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. for theogether it up

imf, and underlying all of this is what we are seeing in the markets. tom: the markets repricing with a handle on sterling and stephen king will join us here in a bit. but i agree, the topics in the hallways will shift. taylor: let's go to the bloomberg first word news. it was the vice presidential candidates turn in the spotlight. tim kaine fended off last night. at one point, the two sparred over reports that trump may have not pay federal taxes. >> when hillary clinton said he hasn't been paying taxes, he said was smart. so it is smart not to pay for

veterans, the military and teachers? and those of us who do pay, i guess we are stupid? he faced tough times 20 years ago. his tact time showed that he went through a difficult time but he used the tax code the way it was supposed to be used and he did it really only. 48% say mike pence won the debate. 42% say tim kaine won. hurricane matthew may threaten the coast of florida. at least 11 people have been killed and countless homes have been destroyed. the hurricane may be near florida by tomorrow night. and pakistan says tensions with india are distracting the military from fighting terrorists inside its own border. invadedk, indian troops terrorist groups inside pakistan. pakistan says it is at a

critical stage in fighting the terrorists but now has to deal with the escalation caused by the indian raid. the uk leader of independence party has quit after 18 days on the job. in a statement on twitter, -- said it was clear she didn't have the support of party officers or colleagues. they have campaigned on an anti-immigration platform. it became a political force underside of nigel farage. global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries. i am taylor riggs. tom: thank you. equities, bonds, currencies. a nuanced data check today. the 10 year yield is elevated. euro strength. 49.47.il,

-- a solid move of 20.8 2 michael will speak to alan today.an that'll be interesting. sterling, 1.27 and what is not happening is the dollar index at 96, sterling makes up 30% of the dollar index. so even with a weak sterling, if you have the euro moving in the right direction, you don't get dollar strength and that is what we see this morning. on the pound, we saw a three-day decline. better than expected figures for the month of september but overall, european stocks -- and this is true for emerging market stocks -- they seem to be repricing. snapping a six-day streak.

markets are trying to figure out what comes next. tom: let's introduce this this morning. this is sterling back 100 years. down below is the sterling we know. the depreciation of sterling. to the left of that is harold then 2.4 withand further depreciation in the 60's. the red line was fixed through the war. thethe green circle here is modern peak of five pounds per dollar. so that shows you how this chart over time, the sterling depreciation. stephen king clearly remembers five dollars a pound. francine: clearly. clearly he does.

the hour andart of of the day. put thent to simply two-year spread and the 10 year spread out there, the white line. the blue is germany and the french is purple. i know we want to talk about treasuries but ended all may be changing. officials have told us that the ecb would like to gradually wind down before ending the program. paul gordon in frankfurt. stephen king. first of all, good job getting the scoop in frankfurt. what does that tell us? paul: the real report. what does it tell us?

is an important aspect to distinguish but the ecb is thinking of doing and when it is thinking of doing it. the clear thinking and informal discussion among councilmembers at the moment is that tapering is the way out of the current bond buying program. when it decides to bring it to an end, it will not do it in one , they could taper by 10 billion euros a month. issue is that when it starts doing that, because that is not decided. they say they will continue stimulus as long as needed. you have the bond scare issues to deal with which is important. could run through march 2017 or longer. what do you read about this? on earlieronomist

say that it had failed but is that too harsh? that is too harsh. there is the issue about running out of bonds, which is not particularly helpful. but i would argue that the short one problem, currently is something that both growth in the eurozone is too low. i think it is all hands on deck to stop the euro zone economy from being as weak as it has been. ecb knowsrse, the well that if you tighten prematurely or you ease prematurely, you are in danger of having the same experience that japan has been through. so it is to set up the ducks in a row, but i think we are a long way away. steven major shook

markets yesterday with a reset -- does that transfer internationally? if you look at what you call for in the bond market, low yields 2021, do you just extrapolate that out? there's no doubt that what happens in the u.s. increasingly affects the rest of the world. i think it is there to say that the rest of the world increasingly affects what is happening in the u.s.. one of the striking features over the last few years is that even money fed has been expected to raise interest rates, 10 year bond yield has come down to lower levels rather than high levels. precisely because of what is happening in japan, germany and elsewhere in europe. the u.s. setys, the risk-free rate for the rest of the world, that i would argue

today, increasingly the u.s. is being influenced by the rate being set elsewhere. i look where we -- tom: i look where we are going into the imf meeting. what is the desperation in washington? think that we are seeing signs that globalization has begun to fray at the edges. the imf is a cheerleader for globalization. one of the most successful organizations pushing for it since it was formed, and suddenly you start to see politics developed in different parts of the world that seemed to be the antithesis of globalization. whether it is brexit or support for trump or the right-wing parties in europe. all these things are unsettling for international institutions that in the past, have enjoyed

the support of western government. so these are the big questions for the imf to be worrying about. cover central-bank stay in and day out, what do you make of the market reaction? we had a bloomberg story yesterday saying there would be tapering, they haven't said they will go beyond march, is this why the markets are uncertain about what comes next? stephenwould agree with that if you look at the data, you have to believe the ecb will continue with the stimulus for a long time to come. the data that came out today was weak and inflation data is weak. and the nervousness of the market suggests that if you reduce easing, as it were, prematurely then you end up with a problem. the ecb response is yes, we will do what we have to do but governments have to play their part. we need fiscal stimulus and structural reforms.

that will also be a subject at the imf discussion this week. paul gordon in frankfurt this morning, thank you so much. coming up on bloomberg radio, michael mckee with alan greenspan. this is bloomberg. ♪

francine: this is "bloomberg surveillance." let's get straight to the bloomberg business flash. taylor: a turnaround plan at the u.k. biggest grocery chain appears 2-d gaining traction. tesco beat estimates. prices and lowered

improved customer service. there is a big acquisition in the insurance industry. japan -- has agreed to buy thisalty holdings -- represents a 43% premium over the closing price on monday. japanese insurers have been expanding outside japan to offset lower growth. and twitter is expected to receive acquisition rates this week. marc benioff has been making the case to investors that his company should be the buyer. they see twitter as a jewel with lots of potential. that is your bloomberg business flash. to have stephen king with us this morning. to link everything together, as francine and i go to washington for the imf meeting. stephen, link again of the bond to current see and currency

depreciation? changed is that sterling has finally given way, it looks to be lower for longer. depreciation for longer. are we setting ourselves up for the mother of all currency wars? is somethinge unique about the u.k. currency and it reflects the fact that currencya massive payment account. and it also has tremendous uncertainty as to how it funds the uncertainty in the future. given that foreign companies who previously invested in the u.k. to get access to the market may be investing inside the year, outside the u.k.. to do that,chanisms

there is something unique about that. getting back to the imf debate, ofre was clearly a lot debate about whether this is working. most banks have tried several and yet here we are. so there is a natural suspicion that central banks will be inclined to say ok, perhaps we can do something with the currency, instead. tom: i want to bring up a chart showsy, the red circle that this is not an outlandish call when you look back a million years. here is the moderation, and you can see down we go. is the hsbccircle call. it isn't outlandish that we could get the outlier francine: call right now.

to -- in a spoke fighting mood, he says we are looking at the same graphics. but there is an assumption that things are getting better. he doesn't think it's true. again, is there anything that policymakers can do that actually makes the world easier? or is it more of the same? stephen: there's stuff you can do but it is risky stuff. you can outright helicopter money. you can do stuff for you are expanding fiscal policy aggressively and funding it through sales of government debt to central-bank. you could end up with a price level target. or the central bank should admit

to being irresponsible. if the public believes that inflation will be significant way higher and that interest rates will remain low, it begins to give a sense of the real value of debt will begin to decline and it may encourage spending. it'suld be done but difficult to see, politically, how you would do it. you have an aging population in the west and typically, they hate inflation. each is the problem that japan has had. done.ff can be francine: but it is the political appetite. thank you very much to stephen king. coming up tomorrow we sit down with christine lagarde live from washington at 9:15 in new york. this is bloomberg. ♪

tom: good morning. this is "bloomberg surveillance." , nory to never interrupt problem last night at the interrupt-fest known as the vp debate. did you stay up for this? get paid to watch so you don't have to. part of the problem with trying to evaluate a debate like this is the criteria you use. style and demeanor, mike pence won. calm and measured.

tim kaine was annoying with the interruptions but more effective. he kept the focus on trump's racist and insulting comments. his business failures, his lies and his flip-flops. a cnn poll of people after the debate said 48% of the voters said that mike pence won and 42% said tim kaine won. here is the key number. when asked how many would change their vote as a result of the debate -- zero. so, you know. tom: let's get out of the agony and go to francine blac. ofncine: i read a lot

reviews that said it was a boring debate. problem, we get into the world of donald trump. are we concerned that because donald trump makes the debate interesting has a bigger chance of winning than we think. michael: probably not. what people think out of the debate, people support the candidate that they came in supporting. the debates have almost never had a significant impact. and remember what we talk about when we talk let the debates -- the memorable line that comes up in each debate? last night it was the end of the debate when tim kaine said trump callingt something racist you whipped out

that mexican thing again. awe i'm just staring in at this debate. michael: it just wasn't as humorous. tom: michael mckee later today with alan greenspan. very important with the jumble of policy out there. heilemann on "with all due respect." on with the next important debate. the presidential debate. this is bloomberg. ♪

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state building, giants of oakland. the brooklyn giants will play the new york mets tonight. newre looking forward to york mets baseball from a beautiful new york city. thor -- i can't believe i am talking about the mets. i am channeling 1986. done. here is taylor riggs. taylor: donald trump's vice presidential candidate gave republicans a break after one of the worst week ever for the campaign. tim kaine repeatedly brought up trumps controversial positions and statements. to have a society where people are respected and

respect laws, you can't have somebody at the top who demeans everyone he talks about. >> senator, you would know a lot about an insult driven campaign. challenge, wereat have weakened america's place in the world, but the campaign has been an avalanche of insults. taylor: according to a cnn poll. and 42%mike pence won said tim kaine won. featuring that crashed in new jersey, estimates say they were crashing at least three times the speed limit. more than 100 people were injured in the crash. the u.s. and canada are gearing up over another war over trees. aey are trying to resolve fight over stock would lumber that has been going on for decades. the u.s. could seek to impose tariffs on canadian lumber

producers. becca for some of them to shut down. the u.s. and china are negotiating new sanctions on north korea. according to diplomats from the united nations security council countries, the u.s. and china are considering limits on north korea's energy trade. other nations are debating separate sanctions. global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries. i am taylor riggs. thank you. lenders slumping share price highlights the impact -- investmentt an conference, he said "if you keep the negative interest rate policies for a future amount of time you will bankrupt these banks. for more, we are here with michael moore.

and stephen king is still with us. central banks refute the fact that this is their fault. to the 20%artly due of the share price? michael: right, and you are bankers speake out more on this issue, central bankers and policymakers keeping profitability in mind. you had larry summers last month why banks aren't deemed as safer and part is that is because there is less margin of error. jes staley come out and say that central bankers need to keep bank profitability in mind when they think about safety because that is part of the margin of ever. isncine: what i also liked that mark gilbert wrote that bankswe just overthink

because we are so obsessed so the comparison is easy to make. because the central banks don't want to miss the next crisis. so we over blow it. is there truth in that? michael: there probably is truth in that. thatuestions surrounding right now is the profitability viabilityd not the question. --it has really been about they have taken a hit with trading being less active and now they are taking a hit on the interest income side. so it is really a multiple front headwind. stephen king, help me with the x axis. the idea of chronic negative interest rates, quarter by quarter, the effect? i know that you don't want to speak about deutsche bank but the idea of the duration of

negative interest rates, what does that due to the linkage of economics in the financial system? problem, in many ways, is that if the central bank imposes negative interest rates on the bank then the bank should, in theory, impose negative rates on the depositors. view,m a social point of it's quite difficult for them to interest rates. and one consequence is that banks become less willing to take on more deposits. but the general point is this. if you have negative rates for a long amount of time and they become increasingly negative, eventually there comes a point where people want to store wealth in the form of cash rather than deposits. and once you do that, holding

silos in the ground to store cash, the financial system is beginning to break apart. so the problem that central banks have is to communicate monetary policy through the banking system but negative rates reduce the communication and make it more difficult for this to work. tom: michael moore what is the catch-22 for deutsche bank right now? they have a bump in the stock but it is not clear for them, is it? know, and i don't think it will be until they get the settlement done with the doj on the outstanding mortgage issues. that has been the statement for the last couple of months. tom: do you have a working number? what does 14 migrate to? michael: most analysts have come up on the estimates but they are in the $4 billion-$6 billion range, so well down from the

, and it$14 billion ask would be more in line with the u.s. banks paid. tom: michael moore, thank you for the update on deutsche bank, under $12 a share. klaus regling will join us in a moment. tomorrow, christine lagarde. this is bloomberg. ♪

tom: good morning. this is "bloomberg surveillance." i am in new york. this is a real treat. we have wonderful guests today and tomorrow with christine

many others. and now, an honor to bring you klaus regling. a distinguished career with public to the german government. wonderful to speak to him in the new york studio. this is a wonderful surprise -- the surprise is that no one can define federalism within the european union. do youtrasburg, what need to get a better definition of what federalism means as the eu speaks to the united kingdom? klaus: well, the eu has been working together, moving towards more integration for more than 60 years. so we have come a long way. theain countries -- across 19 countries that share the euro, or more integrated than the others. 28 in the eu today. leaves, 27..

a big number and it makes life not easy but still, it it works. we have problems but overall, the eu is working better than people sometimes realize. i think markets do realize that or else rates would not be so low. in the media, sometimes there is , iat skepticism about europe have seen that for many years. tom: i did a chart earlier of sterling back to 1934, 5 dollars a pound, four dollars a pound in world war ii and now back under 1.27. currency markets are speaking. may speak to?sa if they attempt to brexit? will she speak to angela merkel? well, -- is in charge of

negotiating with the u.k. the follow-up arrangement. the u.k. has picked a procedure, it is up to them. the british prime minister has said they will do that by march of next year. so then it is up to brussels in it is thense but members who meet in brussels with the council and the council president, they work together with the european parliament. so it isn't one person or one institution. the eu is a group of member states and institutions. it makes life complicated but in the end, the council that represents them, the european commission and the european parliament, they'll have to do this together and they will do it together. is the level of angst or concern? we have major elections in the eu and it is difficult to know which way the election will swing.

germany, france and the referendum in italy. and that again points back to the federalism, or not, in the eu. happilye are all living in democracy. democracy means that elections take place from time to time. i'm in new york at the moment and we have elections here. so it is a surprise at all. we see governments change but it is a part of democracy. we know how to deal with that, it's nothing new. is regrettable that the u.k. has decided to leave. but i don't see any other case following. and the eu is a big success story. peace, had years of unprecedented wealth and income development. so it is working much better than it is described in the media.

andnly see the crisis problems -- tom: oh, we would never. [applause] about theou talk success of the eu and the eurozone but could i pick up one specific issue? it relates to the italian referendum coming up later in the year. oflian living standards they were about 90% of those in germany. 2015, 70 5% of those in germany. italy has seen no gross, whatsoever. say tohat sense can you italy that it has been a success with in the eurozone? klaus: well, i've talked about the european union and the area as a whole. there reside some great fear. on average, standards of living

in the eu are developing at the same speed as in the united states. at least before the crisis and also now. on a per capita basis, growth is even higher than the u.s. according to the latest imf forecast. not surprising, because it averages out. surprising because it is impacted by technological progress. individual countries, of course you can discover problems. greece is the most extreme and italy, you're right -- the numbers are clear. they have been falling behind that this is not because of the eu. there are many countries in the eu that are doing well. otherwise the average wouldn't be the same as the united states. so it depends on domestic policy. we see the countries that are are onesl in the eu

implemented reforms the last few years. reforms 10-12eir years ago and that is why they are doing well now. the cayman islands heavy biggest growth today. it's not a secret. tom: i want to go there because michael mckee was in ireland last week talking about tough decisions. , going ontony chancellor merkel, what do you need to see in germany to maintain the courage and will to keep europe together? kick -- on the economic side, germany has on the reforms otherwise it would not be doing well now. a lot is happened over the last 5-6 years. we have moved more towards political unions. more towards fiscal unions than ever before. is the institution i

am managing. the european stability mechanism. we have supplied 215 billion euros to the area that went through trouble. the banking system has improved. isisn't perfect but there strength as a whole. many things have happened. we continue to work on keeping things together, despite all the angst that is out there sometimes. we got through this segment without talking about deutsche bank. maybe we will talk about that next. when we come back, we talk with klaus regling, there is a lot to catch up on. we have had a number of interviews that they are looking south of germany to the challenges of greece. we continue here on "bloomberg surveillance." mckee and a michael

conversation with christine lagarde. this is bloomberg. ♪

tom: "bloomberg surveillance."

withine will be on a plane our team, we are looking for to give you coverage through the week in washington. here is taylor riggs. taylor: goldman sachs sounding the alarm on chinese real estate. they say the property market is at risk of overbuilding. they warned that any downturn ,ould lead to problems especially for metals. cutting prices. black rockside shareprice will lower prices on stock and bonds. they are anticipating a new u.s. rule that will lead to passive funds. with thee has come up cheapest virtual reality headset on the market. it costs just $79, below the price of others. the new headset will offer a broader range of virtual reality services. it lets users watch virtual

reality media with a smart phone. that is your bloomberg business flash. francine: the eu is appealing to to meet several outstanding conditions by next week. we're back with stephen king and klaus regling. was setup to provide financial assistance to struggling countries, and they played a crucial role with greece. it may kick it off with how much hasress you think the esm done in the short term debt relief to greece. overall, we have been in existence for five years. we have given 200 50 billion euro to five countries in the area. three times as much as the imf who has gone through the same five year time globally. so that is a strong indication esm providing two

countries in trouble or were in trouble having to go through strong reform. unemployment falling strongly. greece is the remaining case. but greece is making progress. last year, they had a new government that tried to move but it didn't work and it did go back into recession. but since last august we have entered a cooperative phase. program,s third greek which amounts up to 86 billion euro, already the first 29 billion euro -- as always, as we do it --

conditionality is in place. francine: and we followed the greek situation closely here on bloomberg but the outstanding point is that the imf is often forget relief in the medium return, 2018, and that in the eu, countries have been reluctant to sign up to that. is that in jeopardy because of the german election coming up next year? klaus: i don't think so. there was an intense debate earlier this year in the euro group. we are working on short-term debt relief immediately, and we are working on that. and later on we look at how much additional debt relief is needed. and greece is different from

the frameworks, that the imf uses around the world is a good framework. tom: i want to congratulate you on spread narrowing. we have seen markets voice your optimism about greece. shows the constructive nature, the trend of greek economic growth. the elites need from of greece to sustain this burgeoning confidence to get back to the growth that we saw before the crisis? klaus: i think the outlook is not bad. as we saw, the imf winding up no growth and they expect next year, growth of 2.8% increase. the position is clear, they must

continue to implement the agreed programs. the program was agreed in last year august, so we have two more years to go. we will help them with more money to get through that phase and if they implement the agreed reforms -- it is always a bit difficult, there are delays and hiccups because not everybody in the greek government is fully behind this but the prime minister is behind this. thank you so much. joining us.g and stephen king, joining us. thank you. thank you. in the next hour, jeff currie.

morning, said action

with the two year yield higher. oil gains to the top of the 2016 range. mentioned donald mike one million times and pence won the interrupt fast. this is "bloomberg surveillance." this wednesday. with me is francine. francine, currency depreciation is back in the air. francine: it certainly is and people won't call it the currency war that we've seen in the past. because it points to a weaker economy. we basically importing inflation. but the bigger market movement is trying to repress with the market is expecting from central banks. and today, they may be less cognitive going forward. stephen king and hsbc are

looking for serious depreciation. right now, the first word news. taylor: it was the vice presidential candidates turn in the spotlight. they faced off in the debate last night in virginia. mike pence fended off tim kaine's numerous attacks on donald trump. at one time they sparred over a report that suggests that donald trump may not have paid taxes for more than a decade. that makes me smart. so it is smart not to pay for our military, our veterans, teachers? and i guess all of us who do pay for those things, i guess we're stupid? >> the tax returns that came out publicly this week show that he phase tests -- he faced tough times. he went through a very difficult time but he used the tax code the way it is supposed to be used.

poll,: according to a cnn 48 percent say mike pence won the debate and 42% say tim kaine won the debate. and hurricane matthew is on course for the east coast. matthew has lost a little steam but it is still a category three hurricane. it is expected to possibly hit florida by tomorrow night. florida has called out the national guard and residents have been told to be ready to evacuate. of the uk independence party has split after 18 days on the job. after a statement on twitter, she said it was clear she didn't have the support of party officers and her colleagues. they campaigned on an anti-immigration platform. global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thank you.

we had two steamed guests on set. the futures, no story. 49-42.l, sterling, 1.27. higher on mayield be a december rate hike. francine: this is my board and it goes back to investors trying to weigh what a rate hike from the fed would be and what the ecb tapering would be. pound, 1.2718. you did point out the important call from hsbc. overall services in the u.k. are stronger than expected but there is a lot of exit news surrounding what negotiations could be. sterling in perspective, i put this chart together and i will work on a different one that goes back hundreds of years. five pounds for sterling, the

green circle in 1934. world war ii, 4.03 pound. 2.80.he 2.40. then down, down, getting back to 1980's, 1985 lows with the 1.27. francine: this is what i'm looking at. this is a very simple chart. the queen of charts did it for me. it looks at the 210 year spread in white. in the blue, germany and french in purple and it goes back to the call that we had from hsbc yesterday. and it goes back to how we price risk. tom: steepness and flattening, something to talk about and how it links into the markets. brian belski is with us. he has been an optimist for any number of quarters and is quite the short crew to say the least. joining us also is jeff currie.

jeff belski, can you buy currie's oil stocks? brian: sure we can. it takes tom keene to put on a 100 year chart. most of hours are 100 hour charts. our call from the stock perspective and looking at strategy is that clearly, commodity show super cycles overtime. we believe there is a high likelihood that wti find a range here and i think that could be very positive over the long-term. energy companies are not great capital holders. because the chase the commodity in either direction. tom: that is exactly where i wanted to go. allocating i look at capital and we have lots to talk about. currie, can oil companies

in europe continued to pay the dividends at $50 a barrel that with they were comfortable paying with $100? or do they become like the anglo-saxon oil companies? jeff: these companies destroy wealth. and right now they are not focused on return on equity. they are focused on trading cash flow and part of that is to pay dividends. the do they need to cut dividends would be goldman sachs call in this range? jeff: in terms of getting a return, most likely yes. that goes back to brian belski's point, they are wealth destroyers. and this goes to the fundamental view on oil right now. these companies are focused on bringing on large-scale products that will guarantee cash scale over the forward time frame. they're not focused on the turn. francine: when will that change? to get oilu need

prices up to higher levels. this went on 15 years if you look back from 1985-1990. so this is not new. francine: but it is unclear to me how you get oil prices higher because of the different dynamics. we speak about this every time you are on -- last week, saudi gave up market share to boost the oil price and it hasn't done much. jeffrey: i think it underscores the excess supply in the market right now. we identify three sources of supply. one is when we look at the players like russia, they just hit and other post-soviet high. low-cost players are bringing on production to increase market share. -- the we call it the big oil companies, they are bringing on the large-scale that they've invested on over 500 and 10 years ago. that wall of supply is coming.

and the third, places like nigeria, libya -- they are starting to see a saw in the civil unrest, which will lead to more supply. put it together and this market looks quiet and that is why opec made that move last week. francine: how does that triangulate into your world, ryan belski? wean: we still believe that will find this big range. between 1993-2 thousand three, we were in a tight range. and i think people get too upset trying to put it where oil is going on the peak side of things but oil remains in the early stages of transitioning from a demand led market to a supply led market. that will take a number of years. tom: we will speak about oil at length with jeff currie here but hsbc has a stunning interest rate call.

i saw the canadiens last night, they looked awfully good. the french, even better. and goldman sachs looking at a 1.3 510% yield and lower for longer to 2021. jeffrey: we had to change our target for the year-end. we moved it up to 2250 because clearly the message -- it is not what she says, it is what she does, meaning janet yellen at the fed. and she continues to be more dovish. makesarly, when she statements like "moderately accommodative" that -- we are at crisis accommodation. we could be in equities. tom: are lower interest rates lower for longer? goldman sachs talked about that. what does that do to oil investment and capital investment in oil? jeffrey: it is still too great.

ultimately, if you rebounds the energy markets, you have to cut off the capital. one of the reasons why capital is still attractive is because there are not a lot of better opportunities. i think the investment question, that is the core of what is going on in commodities. tom: when money is essentially free. and currie of goldman sachs brian belski with us as well. aroundhead down to d.c. 1:00 and francine later this week. we do begin with michael mckee and alan greenspan. this is bloomberg. ♪

francine: this is "bloomberg surveillance." let's get straight to corporate news. the bloomberg business flash with taylor riggs. a turnaround plane at the u.k. biggest grocery chain appears to be taking action. tesco repeated earnings that beat estimates. prices,has lowered the and improved customer service. and there is big acquisitions in the insurance industry. japan -- has agreed to by the specialty holdings of bermuda. that represents the 43% premium over the closing price on monday. japanese insurers have been expanding outside of japan to offset lower growth. twitter is expected to receive acquisition bids this week. the salesforce ceo has the making his case to investors that his company should be the buyer.

they see twitter as an unpolished jewel with lots of potential. that is your bloomberg business flash. francine: thank you. says the next rate move will most likely happen in december. he is known as one of the most dovish members. he wants to see solid evidence of inflation rising before making a call. >> indeed, i would prefer that at the time we make our next move, medications would indicate that subsequent increases will inend on seeing changes inflation indicators. i believe this would help to assure the public that is seeking financial commitments to reach these target sooner rather than later. francine: we are back with jeff currie and brian belski. toan belski, i want to get you with your thought on the markets. the markets are settling off a

touch as they wait for the central banks. the fed will raise interest rate at some point. are the markets aware? also: yes, but they are aware that the fed has backed itself into a corner. we have heard similar testimony heading into the prior fed meeting and nothing happened. so at the end of the day, it is what the fed actually does versus what they say heading into the meeting. we have an important third-quarter earnings time coming in. we have a look at q3 gdp. both of which will most likely have to see strong surprises to the upside. i think the market is basically positioned for growth to not be great. so again, we need to see the data comes through before the market reacts. francine: how do you square the two -- in that imf downgraded u.s. growth and we are ready to hike? again, i think that is two different messages.

the investors we talked with a we were on the continent of europe last week continue to think that the fed will move in december. but again, it comes down to the data. earnings do come in weaker, we have a situation where comparisons will be better in the third quarter. that at the end of the day, it is tough to make the inflation targets with growth being as muted as it has been. the let's pull in here cross currents and get two gold. , hisis ken rogoff writing book maybe my book of the year, -- some believe the only salvation is a return to the gold standard your of the late 1800s when governments fix the price of the currency and gold, leaving little scope for political interference. gold bugs seem surprisingly or willfully ignorant of the chronic financial crisis at the processions of that era. seems to have a

life of its own. it is not acting in a textbook fashion. what do you see? jeffrey: i disagree. it is trading against real interest rates. we had a pricing of rates yesterday that led to a substantial decline in gold prices. since september we have seen a sharp rise and it has put a downward pressure in gold. there has been a sustained level of gold higher than typical. price of gold since time began. go in thece, up week 1980's. down we go on real gold and a we go. jeff currie, tell me about the sustained level of gold? realey: if you look at the rate cycle, imagine -- where were the lowest rates? where was the peak in the 1980's? we think about the lowest real rates, 2011 at it was the peak

in gold prices. so i don't think there is a history trick to see how gold umbrella affects the back growth. but the long-term value of gold, you have to ask the long-term value of real rates. andee them going higher that is likely to sustain gold prices at lower levels. tom: when you get real rates moving up, is it a real rate growth in the economy or an inflation overlay? jeffrey: when we first came up with this model, it came out of questions we got from clients. gold is up because of inflationary or deflationary concerns -- price level doesn't drive gold. yoursically if you dbase currency, real rates go down and the value of real assets go up. which is why you get the negative correlation. did a real rate

lift, as you are calling for, you are calling for dollar strength? so could we have a large dollar movement or not? i think a lot of it has been priced in right now. as we see the damage it does to trading partners around the world -- you have to be careful with what kind of strength you see in the dollar. francine: thank you so much that is jeff currie and brian belski. coming up tomorrow, tom keene and i will sit down with christine lagarde live from washington, d.c. at 9:30 in new york. this is bloomberg. ♪

tom: they await the arrival of francine. she will be flying into washington to join us for the coverage of the international monetary fund meeting. francine: they are closing airspace. tom: you are going to dulles international airport, my apologies. jeff currie is with us and brian belski. we still have the vice presidential sweepstakes from last night, and i guess there one million mentions of donald trump by tim kaine. some say mike pence did better than good. what is the level of uncertainty now and what uncertainty will are be the november and

december. >> one thing we have been asked to do is publish a trump and clinton portfolio but we are not going to do that. come on, at the end of the day it is about perception. onwill make the changes november 9, when we actually know what is going to end up happening. we will position the portfolio accordingly. and that is where we will see uncertainty heading into this. we have a earnings coming through there, he has said continued comments, a first look at the q3 gdp. and because of the movement we seen a markets, we think there will be volatility. we still think stocks are higher at year end. francine: when you say adjuster portfolios, if it looks likely donald trump wins the presidency, do you see stocks fall 20%? brian: [laughter] no. francine: no, i've seen research. i'm not making this up.

i read 50%-20%, just to be accurate. love you dearly but those statements drive us crazy in equity markets because i do think we will see a reaction to a trump presidency. the election in america is similar to brexit with respect of the correlation and polling. we will most likely see a correction with respect to a trump win. we would be telling clients that it is a 1997-1998 type of event and you should buy stocks. the market rallies through the end of the year and then the likelihood of the said increased increases with a donald trump president. we like stocks longer-term. when the market dislocate like that, and emotional reactive phase -- that is when the best money is made. francine: what is the one thing that would make you bullish on

equity? is there anything? brian: yes, the continued dovish state of the fed -- increased fears of a recession coming sooner rather than later, especially considering the type of interest rate levels we have seen. we are as neutral as we have ever been all the way across sectors. .nderweight one sector overweight, our marginal overweight -- we are really focusing on specific variables. tom: brian belski, thank you so much. jeff currie will continue with us. tonight, 5:00 p.m. "with all due respect." this is bloomberg. ♪

francine: this is a picture. it is gorgeous, and britain's -- they are putting

me on a list because i am a foreigner, so that is maybe one of the reasons why i want to -- let's get to bloomberg first word news with taylor riggs. vicer: donald trump's presidential candidate gave republicans a break after one of the worst weeks for the campaign. he debated tim kaine at longwood college in virginia. up kaine repeatedly brought donald trump's most controversial statements. tim kaine: you cannot have somebody at the top who demeans every group that he talks about. pence: it really is remarkable. at a time of great challenge in the life of this great nation, we have 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. taylor: according to a cnn poll, 48% say mike pence won the

kaine one. say tim it is estimated that the train that crashed in new jersey was going as much as three times the speed limit when it crashed into the rail station. one person was killed and more than 100 were injured in the crash. the u.s. and canada are gearing up for another war over trees. trade officials from both officials meet in toronto, trying to resolve a fight over softwood lumber that has been going on for over a decade. some canadian lumber producers could be forced to shut down mills. the u.s. government says millions more americans may be missing out on money available under obamacare. 2.5 million people with insurance plans brought outside obamacare could get tax subsidies if they purchase through the program. another 9 million who are uninsured may be able to get help to buy insurance. global news 24 hours a day, powered by more than 2600 journalists and analysts in more

i am taylorntries, riggs. this is bloomberg. tom: thanks so much. needles for this hour of the day per jeffrey currie with goldman sachs. he had a phenomenal call on weaker oil here as we migrated down from 100 to 8260. to we find -- 100 to 80 60. how did we find ourselves in the range we are in right now? a world-classy is supply shock. 2.5 million barrels per day, in a 100 million barrel per day market. that took us off the trajectory of the surplus, created a deficit, and we have moved back into a surplus again. high-frequency data really motivated last week's opec announcement. tom: bring up the chart, if you

would. this is an approximation of inflation-adjusted oil and rising disposable income. basically, oil is dirt cheap. what does that do to your dynamics of supply and demand it for a lot of oil partners this is terrible, but frankly for a lot of the global economy this is the greatest thing going? jeff: we have to be careful here. a lot of the cycle you see since the 1980's is driven by the dollar because we did see a substantial weakening of the dollar during the 2000 and a strengthening during the correlation that helps adjust the price level. price levelts the over that time period. supply and demand fundamentals for oil itself, the actual molecules of hydrocarbons derived, whether you are at a premium or a discount, to relatively -- respond to you

people looking at the molecules of hydrocarbon saying we do not need as much and we will see a decline in oil. you look at the overall environment and both are pointing down. both the macro as well as the overall fundamentals. a the macro, if you see stronger dollar, that will put downward pressure on the cost structure and downward pressure on oil from a macro perspective. on a micro perspective, you still have a lot of supply in the market. the big places we see -- one is daytime in places like nigeria and libya, so the probability of adding priority is higher. online is next tier. the third one is low-cost players. places like russia are at post-soviet highs right now. francine: what about demand?

we have not talked about demand. china is slowing, still growing a lot more than any of our western countries. what is demand like coming from china and india? jeff: you look at the man for oil and commodity -- you look at demand for oil and commodities, it is boring. basically it has been a flat line. that is the case across -- we have seen a slowdown in china. it's not growing at the same rate as it was in 2009 and early 2010, but when you put it together, there is not a story of demand. that underscores a broader issue facing not only the commodity markets, but in terms of looking at the global economy. domestic demand is relatively stable. what we have going on in these different markets is an investment problem. francine: again, what is the risk -- a lot of these companies cutting back or countries cutting back on investments, we do not consolidate. so 10 years from now we see oil at 100, 150.

jeff: that is the core thesis when you think further out. as soon as we get to the state you are talking about is probably 2019, 2020. when you look at the overall increase in supply coming from these low-cost greenfield projects, the sweet spot is 17, 18, and they start to taper off at 19. the other factor we have not talked about, the other source of supply, is shale. that is the one that responds when you get to the $50, $55 a barrel rate. to get to the full state, we are years off from that. francine: how much do we understand about how many producers are shale? do we have a better grasp than we did last year of shale producers and what their end game is? jeff: you can separate them into three buckets. the permian base, the low-cost, high-quality assets. then you have the eagleburger

and the pocket. furredhave the eagle coming on. that is the area where we have seen the response in drilling activity. that is the area that is starting to slow the decline in production in the u.s. the one that opec cuts are likely to steal target share from opec when we go to 2017. tom: within this range, when do you know which way it will break ? is there some other indicator that will tell you above 52, above 53, or below the moving average of 43? which is it? jeff: what we have seen is when prices get up into range, on the forward, producers come in and sell that market, which tells you there economics are in the $50 to $55 range. the high-quality permian guys

are below 50, so they had drawn the line in the sand at 50. then you get into the $50, $55 , that the marginal guys tells you it is hard for this market to go above 55. francine: do you think we will see -- we talk about the linkage between inflation and oil. , or if oiluous link starts going to 50, 55, it will have an impact on inflation? see that link you can is very direct is, look at the correlation between oil and breakeven inflation. there is a relatively high correlation in the five-year breakevens. does that translate into real inflation? as our economists point out, the pass-through is relatively limited. if you put oil and commodities together, the rally since the beginning of the year is likely to be an important driver stabilizing price levels. when you look at a place like china, where you saw opec action

that was successful in coal, it pushed up coal prices asset values and helped the chinese economy. francine: thank you so much. jeffrey currie of goldman sachs. coming up tomorrow, tom and i will sit down with the imf managing director, christine lagarde, live from washington, d.c. that is tomorrow, 9:30 a.m. in new york, 2:30 a.m. in london. this is bloomberg. ♪

francine: you are looking at live pictures of birmingham. this is the final day of the party conference. for most of the week, we heard from everyone, really, in the cabinets. we are expecting prime minister

theresa may to give one of the final speeches. our government has ruled out paying contributions to the eu budget to allow british company's to have access in single markets according to a single aide. there is a lot of brexit news, but i am unsure if it is a single voice. we will get more on brexit and the tory conference. let's get to the bloomberg business flash with taylor riggs. taylor: goldman sachs is sounding the alarm on chinese -- the firm says the chinese property market is at risk of overbuilding and rising speculation. goldman warns any downturn will mean problems for iron ore and steel. of world's largest provider -- e traded funds, blackrock is cutting etf prices per there is a new twist in the

investigation into lending club, the online lending platform for u.s. regular does want to know if the lending club record -- if the lending club founder propped up shares without telling the board of a possible conflict of interest, okra two people familiar with the matter. the founder has not been accused of wrongdoing. that is your "bloomberg business flash." francine: the pound is sliding to a five-year low against the euro. traders are reacting to speculation that britain is facing a hard brexit, although people do not want to call it a hard or soft exit anymore. theresa may has said that the process will begin in the first quarter of 2017. we will be hearing from the prime minister very shortly. jeff currie from goldman sachs is with us in new york. , we have learned a lot from brexit. they want a hard brexit. this is what we seem to

understand. whether you call it clean or messy, it means they can live without access. anna: a guest on earlier was calling it low access, so there are different ways to describe it. something that we would refer to as a hard brexit would be losing access to the single market or not having automatic access to the single market. we have gone on this week as the government seems to be conversations, not so much on the economy and we heard from the treasury. we heard more from them in december. a lot of the conversation has and theund immigration, sovereign nations deciding on immigration policy, then giving the best -- getting the best deal available to business. thatine: things to be things seem to be turning a little bit sour when you have the trade secretary saying we will not get eu national chat we -- we will not give eu at

nationals the ability to stay in this country. in the second thing is a list? anna: if the u.k. government does not want to guarantee the rights in the ok if they do not get seen guarantees for u.k. nationals living outside. it could be procedural, it could develop into something more angry, but at the moment they refuse to give those assurances because they wanted to be a two-way street. we are giving very little detail about the what -- about what the business relationship is going to be. theresa may sunday said history it becomes undone as a result. she does not want her cards placed on the table and does not want to give away any details. francine: one of the focuses for the market and the pound is that she wants to have an interim a school of thought that we need an agreement in place

during the negotiations. anna: this is a conversation around an interim deal that -- itted it would be would not be special treatment for banks. the government wants to avoid some kind of cliff edge, and they are trying to work for some kind of smooth transition. maybe it is a smoother transition for everybody involved, but the fact remains that as soon as article 50 is triggered, the countdown clock starts ticking. gothe two years starts to away, perhaps slowly to start with, and then we get to the march 2019 deadline, the other 27 countries are going to be fully aware that the u.k. will fall off the cliff unless it agrees to something. minister may is coming out to receive applause from her party, the tories meeting in birmingham. anna edwards in london with a spirit how far has she shifted from the rhetoric of david

cameron, from the message of david cameron? anna: she is certainly going to make a play for this underground. we heard on the day she became 10. prime minister, outside downing street, that is what she was set to do. she is going to something that looks a lot more central. that is what she expected to do, talking about the struggling working classes. that is a real shift in tone. david cameron liked to be more in touch with modern britain. perhaps she wants to be in touch with more ordinary britain. tom: is she speaking from a next-london united kingdom, -- from an ex-london united kingdom? to --certainly she wants it looks as if in her speech today she is going to put distance between some of the more embracing comments from the previous leadership of the conservative party around financial services industry.

she is less about the metropolitan elite, and that is something that will come out in these conversations in the speech that she has here. speech from the center ground. she is talking to people in the room who are right of center. tom: what is her level on pound sterling where the dialogue changes? do you have that in your head? at a particular point she would get to that point, playthings a little less close to her chest. every time you hear from her, she says we are not going to give a running commentary. so perhaps, understandably, maybe unintentionally, we will be kept rather in the dark as we progressed to the negotiations and through them. francine: you did not get the

recession up from to some a. prime minister may has just started talking at the tory party conference, saying the u.k. government has a plan for brexit. they beat the markets will be reassured when they hear it. jeff currie of goldman sachs. stay with us. tomorrow on number tv, philip hammond will join john micklethwait for a conversation on the economy after brexit. how his government will approach economies in europe. this is bloomberg. ♪

tom: "bloomberg surveillance." foreign-exchange quickly here. 1.26.rading at now 1.27, 1.25. francine? francine: coming up shortly, it is "bloomberg ." alix steel joins you there in new york. we just heard from theresa may and eight boe official saying the brexit hit to you ok investment could be insidious. you have a packed show.

to thee will be pivoting bloomberg news story yesterday, that the ecb is prepared to taper its bond buying program. is it a roadmap or just chatter from the ecb? we will talk about that with jeffrey rosenberg at black rock, as well as steve major's. you have goldman and you have morgan stanley. the dichotomy in the bond market. who is right and why? we will also talk investments and european banks with david a serra.- with davide tom: prime minister may is speaking, a massive victory lap. esther hammett in conversation with john micklethwait tomorrow. really looking forward to that. jeff currie is with us from goldman sachs. one of the things prime minister may is missing is a future north sea oil revenue. we do not talk about it.

give me an update on north sea oil. jeff: those are very old, mature fields. the 1970's, to early 1980's. when you look at the ability to grow north sea oil, they are moving much further north come into the bering sea area, particularly norway. for scotland and aberdeen to kick up revenues from oil -- tom: what is the commodity call for commodity nations from goldman sachs? jeff: right now it is all downside risk, particularly on the metals side. wall of what we call a supply coming. all of the investments from the previous decade and less five years start to come online in the next 18 months. downwardikely to put pressure on commodity prices, which will also reinforce a stronger dollar. it starts to create another bout of weaker commodity prices, and the impact goes back into the

global macro. francine: we have been focusing prices.on commodity what is populism's effect? jeff: the political theme going on in emerging markets right now is detente. why? oil revenues or commodity revenues are down. commodity prices are down, volumes are down in places like libya, nigeria. what is that doing? it is taking the warring together --bringing and bringing them together for some kind of revolution. jeff currie, thank you so much. we will continue on radio this morning with goldman sachs. we have much to talk about in the next few days. we are really looking forward to the set of guests, the conversation we will have on economics and on international

relations as we go to washington. with michael mckee in conversation with alan greenspan. we will do on a radio later this morning, and onto madame lagarde in the 9:00 hour tomorrow. that is scheduled with the release of the financial stability report, and then john micklethwait, a conversation with the chancellor of the exchequer. look for that in the 10:00 hour. the former snb head will join us on friday. go mets! and we say good morning. ♪

welcome a very warm

." futureserg marginally negative. the ftse is pulling away from close to an all-time high. the story in the bond market, a mini tantrum in the debt market. yields on the u.s. 10-year climb. alix: here is what you need to know at this hour. it is the rate hike debate. chicago fed president charles evidence -- charles evans talks about the potential for increased interest rates before the end of the year. donald trump to get a lesson from his presidential running mate. mike pence displays debate discipline as trump prepares for his second showdown with hillary clinton this weekend. the ecb taper chart -- taper talk. a