark gilbert. thank you so much for joining us. the report, is there anything new? is the basis that we are looking at a hard brexit? i'm fed up with people telling me we can't tell the difference between hard and soft. that makes the difference in how

many jobs we lose. the report -- matt: the report isn't making predictions. the purpose of the report is to provide a robust and independent, fact-based, underpinned by data, that can be used to inform the industry and government with respect to the implications of different scenarios. so yes, there is a scenario which you dubbed hard brexit. we don't call it that. we think in terms of low access. francine: it is the same thing, isn't it? matt: i haven't seen a firm definition of hard recs it. the low access is quite significant. the revenues and jobs that would be foregone. there is a scenario, the low access scenario, in which the

numbers you cited are correct. and 40mately 70,000 jobs billion of revenue. equally, there is a scenario which, if we are able to maintain equivalence and passporting, which has a much lower impact -- francine: what is the likelihood at the moment? matt: we don't speculate at likelihood. the negotiations are going to be multidimensional. financial services is only one element of that. it is simply to quantify the impact of those alternative scenarios. francine: that is why we brought you in, mark. mark: i was at the tory party conference on monday. you look into the whites of their eyes, there are some easy conclusions to draw. they think the city is going to be fine. they think the eu needs us more than we need them. secondly, if that isn't the

case, they think there's a world of opportunity outside of the eu that we are not exploiting because we are so focused on our european gardeners -- partners. i think they want a hard brexit scenario. francine: there's also one thing. what we've learned is we have a lot of voices at the moment. it is unclear what the plan is. but immigration is not something this country wants to give up. if you look at switzerland, and this is not about the last 20 years, they had a referendum that was overturned because the eu said, no way. if you don't allow our people into your country, you don't have access like you used to. the overturned the referendum. that is a lesson to be learned for the u.k., isn't it? the ministers are saying, at the moment we have free

trade. they will have to impose tariffs on trade. it is a fairly simple argument, but one they believe in fervently. matt: there is some difference in services. trading goods, there is no doubt that the tariffs and taxes are the key issue. services, it is much more about achieving equivalents with regulators. being deemed equivalent and therefore able to provide those services. mark: from day one, we are equivalent. that is part of their argument for why they think there is not so much of a risk. equivalence is something that is granted and can be withdrawn, particularly as regulations in the eu may change. that is a fairly shaky foundation. mark: i couldn't agree more, but they think the withdrawal is not in the eu politicians' economic interest. francine: because they have more

to lose than the u.k. does by withdrawing. mark: and the ministers responsible for negotiations, they are convinced on this. they are not just spinning a line. they believe it. matt: that is certainly a view. the benefit of our report is that you can understand the implications of that for the sector. , bute not forming a view we certainly quantified the impact of that as an outcome. mark, something we were talking about during the break, someone refuses and said that eu nationals should be used as a bargain chip. if you are an eu national in the u.k., 2 million of which are in full employment, we cannot guarantee, unless we have a counterparty -- if you are a ceo, you have to make a call now. you need to know how much money

you put aside. you need to think of your business model. mark: the choice about where to put that next office or where to hire those people. given the rhetoric from the tory party conference, i don't see how you would put another euro into the u.k. as investment. i think all the signs are, take no prisoners, play hardball in the negotiations, be as fierce as we can be. if it all goes wrong, the ministers think we will still be fine. francine: you could say that actually all of the politicians, or all the people in charge, have no become leavers. mark: there is a unified front. here is something that is not appreciated. what the ministers are saying is, the reason a lot of people voted for brexit is they are still angry at the financial sector for the events of 2008. the secondary impulse is, they

now are willing to punish the city for those transgressions. that is an interesting twist. the idea that we won't get city special status in the negotiations. it is more than that. it is actually diminished status. i don't know if your report has anything to say about the implications of financial crisis government attitudes. matt: it doesn't. it looks at outcomes associated with different scenarios. what i'm hearing from you is there's sort of two elements. one is that government is not concerned about the city. it is actually maybe something they are willing to de- prioritize even lower down. the second is that the eu benefits from the negotiation it has with the u.k., which provides its financial services center.

it is certainly a valid view that there's a mutual interest between the u.k. in europe, which will be a central point of their discussion, around the value the u.k. brings to the eu capital market. francine: thank you so much. matt austen there and our very own mark gilbert. check out his column. , less than five weeks until america chooses the new president, we bring you the highlights of the one and only presidential debate. plus, we will be talking through the big stories of the day, including the latest on deutsche bank and the european banks. then, the managing director of the european stability mechanism joins us to discuss europe's dilemma. this is bloomberg. ♪

francine: welcome back to "the pulse." i'm francine lacqua. we had some breaking news from the european central bank. let's head to the bloomberg with nejra cehic. nejra: the stoxx 600 snapping a winning streak which had been its longest in almost a year. we are down about 0.7%. just wanted to show the context. we are seeing the stoxx down after bloomberg news reported a consensus was building in the ecb to rein in qe. it is taper talk sending these

jitters through the markets. industry groups on the stoxx 600, most of them down. leading the losses followed by utilities and telecoms. financials pushing higher at the moment. any prospect of higher rates does tend to have a positive impact on financial stocks. i want to show you one of the best-performing stocks on the stoxx 600. it is tesco, up about 9% after earnings beat analyst estimates and set a target to restore its battered profit margin. some signs perhaps that there's a turnaround or a revival happening at the u.k.'s biggest grocer. let's just take stock of the big picture with this great function, gmm. pretty broad-based losses across europe. the cac 40 down 0.7%. euro holding its gains. we saw that basically recoup its

losses after the ecb news was broken yesterday. sterling is still at a three-decade low. 0.3% after itd up dropped yesterday. younted to show euro-sterling. this, basically, sterling is at a five-year low versus the euro. watch when we to are talking about the pound and the impact of these concerns about a hard brexit. finally, we can't leave it without talking about the dollar. fed policymakers hinting that november is live. jpmorgan is calling a 2% treasury yield by year-end. here we are seeing the dollar tracking treasuries, underpinning the greenback. francine: thank you so much.

less than five weeks until america chooses a new president, last night, the vice presidential candidates went head to head in their first and only debate. while tim kaine slammed trump on his taxes, mike pence hit on hillary clinton's e-mail controversy and the tone of her campaign. smart not to pay for our military? it is smart not to pay for veterans? it is smart not to pay for teachers? i guess all of us who do pay for those things are stupid. >> u.n. hillary clinton would know a lot about an insult driven campaign. at a time of great challenge, where we've weakened america's place in the world, stifled america's economy, the campaign of hillary clinton and tim kaine has been an avalanche of insults. francine: for more, i'm pleased to welcome morris reid. morris was a senior staff aide

in the bill clinton administration. always a pleasure to speak to you. you watched part of the debate. it was pretty uneventful, wasn't it? designedp donates are to be a reinforcement of the messaging. you have a situation where these guys are much more of an attack dog now, driving the hard points they don't want their candidates to do. it was not anything that was surprising or frankly that interesting. francine: this is some of what the bloomberg view, some of our editors wrote, one uninspiring debate. there are so many undecided voters. what do they decide on, personality, policy? if you were managing hillary clinton, what is your advice? morris: if it was up to me, she would be focusing on ohio. i would have her in ohio and in those five to six other states

that are important. this has become a personality driven campaign, because you have a personality in the race in donald trump. he is not focused on substance. he is hitting the democrats where they are most week, the economy, pockets of anxiety, trade. he's been great at finding those pressure points. the problem is he hasn't been able to expand. the next debate is going to be interesting when you have a candidate like donald trump who says, i'm smart, i never paid taxes. when a voter says, i make $35,000 a year, i pay my taxes, why don't you? it will be difficult. francine: there's a lot of copy written on the fact that donald trump and the republicans had the worst week for any presidential candidate at this point. but he just repeated stuff that he sent in the past. is there really a wave turning against him or is it just that

the elite that right the things can't capture the popularity of mr. trump? morris: people are now paying attention to the election. in america, we do this for two years. people start to pay attention post-labor day. francine: and yet millions are spent before then. morris: of course. this is a huge debate with donald trump because there were so many eyes. you will start to see some celebration. -- some separation. here is the issue. clinton is also a challenged candidate. candidate,a stronger she would have had a lot of separation. this will come down to turn out. whoever is able to generate their base. donald trump space is very excited and passionate. can he expand it? i'm not sure. hillary's base is getting excited.

will they get excited enough in time, like brexit, and will they go to the polls? francine: you believe the polls? it is 50-50 really. morris: i've said this from the beginning, i really believe this, the only way this thing turns is if donald trump has a tremendously poor debate. i think you will see this thing drop like a rock. i don't believe he will. i think he will be ok. francine: he is tweeting at 3:00 a.m. about win and and all sorts of things. l sorts ofnd also rich o things. morris: this plays into his persona. it plays to who he is. he's authentic, he's a real person, he's upset. he's doing what most people would do. if you are upset, you send a rant at 3:00 in the morning. will that be enough to elect him president?

i'm not sure. this is why you see his people say, i believe him because he's a real person. this is where hillary clinton has to connect with voters better. francine: thank you for coming on. as we go to break, let's take a quick check on the markets. we've had a little bit of repricing. this is on the back of investors worrying that policies of central banks are nearing the end of ammunition. currencies as well falling at the prospect of monetary policies turning possibly less accommodative. this is for the fed. it is also for the ecb. this is bloomberg. ♪

nn group has offered to buy delta lloyd to boost its scale in insurance sectors. so far, delta lloyd has rebuffed the offer. shares are trading lower on the news. delta lloyd is higher in amsterdam. google is embarking on a revamp of its wholesale strategy. a pair of handsets will go head to head with the iphone for the first time. they were conceptualized in-house. they feature a virtual assistant, flashy camera features, and android's new operating system. that is your bloomberg business

flash. francine: thank you. stay with bloomberg. surveillance is next. we kick off the conversation with stephen king. we will talk ecb and brexit. ♪

francine: europe's tapered tantrum. the ecb is said to review the tapering strategy when it comes to winding down qe. president says he expects a rate hike this year. markets pricing in this move. says --d bond investors the harm of negative interest rates. this is "bloomberg surveillance." we have an interesting day. we get together it up