i am jonathan ferro. the story in the markets, future soccer, equities farmer. softer, equities firmer. what you need to know, samsung ending production of galaxy note 7's microns after failing to fix problems with its batteries. it was supposed to compete with apple iphone during the holiday shopping season. summoned to appear in court on friday charges, the random weekend as much as 3% on the dollar against the news. readgency said it may balance if opec meets the new production targets. galaxy seven, we will bring in our bloomberg team from around the world.

our intelligence analyst in hong kong. but first, peter, let's talk about what this means for samsung and the south korean economy. their currency is down today. estimatessung accounts about 20% of south korean gdp. this mark on business is a small portion of that, but the hit to their image and brand will have a ripple affects not just in south korea's economy, but also with suppliers around the world. the impact will be significant, and we will see the fallout over the next few days. david: what about asian equity markets? will it have an effect there as well? peter: samsung fell 8%, which is the biggest drop in eight years. it lost about $17 billion in market value. i think again that all the

suppliers, contractors, vendors, they will all probably see some hit tomorrow when the market opens here. alix: what does it mean for samsung? what kind of sales it will they take on this? >> it will definitely hurt their tofits and market share competitive other competitors. at the same ti, i think it was the right thing for the company to time, i think it was the right thg for the company to do. it is better to pull off -- pull out all of the problematic devices so it no longer issues -- lingers. hopefully the next model will help us -- help them forget it. alix: why were they unable to fix the galaxy note 7? >> several speculations going around, so first of all, they

the battery to problem. obviously, this is not the only problem. another possibility is that they were in the rush to push out the note 7 as early as possible before the iphone 7 comes to market. they could be rushing a few things, so i think we have to wait and see what the company comes back to us and says why even replacement units are problematic. timing, getting an impressive product out is one of the possibilities. david: we know samsung and the suppliers are losers, but who are the potential winners? does it benefit apple and google? think the biggest beneficiaries will be the android platform handset makers.

potentially benefit given their new pixels mark run them into the market -- pixel smartphone coming to the market. iphone is high-end, so we should expect that iphone will benefit to some extent. areese handset makers catching up fast. they are all in good position to gain chairs, especially in china. earlier, we had the view that samsung should also be including chinese customers to the global recall without discriminating against chinese customers. thatoved to be right battery is not the sole problem. chinahey did in the market, samsung is losing market share. jonathan: joining us now on the

phone from hong kong is -- he has an outperform rating on samsung. let's get through things. the events of the last 24 hours, do they have a material impact on the bottom line? >> absolutely. as your previous comments were completely correct. this is unprecedented in the headset industry for samsung. the impact is huge for a while. i think it will be about 20% of profits, that is a significant impact. forward, on an annual basis, it is actually forecastedof 2017 net profits. when you look at a longer-term basis, it is not as much.

the share price reaction of a percent today is already fully discounted. effectively, the stock is line,nting the note the idea that there are no more future notes. i think that is premature. jonathan: do we know that it is isolated just to this product line? could it be in other products as well? walk us through this. am skeptical i that it is the battery is because the replacement phones are also having issues. if that is the case, either samsung is extremely disorganized in mixing up the good and bad batteries, which i think is unlikely. more likely is that they are actually putting batteries from another vendor, and those are

also having issues. it seems extremely unlikely that the issue is the battery. if two separate vendors have the same issue, it is much more likely to be related to the power electronics of the phone itself. david: until this happened with the galaxy note 7, a lot of people were saying the big advantage was bringing products to market so fast versus apple. what is likely change that model of new product introduction? >> perhaps. far tohey had raced so beat apple to the punch with the ahone 7, and perhaps they cut few corners. we don't know that. the company will not admit that. perhaps that was the case. they are formidable executors. they are able to move mountains extremely quickly and come up

with these breakthrough phones very fast. for such a big company, perhaps you are right. this,s they will look at and they will beef up quality control. the history of the company, it has been a long time since they have had any major issue. nothing certainly that circulated like this. jonathan: great to have you on the program. thank you very much. here is the story out of london. a new intraday high, record high. ftse up .4%. we go through the 2017 level we broke last year. on the back of a weaker pound, sterling had a four-day loss since june. the translation effect likelier, three quarters of revenue ftse 100 companies listed.

where seeing record gh. the ftse not performing so well if you denominate that index in dollars. let's head over to alex. alix: futures turning modestly negative on this hour, but on the upside you have apple. what is the potential market share grab for apple now that the note 7 is no longer in the world? apple is the biggest interpreter to the s&p gain yesterday. apple had about 11%, so can it actually move that up? we were just looking at the implications for samsung. they lost about $17 billion in market cap value. genetics researcher lowering luminary third-quarter revenue outlook, citing balls and sales of genetic sequencing

instruments. it is bringing down its peers. taking a big hit in the market. up aboutouis vuitton 5%. sales were up 6% versus estimates in part because of strong demand in asia. they're leather division was especially strong. fastest growth in about a year. let's look at headlines outside the business world. emma: thank you. in the civil war republican party. the party chairman yesterday held a conference call to rally members defined donald trump's embattled campaign. house speaker paul ryan said he will no longer campaign for donald trump. donald trump discussed women in lewd terms in a video. pointy clinton with a 14 lead over trump in a

head-to-head matchup. donald trump said he will continue to attack hillary clinton over her husband's marital transgressions. at the second presidential debate on sunday, donald trump invented secretary clinton former president no clinton's sex scandals, even inviting several of the women involved to appear at the debate. southwest---s of affecteded by -- haiti by hurricane matthew. doctors say they have run out of antibiotics. the u.s. humanitarian agency has ma an emergency appeal for nearly $129 in aid. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. jonathan: thank you. coming up, the south african rand plunging the most since june.

the finance minister will be prosecuted for fraud. later, a conversation you don't want to miss. crudeurrie joins us as breaks out to a year-to-date high. this is bloomberg. ♪

♪ david: this is bloomberg. i've david weston. big news out of south africa, the finance minister there will be charged with fraud. we heard from that finance minister, pravin gordhan on bloomberg intelligence just last week. >> as far as the so-called investigation, that is no more than political mischief. every country will have this. you have politics in the u.s., and you have seen this in the u

k, and i know the police do not get involved in those situations, but i'm sure we will resolve these difficulties. david: giving us up to date -- to bring us up-to-date, we have a reporter from our johannesburg bureau. >> some details have emerged as to what the summons was about exactly. the national prosecuting authority has said the charges are related to the finance minister allegedly authorizing -- that resulted in about 1.1 million rand of fruitless expenditure of government money. this is coming out this morning. the finance minister saying his lawyers will respond shortly. we are waiting on a statement from the national treasury. david: will this interfere with his ability to do his job day today? >> that is the concern that is top of mind particularly for

investors and economists today. many of them are saying that clarification is needed both from the presidency, the treasury, and from pravin gordhan himself. as far as the investigation and whether his court appearance as well if you his role as finance minister. to appear in court on the second of november. jonathan: it is not that he has been summoned to court, that has been growing, but it is wide. this is a new story for many people. creating --d of where are we with that investigation? >> the head of the national prosecuting authority said this morning that as you rightly pointed out, these are separate investigations. investigations into the allegedly wrote unit is ongoing and in the police's had.

this investigation is independent of that one and is set to go before the courts. he has said he wants the public and international and local markets to let the government and prosecuting authority do its work without fear of favor. pravin gordhan says he feels some of this is politically motivated, and all he wants to do is steer the economy through tough times. jonathan: thank you very much. clear, the south african rand getting battered, plunging the most since june. to talk with us, the silly cypriot pound -- vassili serebriakov. did we get a reality check out of south africa? >> i think so. to some extent, you can see it as a local story. which i think it is.

what has started to transpire over the last couple weeks, a rise in global bond yields. in the u.s., people are feeling more comfortable about the fed hiking. when global bond yields are rising, this is not good for e.m. hawkish,nding more here's what he had to say. >> repairing damage incurred from the great recession continues to be critical for improving labor force quality for stronger, longer-lasting growth. in this context, overestimating the natural rate, in correctin -- incorrectly inferring that the u.s. is at full employment would carry high social costs. policy mayso said, be changing soon. how much more upside than

-- can we expect? >> i think we can expect more upside. the dovish case is clear, but we ignore the standard rules of monetary policy. if you have been looking at the measures the fed is looking at right now in terms of national unemployment rate, you still could get an effect closer to the taylor rule that is 1.5%. running a veryre accommodating policy, the most since 2004. i think the dollar can get another 2% to 3% on the upside. jonathan: this is a slightly academic debate. if we went around the table several fx strategist, they would not even be able to say how you calculate that. they are having that debate anyway. how do you understand the reaction function at the fed

without a backdrop? >> it is a question of expectations. look at a month ago, you'll terms extremely flat. we would say to black. the market bought into the deflation story. the central banks are in easing mode. we saw the ecb talking about the end of the road, leaking that story about potential tapering. we see the bank of japan moving away from quantitative targets. now the fed is getting closer to a rate hike, and markets are starting to price in a little bit more of a cycle. it is a question of where we came from a month ago that is key. david: you will be staying with us. coming up, the pound under pressure. slides for a fourth day. this is bloomberg. ♪

jonathan: this is bloomberg. the pound following for the work straight day. it is fundamentally about the potential for a hard brexit. joining us now is the silly versailles cap -- the silly serebriakov -- the silly serebriakov. every time i bring up that chart, it goes shorter. vassili: unfortunately, we have making that argument for a while. trade. a momentum there is so much uncertainty, i think a lot of people have put the macro models to the side. the rhetoric coming out of both sides is not that constructive. hard brexit makes it uncertain

what will happen to trade and investment flows. it is easy to say short the pound. jonathan: forget the cyclical issues, this is a structural issue. the data we have seen is resilient. this is current account deficit. deutsche bank looking for a move towards 110. what kind of fx adjustment do we need to seek to account for structural problems? vassili: we think it should be less. if you get to 120, you are in overshoot territory. you are in extreme tightness territory. what people are not realizing is deficitrent account -- and the trade deficit is only 2.5%. you don't need an enormous amount of movement to rebalance the trade deficit. monetary policy will probably

not be more accommodating, inflation will probably pick up. that argues against other easing by the bank of england. we think it will fall to 126 levels. get excited about the ftse 100 hitting a record high, but we know that is a translation effect. we're starting to see glee through into the bond market. when does the bank of england put a break on cutting rates? vassili: inflation is where this could potentially be a big problem. i don't think there unhappy about the currency. traden, there is this one mentality. you sell the pound as a hedge. that is what is driving the market. if we start seeing inflation

numbers really complicating growth story, starting to hit consumer spending and the u.k., importing foreign aid goods, that is when the bank of england will see more concern. jonathan: coming up, oil falling today, but still at a 16 month high. futures throughout much of the session are a little bit softer, equities in europe on the front foot with the ftse 100 getting a new intraday record high. this is bloomberg. ♪

when you're on hold, your business is on hold. that's why comcast business doesn't leave you there. when you call, a small business expert will answer you in about 30 seconds. no annoying hold music. just a real person, real fast. whenever you need them. great, that's what i said. so your business can get back to business. sounds like my ride's ready. don't get stuck on hold. reach an expert fast. comcast business. built for business. alix: this is bloomberg daybreak. here is what you need to know -- oil is trading near a 15 month

high as russia and saudi arabia say they want to cooperate on output. the market may rebound faster than expected if opec fixes its targets. finance minister of south africa will be charged with fraud next month. ofsung is ending production its galaxy note 7 smartphone after failing to fix its problem with exploding batteries. it was supposed to compete with the apple iphone during the holiday season. jonathan: let's get a check of the markets with theaters on the back burner -- with futures back on the back burner. the ftse 100 has hit a new intraday record. the cable rate climbs for a fourth straight day. yields are back up on the 10

year and crude oil is touching a high yesterday. we trade at $50 on crude. david: it's time for our morning must-read -- charles evans is the latest official to urge patients. ratesues keeping interest low until core inflation moves higher. >> i would prefer at the time we make our next move that fomc communications would also indicate that subsequent increases will be dependent on seeing further positive developments in these inflation indicators. i believe this would help assure the public that the committee is seeking conditions to support inflation so sporting -- supporting our 2% target. david: we are joined by tom keene. we heard mr. evans who is a dove but in that same talk, he said it's inevitable they will raise

rates. tom: it will be interesting to see. they need to see evidence to make a decision in december and we are miles away from a cumulation of evidence to assure a rate increase. what was important in those comments was the word symmetrically. they need to get higher inflation but they have to have a balance of views if it would go lower or higher. it's nowhere near asymmetrical judgment that inflation is at an appropriate level to raise rates. david: they are worried the downside risk is more than the upside risk. aren't they getting encouragement from the other central banks who are backing off of some of their policies? tom: i would say that's true and south africa takes the headline today with the weakness in the rand and the finance minister.

most other central banks find it inevitable the united states is diverging away from the convergence idea and doing better. it's a very subtle time in this discussion. the of that is that november meeting is widely considered a dead meeting. david: we have the oil price going up and pimco says two or three races next year because of inflation concerns. tom: it got my attention but next year is a long ways away. plays untilk this after the election. lineart a smooth and path to a december meeting. the thing to watch is the dollar. we are not out of the range looking at the landed index but the focus is on sterling weaker, euro weaker will sto. the dollar is

strengthening and that affects emerging markets. scarlet: tom: and oil but you get a brutal move. many are adamant about the brutal move and sterling and the less brutal move in the euro. david: thank you so much. tune in from seven-10 a.m. every day for bloomberg surveillance radio with tom keene. alix: you were just talking about oil and the potential effect on inflation and that depends on what opec and russia will do at the november opec meeting, will they cut and how much? this is the upper end of the target, 33 million barrels per day minus opec crude and how much the market needs. this is based on different analysis. if opec actually lowered his

production target to 33 million barrels per day, we would not see any inventory drop until the third quarter of next year. we continue to see inventory build. it will take a long time for any kind of cut. if we get a cut, will anyone actually be affected by that? opec reduction quota is the orange line versus actual production and when was the last time they adhered to its production quota? or a little in 2000. they produce whatever they want regardless of the quota. what is the saudi marketing plan? this tells the story. jodi.ata comes from this blue line is saudi production and the white line is saudi exports. you can freeze or cut production

but what does it mean for exports question mark they can draw oil out of their refineries and storage units and just exported so materially, will it have an impact on them -- on the oil we cecil to market? jonathan: thank you. jeff curry is with us and you said there is a greater chance of an agreement to cut production but what are the chances they will adhere to what they agree to? >> when we look at the rhetoric that came out yesterday with saudi arabia and russia indicating they are willing to participate, the probability of an agreement went up but at the same time, what have we seen over the course of the last several days? the data came out this morning and showed that opec production was 33.60 4 million barrels per day which is nearly 500,000 barrels per day higher than the numbers they were talking about two weeks ago.

the bar continues to go higher and higher in terms of what they need to do. yes, the probability of an agreement has increased but the probability of having a successful outcome given the fundamental picture has decreased. havingf we wind up higher oil prices because the saudi's and opec are going for a that will incentivize more people to produce more. >> there is a window of opportunity and its relatively short. fasteason for that is the cycle nature of shale. there in a lifecycle of wells were the decline rate has flattened. the high-frequency data suggest u.s. production is beginning to take up -- tick up. . your ability to increase production into next year is

much higher. even if they did cut 500,000 or one million barrels per day and you would have a 500,000 barrel per day response next year from the shale producers. it would be a fast cycle from andes like latin america the caspian where you can increase rather quickly. put it all together and by the end of next year, and a significant reduction would be negated to the end of next year. as a result, we would not change our price forecast for next year at $52.50 but just rotate the upside. now we have the upside going from 45-55 next year. would flip it around for next year and the reason has to do with the ability for the system to respond. the window of opportunity would be at the beginning of 2017. if they fail and prices don't

rise, they end up cutting production and they start to drain their liquidity faster than they would otherwise. there is a lot of risk in pursuing this strategy. david: let's assume they succeed, is there cheating going on with the cartel? do they want to ramp up production to get a higher base off of which to negotiate the deal? >> we saw this throughout the 1980's and a reason why the estimate for reserves being so high as they used to bake the reserves. in the current environment, the producers have an incentive to push their production higher. we have seen this rhetoric coming out of iraq who is arguing about where their current production is. they want to argue for it to be higher. with libya and nigeria, both of them are surprising to the upside which makes it that much more difficult. iran aregeria come and not included in the deal but if

they ramp up production, and makes it harder for cuts that saudi arabia would have to make to rebound -- to rebalance the market. jonathan: what's happening with ton and saudi arabia looks let them do what they want. massive there is a incentive for the saudi's to jawbone the oil price higher ahead of the bond issue. what are your thoughts? will find out exactly what kind of agreement can be struck woman get to november 30. you are right, there are many pitfalls between now and then that need to be ironed out. one of the biggest issues is that the saudi production goes down seasonally. aroundturally go down to 10 point two when you get into the january timeframe. their ability to claim a production cut given the seasonality in production is quite high.

it does not mean anything to the balance is because everyone has factored that in already. alix: what about the marketing plan of the saudi's? this is the saudi oil production versus exports and the is production and they could cut but they could keep exports stable by draining oil out of their storage. is that their marketing plan? point on they seasonality of production. their production typically peaks around august-september. to createhe oil electricity that creates fear conditioning. as you see temperatures cool and saudi arabia, that internal demand comes off and so does their outright production. exports over that time do not change that much. i agree with that assessment. mentioned $60 oil after 500,000 barrels more of

oil per day, how sticky would that be? shale will keep producing a matter what the prices? excellent point because we look at the activity on the back end of that curve. around 53-50. --ound 53-50. $55 per barrel, you start to see producer hedging and we have seen a more recently which suggests their ability to lock in prices next year even with the current run-up means they could continue to produce deep into 2017. this points to the risk of actually pursuing the strategy. and prices don't rise and the cut back production, their revenues go down and they will end up draining on their reserves which will take liquidity out of the system. it's a double edged sword. if they miss, they train their liquidity faster. david: what if they succeed? when will they know if they succeeded?

when will we know whether this is working question mark --? terms of looking at the seasonality, even the russian production hits a plateau in the january-february timeframe of next year. you would not know until you got into april-may whether anyone will adhere to these agreements. historically, when you see behavior where they adhere to the agreement, it typically in recessionary times. when demand pulls back and they cannot push another barrel into the market, then you actually see adherence to the agreement. in a supply downturn when demand is still relatively robust, you typically see very poor compliance in these agreements. jonathan: it's great to get your insight. the crude market is a little bit

softer in today's session, $50.81 is how we trade on wti. coming up, warren buffett calls the bluff of donald trump and releases his own tax returns. in the market, one hour to the cash open, futures are softer, down 18 points on the dow. the ftse is just coming off a record high. from new york, this is bloomberg. ♪

emma: coming up in the next hour, steve ratner. alix: alcoa is reporting this morning instead of after the bell and it's a pretty gloomy picture with earnings $.32 per share and revenue is down 6% coming in just over $5 billion. they closed some operations and curtailed others and that impacted their revenue. the company is making some predictions on the aluminum market. will be over 1 million and they say markets are they are down 6%. david: we will turn back to the

election now and that's where donald trump is refusing to disclose his tax returns. it may be warren buffett that gets him to do it. he expressed his views strongly early on and is keeping it up. back in august, he issued a challenge to donald trump in no uncertain terms. given his financial statement to the election committee but believe me, as who has filled out an income tax return, i can tell you they are two different animals. you will learn a whole lot more about donald trump if he produces his income tax returns. how many of you would be afraid to have your tax returns made public? you are only afraid if you have something to be afraid about. he is not afraid because of the irs. he is afraid because of you.

he said several times that he cannot really it because he is under an audit. i've got news for him -- i am under audit, to. delighted to meet him anyplace, anytime between now and the election, i will bring my tax returns and he can bring his and nobody will arrest us. there are no rules against showing your tax returns. just let people ask questions about the items on their. yesterday, warren buffett released his own returns to prove he has always paid taxes and never benefited from losses the way donald trump has. eakin knows a little about taxes. has served as the congressional budget office and joins us from washington now.

take us into the trump phenomenon. we have lost carryforwards and he took a huge amount of losses in 1995 and stretched them out over many years. is that typical of people of lost question mark >> no, carryforwards are not unusual. they happen and there's a good tax reason for them. it's taxing them on the average income. the foundation makes sense. what's interesting about the donald trump phenomenon is that typically when you have losses, they are in a corporate structure. don'tlost carryforwards spill over into an individual income tax and allow them to offset personal income tax. mr. trump had his finances configured in a way that he not only lost $1 billion, that is a stunning number in itself, and

then carry it forward against his personal income. that's why i think everyone is curious to see those returns. david: he lost $1 billion but did that come out of his own pocket? borrowingsere those forgiven by the lenders? >> the tax stuff might be dull but there is an interesting business story here somewhere. he is supposed to be a great businessman. if he lost $1 billion and had that debt forgiven,, if it's just forgiven, that becomes taxable income and he would have a big windfall to offset his losses. that evidently did not happen so this must have him forgiven in bankruptcy or some other way that it did not generate income that became taxable. david: because you participate in the john mccain campaign, give us some of the nuances. donald trump has an aggressive -- policy to

benefit wealthier people. how does this benefit him? >> it's a tough sell and there are parts of the pl that have some virtues, getting the corporate rate down is one of the single best things the united states could do. he has emphasized his plan is aimed for better economic growth. i think that's the right target but the reality is that it does not add up and it loses an enormous amount of revenue and has a big windfall to high income individuals and if you are simultaneously refusing to reach -- to release her taxes and offering tax cuts in your situation, it's a tough sell and he's running into that now. david: does he have to disclose his tax returns? and will he? >> in the end, he has to but i don't think he will. he has defied all normal political logic and he probably will not change now. david: thank you so much. alcoa earnings were out minutes ago kicking off

earnings season and a look at some other events to keep an eye on this week. this is bloomberg. ♪

alix: this is bloomberg daybreak and we are looking at alcoa down 6%. the real story is revenue coming in at $5.2 billion. revenues were curtailed by closed operations and operations that were put back. the ceo says certain areas of their business will see revenue below like engineered products. aluminum -- the demand is robust. alix: he said demand was robust. save theirenough to business and they are splitting into two november 1.

looking forward to the rest of the week, tomorrow, the fomc will release minutes from the september meeting and friday another read on the strength of the u.s. economy with retail sales numbers from last month and janet yellen will speak at the boston fed's annual economic conference. what will she say? also friday earnings -- we have jpmorgan, wells fargo and citibank and it's unusual to have them together so it will be a big day. jonathan: it's good to get some earnings. coming up, crude oil at 15 month highs unconcern of russian production cuts. are up, this is bloomberg. ♪

jonathan: oh warm welcome to

bloomberg a break. so far, early in the session, there stocks are down -6 on dow. the ftse is at a six month high. market is reopening in the u.s. and treasuries are higher up for basis points. samsung's ending production of its galaxy note 7 smartphone after failing to fix the problem with exploding batteries. it was supposed to compete with the apple iphone during the holiday shopping season. alcoa is reporting third-quarter earnings and trailed analyst estimates. it is splitting into two companies month. oil is trading around a 15 month high. the international energy agency says the market may rebalance faster than expected if opec

sticks to its new target. we are joined by our colleague in istanbul covering the world energy council meeting. what is going on? this is a quickly evolving story but the latest is that the saudi oil minister has left istanbul. he will not be attending the opec meeting on wednesday. there is an opec delegate that is likely to represent saudi arabia so they are not pulling out of the meeting but it's a bit of a surprise? . towas expected he would stay carve out more of an agreement. whatuestion remains as to kind of progress of bacon make in terms of defining the individual production quotas. i spoke to the ceo of saudi aramco and he gave me his take

on where the ipo was and he said the banks of not been chosen. they are trying to diversify away from oil. we also heard from the vice il and he of gluco sees progress as they come together in vienna and after that, russia could join opec and a wider agreement. it comes down to non-opec supply. we have been hearing there is too much supply out there. the latest move from saudi arabia is a surprise. we will see how the market takes it. david: thank you so much. continue our conversation on oil with our guest steve ratner and brian belsky. now into thenergy reporting season? >> no. alix: tell me why. >> good morning. jonathan: welcome to the program. >> i am so chill.

alix: i love it. david: it was jonathan's idea. >> we are officially neutral. with respect to our canadian strategy and their u.s. strategy, it does not mean we don't like certain stocks within the sector because we do. we think oil and energy companies are in the early stages of transitioning from fundamentals to supply lead fundamentals. under that pretends, you want to on companies we believe with strong balance sheets and strong cash flow.it's not it'sin in the industry but certain in stocks. we want to focus on those areas with strong balance sheets that can transition from demand led to supply lead. alix: does that mean you like the u.s. focus? they have been trying to pair down their debt? >> we like the areas that are

more integrated rather than select services. we favor canadian oil companies versus u.s. companies. at the end of the day because energy is an important part of the canadian market, we want to be more positioned their. from a north american perspective, we like canadian oil companies. alix: jaw the line from higher oil prices if we get a production cut through to inflation and the yield curve. will that filter through? >> i don't think you can say that. oil has been bouncing in this range between 45-50 and has broken through 50 on the upside but i think there are still a lot of oil in the world. until they actually do something, there is a modest but meaningful supply of current production. until all that changes, if that changes, i don't see it feeding through. oil isward curve of

still projecting relatively modest increases for the next several years. jonathan: they say this is about a on the issue to come out of saudi arabia. is there anything in that? >> i think there is. reactive to very everything that comes out of it does not matter what sector it is. the notion that opec will cut supply is not a green light to buy energy companies. we have to embrace what's occurring which is a supplied driven market versus demand driven market and we can see a super cycle in energy that's a trading range and nobody believes that. about 40-60, your mind goes the high end number. we have to stop thinking like that you think about how the companies operate and -- in a trading range environment and stop focusing on the ultimate target will stop david: if oil

cannot the predicted to go up substantially, other sectors that are better either in energy or people who benefit because oil prices are low? >> i'm sure there are. that's not my particular area of expertise but things like airlines get enormous benefit when oil prices are low. they have other issues that are affecting them but if you are in the world of stock pickers, you can find things to benefit from lower oil prices. i'm not here to tell you what those might be. looking at the bond market and taking the 10 year -- breakeven has started to break out. nominal bond spread. >> the bond market thinks that yields should be higher.

the bond market has been right for 34 years of follow what they are doing. it telling you that yields and rates should be higher that the likelihood of the fed moving in november is nil. higher oil prices and higher inflation and higher yield curves, if that's not true, how do you explain the higher rates? >> the bond market sees the potential -- if you look at core inflation, it's starting to work its way up and wage inflation is starting to work its way up and we seem to be somewhere in the range of creating more pressure which is what we want. feds going to give the enormous ability to move in december. i think november is completely off the table. david: the bank of japan is giving some help but there is not other accommodation like in

the european central bank which gives them leeway. you won't have policy diversions. >> i don't think they are backing off too much. the u.k. has its own set of .ssues you david: thank you for staying with us. will it advisers is the investment manager for michael bloomberg's personal finances. let's look at news outside the business world. emma: south african finance minister has been summoned to appear in court on fraud charges in a month. it's the latest twist in a struggle with the president that could cause the south african credit rating to be downgraded. the rand is down by the most against the u.s. dollar since june 24. to bes there is no case

made and he is due to appear in court onovember 2. its civil war in the republican party in the u.s. held aties chairman conference call to rally members behind donald trump will stop it came hours after house speaker paul ryan told lawmakers he will no longer defend or campaign for donald trump on the heels of the 2000 by video in which donald trump is heard to refer to women in lewd and dictating terms. hillary clinton leads donald trump in the latest election poll. she would receive 46% of the vote and donald trump would be 41% according to the politico morning consults survey. hillary clinton also leads in a four-way race. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. alix: equity futures are

modestly lower today and alco is not helping, down 5% after earnings. revenues and earnings both missed after the company revised its segment revenue for the full year, engineered products are down and rolled aluminum as well. that means their business revenues are being revised lower. the market is not liking the results with revenue down 6% year on year. the big story in asia is samsung, down 8%. it's ending production of its galaxy note 7. buyers will get a refund or a new phone but they could not solve the problem of exploding batteries. is ironicallyical a battery issue. there implanted defibrillator data breeze can quickly depletes of -- batteries can quickly deplete. coming up, alcoa helped

kickoff earnings season last hour but we will look ahead to friday when the banks begin reporting. this is bloomberg. ♪

jonathan: this is bloomberg. the talent acquisition of ubs will hire a deutsche bank executive or senior management role. they headed up the asset management division at deutsche bank. it's a significant talent

acquisition. two key players in the asset management division at deutsche bank being acquired, sign that there is a talent exodus beginning to happen. opportunity for them to approach people from deutsche bank. steve ratner and brian belsky are with us. ?hat is your call >> we recently revised our year end target to 2250 which should come as no surprise. we talked about the s&p 500 being mired in a range. marking to market and saying the market will be at the high end of our trading call range. we think this is more about trade --as the risk on i'm sick of talking about it -- clearly, the fed has shown is that they will not show -- raise

rates until they have to. we think the market will be higher. is a good example but the momentum traders on near-term. institutional portfolio markets will chase the market near-term. david: what underlines that call? is this a question of topline growth? >> we run a three-pronged product with respect to her target, rep -- macro regression, earnings, and discount and you're looking at modeling and his interest rates may remain low, interest rates remain high, margins will continue to be high-end we will squeeze out more of the multiple. it's all about momentum, not so much fundamentals. we will see some sort of correction and we think that correction will come later. like when youyou have inflation picking up and the yield curve and less growth

and high earnings expectations for next year? downrnings will be coming because forward forecast usually do. overate in financials and technology and discretionary and telecom and industrials but we are not very overweight, just mildly. financials are by far the most contrarian and technology is the most fundamental and discretionary will be an area where it would -- where we will numbers.ering consumers are sitting on their hands until they see what happens with respect to the elections so we need to rebuild confidence on the consumer side. jonathan: the story for financials has been pretty ugly. are you surprised that the u.s. banks have not been more aggressive? ubs is making a push in asia as deutsche bank holdback in various places. will u.s. banks go after the european market in a significant

way? >> u.s. banks are playing defense. we are still about cutting costs and holding onto as much cash as we can. second quarter earnings were driven by the capital markets business and we don't think that will be a change. past third quarter, we had lots of trade and lots of volatility so capital markets will be a big driver with respect to the wealth management is missed. we believe that will be the driver in america for the next 10 years. will be thethat longer-term driver in terms of the business. of global growth, where do you think we are in the global growth story? meetingust have the imf last week in the picture was pretty gloomy in the sense about the world is almost stalled. we are in a low growth environment in the developed world.

the u.s. is a bit less than 2% and europe is a bit less and so the only part of the world that is showing significant growth is the emerging markets amounts why you show money heading that way. david: how much of that is driven by a lower dollar? it's -- i think a lot of it is driven into emerging markets because you can get more yield on that here and some is driven by the perception that those countries are growing faster and d valuations are not too crazy over there. here they are quite high. david: thank you so much for being with us today. steve ratner will be staying with us. discussionoming up, of around taxes of donald trump but what is his plan to overcoat to work on the

tax code? this is bloomberg. ♪

david: this is bloomberg. the second presidential debate was sunday night and there was little talk of policy. both hillary clinton and donald trump have made economic and tax policy before forefront of their agenda and campaign. still with us is steve ratner. you brought a chart with you today. >> the basic point is that donald trumpas said he is the only one who can fix the tax system and can solve the problem that allows someone like him to pay no taxes. yet the tax plan he has put forward would give him a huge tax break. is the bottom-line and then i can explain where it comes from. this moves toward the middle class and moves all the way over to the wealthy. in the red, while donald trump is essentially accurate when he says he will give middle class

and lower income people attacks break, it's really small compared to the size of a tax break he would give people on the right going to the famous 1%. depending how you interpret the business tax proposals that he refused to clarify, it could be 10-60% range for the group of folks -- 10-16% range. the hillary clinton tax plane would raise taxes on people only know the top. more taxes but only for people at the very top. of hisre other features tax plan of eliminating the estate tax which is roughly 40%. billionld save him $4 if he is actually worth $10 billion. instead of closing these loopholes, his plan would give people like him a huge tax break , bigger than anyone else would get. david: it does not seem to

simplify the tax code. involves taxoposal reform. maybe because this is a campaign in which -- and when you get the legislating, that may happen but you are seeing changes in rates and things like eliminating the state tax and a massive cut on business by trump and things like that. trump i suspect donald would say this is a stimulus for the economy. he says we will all be better off. $8.5e red ours at up to trillion in tax cuts over the next five years. some of us do believe there is some relevance to the budget deficit with the debt we are piling up and that would blow a hole in the budget. it was stimulate the economy and create inflation and higher interest rates and ultimately create huge additional debt. he has not specified in any credible way how he would offset the cost of those tax cuts.

hasd: people say monetary gone far enough and we are calling for fiscal. >> they want fiscal stimulus in the right places like infrastructure and rebuilding our investment in research and development and education. the smart people are saying let's have a budget plan with stimulus in the short term coupled with long-term reform like in entitlement programs. and that way the deficit does not get too large. this now with this is, this is just a massive tax cut. david: you support hillary theton and we talked about tax returns and warren buffett saying here is my tax return. is this a real issue in the campaign or just a sideshow? >> i think the trump people have done it good job into making it a sideshow. when you say i'm taking the deductions under the law, who will disagree? you take all the deductions you can.

do you? what is the answer? i do and people understand hat. because of the hoopla about tapes in e-mails and transcripts that has gotten attention is the fact that donald trump is not proposing to fix the problem. he says there is a problem and but his a way to fix it proposal is to make it a bigger problem. david: it appeals to his base. >> the idea of tax cuts is an irresponsible election tactic. if you look at the polls at the moment, it feels like he is consolidating support around his base but it does not feel like anybody outside of that group is heading his way. david: thanks very much, steve ratner. itis the ceo of a will advisers, the personal advisor for michael bloomberg. big mover in the fx

market, the rand plunging on the on the news that their finance minister will be prosecuted for allegedly and we go to south africa next for the latest. and four minutes away from the open in new york and futures are up 38 points on the dow. the ftse retreats from an intraday record high. the treasury market reopens and we are back in business with yields higher by five races points. -- five basis points. from new york, this is bloomberg. ♪

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after failing to fix the problem of exploding batteries. was supposed to compete with the apple iphone during the holiday season. alcoa is reporting third-quarter earnings that trailed analyst estimates. it is now splitting into two companies november 1. more troubles at deutsche bank -- it is losing their two top bankers to ubs. the two are leaving after nearly at decade at the bank. in the markets, head of the open, futures are softer. the story of the ftse earlier today, and all-time intraday high and has pulled back a little bit. assetory in the other classes, treasuries closed yesterday for columbus day and reopened up five races points. -- five basis points.

a weaker pound in a substantially weaker south african rand. david: out of south africa, the finance minister will face criminal charges. we heard from the finance minister about the possibility on bloomberg television just last week. >> as far as the so-called investigation is concerned, it's no more than political mischief which every country has. you have elections in the u.s. and you see the consequences in but the pice don't get involved in those situations. we in south africa will resolve these difficulties. latest, weive us the go to our johannesburg euro. help us on -- johannesburg bureau. what is he being charged with? >> we saw that the national prosecuting authority held an impromptu press briefing saying

that the national prosecuting authority is looking to lay on charges of a legend fraud against the finance minister -- -- of allegedly fraud against the finance minister. essentiallyation involves allegedly illegal of his retirement that may have amounted in 1.1 million rand of public finances t.ing wastefully spen it seems there are two parallel cases being conducted by the national authority into the finance minister. alix: what is his response? what is his defense? >> we got the sense that he was completely taken off guard by policemanhat a presented himself at his house to get his family a summons that

he is due to appear in court on november 2 on charges of alleged fraud in connection with allegations he may have illegally authorized early retirement of a colleague. questions are coming as to why it is time this way when he is about to deliver the nation's budget in about two weeks. where is the president's response? u.k., the prime minister would defend his chancellor perhaps. seeing president zuma come out and defend his finance minister? at the is what is forefront of economists and analysts and the nation. the president is currently on a state visit in kenya but what has become clear is that the market needs clarification on what this means for the finest the financeterms of

minister holding onto his job and delivering the budget in two weeks. we are awaiting a possible statement from treasury. minister, we have been trying to reach the presidency to find out what the president wants to see with regards to the latest developments. jonathan: thank you very much. let's turn to the morning meeting when we look at the banks with the african rand plunging the most since june on that news. reteker joins us now. december and three finance ministers and a weekend from south africa and losing credibility in international markets, how much of a hit to woulduth african rand this be if he steps down from his position? will have a more significant impact on the torency market compared

events seen midyear. there was a u.s. dollar downward correction from february until recently. in that environment, people were looking for yield and we are now seeing a sea change taking place. u.s. dollar strength will hit which will deal with significant liability positions and south africa unfortunately hits both boxes and that implies they have to prepare for more significant weakness of the south african rand. trigger have been the for a move in the fx market. when you see the curve in the ,nited states is steepening

under those circumstances, you --e to prepare for currency for currencies requiring capital import will stop the south african rand is a good example. alix: make the distinction between the high yielding and low yielding em fx. the high may be more insulated as the dollar get stronger. differentiate between the countries and currencies where you have seen the homework being done. it's where you have seen they have a better story. capitalre you have seen import meat is less developed. the story in brazil and indonesia look good. there you will have very little affect but when you have countries with significant foreign liabilities and funding needs, there it will be the hit. on the low yield environment,

for instance korea or taiwan, looking into asia, i am not so convinced that those currencies will remain stable in this environment. there you have to prepare for significant weakness. the reason why is when you look of capitalcture inflows in asia since may, most of that was fixed income related. are sellingmarkets off and bond yields are going up, people are taking profits on capital gains and that means those currencies are going to come under selling pressure. my view is that the korean bond is a clear cell. let's talk about sterling. with the pound is weak as it has hike,if it was an em rate

we could be talking about it being devalued. when does that start to become a problem for the bank of england and the u.k. economy? currencies,look at sterling weakness seems to be welcome. a recent commentary came out of the bank of england says as long as the sterling decline is orderly, there seems to be not too much concern. the problem will come up when you have more volatility in the willrket and volatil push bond yields significantly to the upside. that could be the game changer but at the moment, sterling is to volatilityle staying this low, you have to prepare that sterling is likely

to stay within the selling pressure where you give up half a percent each way. jonathan: the extreme destination is a run on sterling assets. are's not where we are but we moving toward that extreme situation? what would you watch to gauge that? ftseen you look into the and you express the currencies of the main britain trading partners, you see there is a under significant selling pressure. if you are an investor into the ftse from a european perspective, you are losing money and bigger sizes. -- in bigger sizes. oil you have companies like giving revenues into the dollars, those share prices will be expressed higher in sterling terms. i cannot see that this is a sign of stability or a sign of

support. we have to look into the u.k. you have to look at the account deficit which is widely known at 6%. it needs the support of -- of the supply side. you cannot wine and dine out of this problem. you have to cover the account consumption is increasing the problem and you need to see the support on the entrepreneurial side. people got worried about it. jonathan: great to have you with us, thank you. sterling is down for its fourth straight day. coming up, california has suspended all investing in bond business with wells fargo after the recent misconduct at wells fargo. could this become permanent?

the california state treasurer joins us next. from new york, this is bloomberg. ♪

next coming up in the hour, goldman sachs asset manager and pimco. david: investors will be paying attention to wells fargo earnings friday and any guidance after that cross-selling scandal that rocked the bank. it has cost the bank some big business. california, the largest issuer of municipal bonds, has barred wells fargo from underrating state debt.

we set them of the california state treasurer who explained the suspension. >> we take their actions seriously and 90 to make sure they have in place a correction to their system so that they don't repeat behavior. they have to make sure they understand what their mission is and that their mission is to make sure they serve their customers properly. does the suspension last as long as john stumpf is the ceo? >> it last as long as until they meet responses to actions to what they took. i want the is that proper actions taken by wells fargo that's not contingent upon john stumpf leaving wells fargo. cory: the ceo said we will win back the business we have lost, it might be a year or two but we will get it back. >> good for them, that's the right attitude but they have to make sure they have the right corrective actions in place.

the apology was long overdue and not trying to multiply the accounts and not acting in people's best interest but strictly in profit making was the wrong approach. they are starting to do the right thing but they have a long way to go. how: as this goes forward, big a business was wells fargo with the state? they will have to earn their keep so i don't want to jump into it. we encourage competitive practices so they will have to earn the trust and established they are putting up best in offense and it's my job to make your i protect the taxpayers of california. let's say the executives are ousted with golden parachutes, would that be a problem with the state question mark --? >> it would be a signal they are not serious about their actions.

how do you establish that you have the best interest in the people you serve? cory: a big severance package for abe a big issue continued expansion of wells fargo from the state of california? >> you cannot take massive compensation. some of that should be clawed back. accounts.lly created cory: you are running for governor. talk for someone who wants to be governor of california but i wonder about what this does to hurt jobs in business. wells fargo and employs a lot of the best people in finance and the state. are you worried about the jobs and wells fargo if you permanently injure their finance business? >> they did that by having bad leadership. if you take people down the wrong course, they will lose business anyway. i am helping them to get back on the right track so they can

protect their employees. when you put $12 per our employees under that kind of pressure and the leadership does not assume responsibility, you did not care about your employees so you are not trying to great long-term jobs and you did not care about the sustainability of your financial help and you did not protect your investors and you did not represent correctly to the people who invest in you the right thing. when you start lying to people, there are consequences. for more on wells fargo ahead of the earnings this friday, we are joined by our regional banks reporter. take us forward -- what should we be looking at on friday when we hear from wells fargo? any commentary that they give around the scandal, any kind of insight they can give us about where the scandal is moving going forward.

the two big areas in relation to that that analysts are looking at his litigation. how is the bank preparing to battle these different lawsuits that have popped up? is thisther side spreading to other parts of the bank? the bank says it's within the community banking division and has not leak out. we heard from the california state treasurer and maybe they will lose other business and can they talk about that? david: how big a part of the business is the california state? out in don't break that a hard way. yesterday we heard rum their chief operating officer. we have next was of story that says he's committed to getting their business back over the next few years. we don't know how big it is but we know it's important. david: he has a new job taking over as ce coo of the new bank.

will they replace john stumpf is necessary? >> the bank said it had nothing to do with the scandal. in novemberok over and they shuffled managers around in their payments business and other business lines and made tim sloan the chief operating officer. what about the job of john stumpf? maybe they will separate the ceo from the president? >> nothing official but that's what different investors and different bank watchers have been pushing for. it's something that most people would say is a good corporate governance. david: thank you so much. let's go to the business flash. samsung's ending production of its galaxy note 7 smartphone after they halted sales of the devices and asked

consumers to stop using the ones they purchased. they had struggled with the crisis over exploding batteries and recalled the note 7 once before. alcoa is splitting into two next month and says third-quarter earnings trailed profit estimates as sales in its component business declined. investors have cheered the split scheduled for november 1. amazon.com is restricting or can access to its warehouses during the holiday shopping season. the move signals the online retailer is worried about capacity issues that they have had in the past. it is said to be freezing new merchants out of its fast delivery service until december 19, preventing them from sending inventory to their fulfillment centers during the holiday.

this is bloomberg. alix: coming up, the ftse hits a record intraday high and off the highs of the session but that rally might be short-lived. we will break it down. this is bloomberg. ♪

jonathan: we are counting you down to the cash open in new york. stocksfutures market, are soft, down 45 on the dow. we get close to an intraday high and then we go through and pull back and stay positive on the session but only just. alcoa kicked off earnings season today. the sales number was a little bit soft. tomorrow, the fomc will release minutes from the september meeting. friday will be another strength

read on the u.s. economy as the u.s. retail sales numbers come out and janet yellen will speak of the boston fed annual economic conference. off fridayson kicks with key bank, jpmorgan, wells fargo, and citibank. david: it's time for battle of the charts. alix today.joins will get an update on this when the get the minutes from the fomc tomorrow and this is a more important number than eventhe dots. it's the number of fed officials on the committee who see the risk to their inflation forecast tilted to the downside. over the last few meetings, there has been concerns, as many as 10 out of 17 members, were more pessimistic to the rest of their inflation forecast then optimistic. the white line shows the market version of this. this is the price of a put

option on u.s. inflation. the strike price is 2%. this option pays out its inflation averaged below 2% in the u.s. over the next five years. the price of that option is the itest to date since march so is a reflation area five. alix: i vote for matt. that chart is amazing. i am looking at what happens when you see the yield curve steepen and the u.k. versus the ftse 100. lower sterling, potentially more inflation and no one wants to own longer dated gilt. 10-two-year spread. the blue line is the ftse 100. you had a tight spread in 2007 and you saw the ftse rally but then you had a widening of the spread and then you saw the ftse fall. up havingou wind

spreads widen a bit and you saw the ftse fall. as we see the spreads starting to widen, will we see a reversal in the ftse? the weaker pound helps those companies in the ftse because they have exposure overseas but does the yield curve kill any rally for the ftse? david: the economy has to be strong for the country to do well. i love both charts but i will vote for matt because you voted for him. i do want to vote against you. jonathan: not for me to argue. coming up in the next hour, mike swell from goldman sachs.

jon: from new york city, a very

warm welcome to "bloomberg daybreak." we count you down, 30 minutes away, features a little soccer, the dow down 44. the s&p 500 negative six points. -- features a little softer. the pound grinds lower for a fourth straight day. trading with a 123 handle. alix: features a slightly lower come off by .2%. right around the lows of the session. -- futures did try a rally, but failed after the alcoa open. the market could be supported by apple being moved to the upside. i mentioned out to come off by almost 5%. earnings and revenue missing estimates for the last order. alcoa, off by

almost 5%. apple getting a boost of 1.5% as samsung totally stopped producing its note 7 phones. it is a samsung loss and apple again? aluminum down 27%. third-quarter sales cut by $27 million, that stock getting hammered, dragging down peers as well. we heard from yet another fed president as trolls evans weighed in on what the central bank needs to do to satisfy the markets. -- charles evans weighed in. charles: i fluency communications will indicate that subsequent increases will be dependent upon seeing further positive developments in these inflation indicators. i believe this will assure the

public the committee is seeking economic and financial conditions to support inflation and hitting 2% target. david: joining us now is mike's well -- is mike swell. monetaryo talk about policy. emco expects to were three hikes from the fed this coming year. what do you expect? mike: it's a bit challenging to forecast to par in the future in terms of that policy given there are so many variables. not only in how you forecast global inflation, but close coming from markets where rates are very negative. in december, there is a high likelihood the fed moves there. if i had to guess next year, i would take to do three hikes is the base outcome.

david: you basically agree with the pimco call. mike: yes. if you look at the u.s. economy, the labor market, tightness in the labor market, wages on their way up in the u.s. and they've been consistently inching their ways upwards, this is consistent it's veryd -- concerning for the financial system. the fed wants to really themselves some room. jon: a lot of people want to call inflection point in the markets. it's been reflation trade that starts to kick in in the market. we have started to see the 10 year blowout just a little bit. mike: it's telling you that investors are catching up to what a lot of us in markets already know. inflation is picking up. these insecurities have not caught up. securities have not

caught up. 165 breakeven's are starting to inch their way upwards to move in concert with what's happening in other markets. .ook at equities and credit you have seen massive rallies. investors want and come today and they don't want to buy securities that gives them potentially income in the future. it reminds me of the popeye thing -- i will give you a dollar tomorrow for a burger today. they were very cheap -- we like them a lot. jon: you want the capital return now. my question would be as follows -- looking at reflation in the sovereign space and you can trace capital returns further out duration weiss and down the credit spectrum as well, what happens to credit? mike: the first asset class you

want to be worried about is nominal -- we have anywhere from zero real rates to negative real rates. that is number one. you should see a steepening of yield curves and some level of increase in nominal rates. credit, there's one side that would say with reflation you would see a lower level of defaults. credit typically performs very well win rates drop and inflation picks up. so much money has come into credit because the u.s. credit market was positive yielding. the next best thing to negative rates outside the u.s. that will scare a lot of investors that are hoping for duration and don't want it, they are holding guilt because they are positive. in a rising rate environment, you should see volatility pickup and yield curves stephen.

-- steepen. jon: the search for yield was still coming in at single b's and double b's. where does the capital get frozen out and where does it stay? mike: they will benefit because you will see lower default expectations amongst those companies. in the event the company -- economy reflects, that will be positive. the area that is most b's.ptible is single tothe event that they start get d appreciation on the assets as a result of rates rising, you could have another event like we saw in 2013 with a taper tantrum. this time, it could be more sustained. david: asset values up,

beginning to see some glimmers of inflation coming, reflation coming, tell me that growth is going to come up as well. could end up with a situation where you are not growing the economy and you have inflation -- that is a bad situation. mike: there are scenarios that with reflation, you will see better growth in the economy. look at the emerging markets, we've seen some improvement there. our developed markets set up, are they going to be able to deal with inflation and higher rates? they're likely to choke off economic growth and not help and be somewhat negative. the first point i made is there is risk that some of the investors that worsening insecurities because of positive yield will get out. of that is that higher inflation can actually have an impact on economic growth.

if we look very directly at what is going on on the wage side, companies are more and more challenged in terms of hiring people. that has caused some wage inflation. companies are challenged and that will have an impact on margins. look at the most important union indicator for recession, the probability has gone up and that is shrinking corporate margins. jon: love having you on. mike swell is sticking with us. an update from the business world, emma chandra with first for news. florida officials say hurricane matthew is irresponsible for at least five deaths. -- is responsible for at least five deaths. beach erosioned and flooding and plunged one million people into the dark. helicopters and rescue boats are expected to return to work in north carolina today. they're looking for people

stranded by flooding caused by the heavy rains. german authorities believe a 22-year-old asylum seeker is --ked to islamic state considered berlin airports a potential target. the suspect managed to evade police during a raid on an apartment last weekend. he was later overpowered and tied up by fellow syrians who contacted police. theresa may is known for saying brexit means brexit but a london court will decide whether it's up to her to decide when uk leads that you. the attorney general will try to -- activatingudge an exit without approval from uk lawmakers. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg.

--x: dumping sterling assets the #thing to a three decade lessons the uk voted to leave the european union. -- the pound shrinking to a three decade low since the uk voted to leave the european union. ♪

jon: if you want to look for reflation, look no further than the uk. the green curve is where we are with you take yield curve. -- thee uk guilt curve uk guilt curve. yields have climbed

15 basis points in just a month. that has applications throughout the market. go no further than the be a wee they go into the market and by assets. this chart is the offer to cover ratio. how many bonds are there for them to buy? we saw a big increase to 4.1 times what they were actually looking for. they just want to buy $1 billion worth of guilt yesterday and they got offers for over one billion -- 4 billion, four times subscribed. there's so much money in the markets, investors are desperate to sell, the boe is buying. why are we seeing this rush for other investors to sell? perhaps they are foreign holders. the percentage of foreign holders of uk guilds. if they wind up dumping assets, that would explain why they're

so much supply for the boe to end up soaking up. says you have a yield curve rewriting and falling sterling so of course you will have foreign buyers. a point in the market that we have to hone in on. jon: something i was looking at yesterday. mike swell still with us. is that was happening here? foreign investors are dumping sterling assets? mike: i think they are. the relation seen in the u.s. is a bit overstated. there's a bit of a crisis confidence in what's going on in the uk and the potential impact of brexit. look at what you'll curves are -- theyt, the presence price in a risk premium. but it was going on in the uk is a turnaround around the credit. what happened prior to this move

, you had pension funds on the long end in the uk trying to cover their short and maximize their liability. part of it is based on fundamentals. is far outweighing the supply and using flat yield curves. -- you have seen flat yield curves. a lot of people are saying it's a pound that is weaker in leading into other asset classes. it's blown up to 300 basis points. using that is not reflation? mike: it's both. it's risk of inflation and also risk around the outcome. what does the uk look like 10 years from now? it's not clear how brexit works and there's more and more concern around owning long dated uk assets. that's true around owning credit.

david: is it uncertainty or a growing conviction there will be a hard brexit? suppose tomorrow you knew it was going to be a hard brexit, what would markets do? ofe: it's a combination both. there's more and more talk about accelerated brexit. but it could be more severe in terms of what the relationship between the uk is and the eu. in the event there is a harder brexit sooner with more harsh terms in terms of how the uk can operate with regard to europe, that could have a big negative impact. the bottom line is we don't know. there's so much uncertainty. the was a story recently about what is the legal ability for and the ability for referendum to be legally binding. there are a lot of questions here. heard --thing we've alix: when the boj was trying to epen thein -- ste

yield curve -- our investors like, cool, i will get return it high-yield? mike: i would be surprised if japanese long rates look so attractive that i want to take my money and sell and bond those rates. -- sell and buy those rates. you are not pricing based on the .isk in japan whether it's reflation risk or really default risk over the longer term for japan, with the amount of debt japan hass, the lack of ability to create growth or inflation, the long haul is something witty to think about. -- the amount of debt japan has. in the uk, there's no doubt it is possible. it's very possible that if you have a softer brexit and a

weaker currency that helps exports from the uk and in terms of trade are not too challenging, you could have a sustainable situation and a situation where longer rates and real rates in the uk look attractive on the long end. and the risk premium comes down. i would not put the uk in the same category at all as japan. jon: credit risk, the risk of default -- the boj is nationalizing the whole market -- when you put the trade on or is it just a hands-off approach to jgb? mike: there is a short-term and long-term. if you take purely a long-term five to 10 year view, you stay away. the bank of japan is going to be a very meaningful player in jgb's for the next few years, as our financial institutions in japan. as are financial

institutiojapans in you don't want to be in a situation with those long bonds with your yield -- zero yield -- that's not an attractive investment. lending to a highly indebted country -- that is a perpetual 0% yield. will beike swell staying with us to talk about pressure on banks. how does it effect investor appetite for that? -- affect appetite for debt? ♪

jon: this is bloomberg. alix: deutsche bank still front and center when it comes to the news -- this is our deutsche

bank chart, convertibles trading at $.78 on the dollar. is still with us. is still with us. yields over 6%, $.78 on the dollar, is this a buying opportunity? mike: i would say that overall, the market overreacted to a lot of the deutsche bank concerns. there's been significant changes in regulations in a way that swaps are collateralized across parties. this big leverage number that everybody got is protected in the way that different institutions transact with each other. the concerns about deutsche bank were a bit overblown. was mostr debt attractive in terms of how wide that got. you have to understand the structure of the securities. when they get bailed in, when

they don't get bailed income every single security is different. that is a dicier proposition, probably better to be asked -- exploited via equities than debt. jon: blessed year, it was about 150. they are paying a big premium -- they still have market access. mars if you flew down from , you would say not a sustainable situation. andou think about the ecb the ecb supporting portugal and greece and other countries and who's behind the ecb, germany is very important, you would take deutsche bank. the senior debt is not in question. the widening of the spread is an opportunity that is relatively safe. decline we saw at

the end of september. now, over $.97 on the dollar. david: it illustrates perfectly the concerns about coco's. is there an opportunity with other european banks were similar bleed over might happen? vonnie: mike: a lot of those institutions mother's attractive debt. a lot of those institutions have attractive debt. greater in the u.s. then europe, but there is opportunity at the senior level in terms of owning bank debt. i would caution about getting comfortable about europe or financial institutions in europe. it's a challenging situation, something we think is one of the biggest risk factors to the global economy and one that is greater than china risk. how does europe play its way

out? the fragility of european political system -- the banks have come down dramatically they are not sustainable. they have not been able to earn their cost of capital. it's having a big impact on the banks. while there is opportunity at the senior debt level, i would not go all in. jon: the lesson of the last couple of months, look through the fear and read the perspectives? mike: that's incredibly true. the previous time i was on, it is critical to these subordinated debt securities. they are all different. it's important to understand what those trigger points are. some opportunities in europe -- europe is more of a risk than opportunity. sachsike swell of goldman asset management.

we count down to the cash open in four minutes and 15 seconds. softer than negative seven on the s&p 500, the ftse sets an all-time intraday high and then falls back -- the cable rate softer for a fourth straight session. atlds higher on treasuries 177. next up, the cash open. this is "bloomberg daybreak," live from new york city. ♪

jon: from new york city, this is bloomberg. let's get you up to speed to where futures are trading.

down 39 on the dow, negative six on the s&p 500. weaker for a fourth straight session. it 122 handle a bit earlier. up five basis points. printing a 2016 hi, going nowhere today, trading .43 -- 2016 high, going nowhere today, trading at $51.43. alix: we did see a pop in futures earlier, but then alcoa earnings came out. at that stock, alcoa is lower in the market here. basically missed on earnings and revenue. revenue was down by 6% in the last order.

the company downgrading its revenue for both of the companies it is splitting into. the big story we wanted to is apple, up 2%. the nasdaq closing at a record yesterday. what can apple due to offset the declines of today? samsung saying it will not wind up producing any more note 7's because the battery kept exploding. does that equate to more sales for apple? samsung has had much more appleshare than apple -- market share than apple. david: we are taking a look with jonathan butler. give us a sense of how important

this particular phone is to samsung. note7 is roughly 10% of samsung sales. it's meaningful. this is really bad news for them in particular because they are really vying for apple in that almost alone with them in phones priced above $750. together, they have a 98% share. season,into the holiday it's really bad news for samsung and potentially good news for apple. david: what about the other asian manufacturers? john: they play at a bit of a lower end. it could be on the margin positive for them as well. samsung is an android vendor. there's always that hesitation with people about switching from android two ios or ios to android.

people looking for an alternative may be looking at those other vendors which are android-based as well. samsung have other products they can bring to the floor? john: and they have phones all over the map in terms of price points. we are talking about 10% of its sales for samsung in an average year coming from the note. some of those will shift down to edge, which is also a premium phone. it does not have that large size. abtabley category -- ph category. kicking off earnings

season, the third quarter, the all banks on friday reporting. another quarter of ugly earnings. the banks cutting analyst estimates seems to be the story. >> for at least most of them. if youry is focusing on and forward into next year look past what this quarter is going to show, what you are seeing is a more negative story for wells fargo than for any of the other banks. estimates have come down more dramatically for wells fargo. they have gone up for a company like goldman sachs. if you look back five years ago, the earnings preview for the third quarter was goldman sachs's earnings were going to

collapse and wells fargo was going to hit a record. you have seen a reversal. investors are more focused on markets, looking a little healthier now. wells fargo has always benefited from its focus on the retail customers. they are getting in trouble, not only because of interest rates being low, but also now because of the scandal around the fake accounts, the legal costs involved, questions about whether they were losing -- will be losing customers. the banks that are less focused on retail are able to get through this quarter a lot better. 17% thisls fargo down year. 10% since the scandal broke. has that been re-rated and up to soak in this earnings -- there's so many different

ways the scandal is affecting their earnings. they lost california municipal --ds, illinois as a client the question is, what customers -- oney losing interesting note i saw yesterday looked at their downloads of their mobile apps. how they rank in the apple store. they have dramatically gone below their bigger peers. customers may be aren't signing up for accounts with wells fargo as downloading that app briskly as they were in the past. the loss of municipal business in california and elsewhere, it's not going to be a huge hit to the revenue. on there so focused retail customer, that is not going to move the needle much. it is very symbolic.

as long as this drumbeat of negative news goes on, this story from vice that they had been warned about these fake accounts as early as 2006 wall street journal what they story focusing on how they sold overdrafts, as long as that drumbeat goes on, the question is, how much is this going to affect their bread-and-butter business? david: are they particularly in a jam here -- normally, they sell let's sell more retail account. now, they have all sorts of regulators looking at them. christine: it's not only a question for wells fargo and being careful not to oversell mostcts to customers -- analysts are expecting this to be a decline in sales. they will be a lot more cautious and how they approach their customers. asls fargo had been viewed the gold standard in banking.

if you cannot do what wells fargo was doing, is the whole banking model less profitable less promising in that area than people thought? jon: we become more constructive -- some of those big wall street investment banks have done a phenomenal job of capturing deposits. are they not going to be able to reap the rewards for a long time? christine: it depends on whether people feel more comfortable with goldman sachs. maybe they will be. finte upstarts trying to comec in andh take business away from community banks, cooperative lenders. jon: take a look at where --lyst price targets are where is wells fargo stock now?

there is still a gap, which implies more downside for wells fargo. what will be the next trigger for that? mike: the earnings will tell the story going forward. most of the other big banks are trading near their highs of the year. or close to it at least. that's suggests the net interest margin will expand. maybe too optimistic, but we will see. the earnings will tell the story on friday. david: many thanks to mike regan and christine harper. up next, pimco says the fed will likely hike rates two times or maybe three next year. it's time to reduce risk. we will have pimco cio of global credit. mark kiesel is up next. this is bloomberg. ♪

emma: this is "bloomberg daybreak." , timothy massad. jon: this is bloomberg. 12 minutes into the session, this is how we trade, software, down .4% on the dow. down down .4% on the dow. shares of the biotech

giant plunging, leaving $7 billion in market cap on and that ispreannouncement the company making 605 million in revenues in the third quarter, missing street estimates by 4%. machine salesncer are down 26% year-over-year, largely the reason for this huge mess and moved to the downside. move to the downside. another massive mover, rent-a-center down 34% on pace for its biggest drop ever, lowest level since october of 2001. a huge plunge here. also on a bearish preannouncement, a really big one. rent-a-center adjusted earnings for the third quarter are five -- five cents to fit the incense -- five cents to $.15.

surprised by is this, there is a relatively high -- 15%. david: this is a big week to get a read on the u.s. economy. for more, we are joined by mike mckee. what are the big events coming up? mike: it's a data dependent fed, but for the markets, not so much. a healthy back-to-school game is expected. we are looking at the core forecast, looking at a .4% gain. the week is more about fed speak. i have bad news for you. statement friday -- you will have to stay and wait to see what she has to say. we get the fed minutes on wednesday, of course. how divided are they? you have a bunch of fed speakers this week.

build on the on wednesday. -- bill dudley on wednesday. yellen is the most important. the most important thing for the markets may be none of the above. we are still two months away from the fed meeting where they can do anything. willics here and abroad drive the markets. anything can happen in the clinton-trump race. react, thethe dollar peso react, but there is a case on thursday in london that may have a major impact. a group of people going to court to argue that theresa may cannot trigger brexit without a vote in parliament first. rule inourt should their favor, that will introduce some tremendous uncertainty into what happens with exit. -- brexit. jon: as if we needed any more uncertainty.

this chair yellen run the bed or does governor brainard? mike: governor brainard make some arguments -- run thes chair yellen fed or does governor brainard? mike: governor brainard makes some arguments. david: do any of those matter as much as the earnings? mike: the way you put it matters. the markets trade the short-term, earnings will be the issue because the fed does not get into it until december. earnings and to what extent the election influences -- jon: you mentioned retail sales. what does it say about the consumer if we don't see a slowdown in retail sales considering the election uncertainty anfed uncertainty? mike: would not bother the fed

because it suggests people are saving too much money. people might start spending more money because they feel they need to get ahead of the curve. it to come back because it's been down for so long and americans do seem to like the fed. alix: mike mckee, thank you so much. up next, pimco says the fed will likely hike two to three times next year. of globalve the cio credit here to talk about which that they will be buying. mark kiesel is next. this is bloomberg. ♪

jon: from new york city, this is bloomberg. we are 20 minutes into the session. foot downn the back 4%, the dow off by 10 points. new record for

the intraday session -- the story on the other board is as follows, the cable rate headed to report a loss -- four day loss. a substantially weaker south african rand as well. the treasury market closed yesterday, reopening today. up, it ising "bloomberg markets." erik schatzker will be anchoring. : we are looking forward to a conversation with leon cooperman, one of the world's best-known stock checkers. he has an outstanding track record. he spends 25 years at goldman sachs and then started omega advisers in 1991. david: he's not in the news right now at all. : his investors are having a good year.

lee cooperman is not having a good year. he's been sued for insider trading -- he issd a statement earlier today saying among other things says "the damage to the firmest are medically impacting the opportunity for professional growth for my 43 partners and the damage to the immediately impacted the opportunity for professional growth for my 43 partners and associates." david: goldman pulled out. erik: millions of retirement funds have been pulled from his firm. another mover in the market is oil, right around a 15 month high. slightly lower, off 5.6%. byslightly lower today, off

.6%. we spoke with jeff currie earlier about the potential deal. jeff: when we look at the rhetoric that came out yesterday with saudi arabia and russia indicating they are willing to participate, the probability of an agreement when up. what else have we seen over the course of the last several days? the data showed that opec production was 33.6 4 million barrels day. that is 500,000 barrels per day higher than the number they were batting around two weeks ago. the bar continues to go higher and higher in terms of what they need to do. yes, the probability of an agreement has increased, but the probability of having a successful outcome given the fundamental picture has actually decreased. alix: if we wind up having higher oil prices because the

saudi sinopec -- saudi's and opec are jawboning a cut, that will lead to others producing more. jeff: there is a window of opportunity and it is relatively short. there's a couple of things to think about -- we are in a lifecycle of these wells where the decline rates have flattened out. the high-frequency data suggests u.s. production is beginning to tick up. if you have more drilling activity, the production next year is much higher. even if they did cut one million barrels per day and push prices up into that 55 dollar range, you would have a 500,000 barrel per day response next year from the shale producers. you would have fast cycle from places like latin america and the caspian where you could

increase rather quickly, you would have demand weakness. theput it all together by end of next year, any significant production reduction would be negated. we would not change our price forecast for next year. instead, we would rotate the upside. right now, we have the upside from $45 to $55. next year, we flip it around and go from $55 to $45. your window of opportunity would be right up front at the beginning of 2017. if they fail and prices don't rise, they end up cutting production and they start to drain their liquidity much faster than he would otherwise do. david: let's assume they succeed, you always worry the cartel will be cheating after the fact. is there a perverse incentive to ramp up production to get a higher base of which to negotiate the deal?

the: you saw that in 1980's. you are correct, and the current environment committee's producers have an incentive to push the current production much higher. we've already seen this rhetoric coming out of iraq who's arguing about where their current production is right now. nigeria, both of them are surprising to the upside right now. which makes it that much more difficult. libya government nigeria and iran are excluded from the deal. if they continue to increase production, that makes it that much larger for a cut. jeff currie.lsk we were unable to reach mark kiesel due to technical difficulties. treasuries, by

julieuy tips. ,"n: from "bloomberg daybreak 26 minutes into the session, this is how we trade this tuesday here in new york. we are -.5% on the dow and s&p 500. for the ftse, intraday record high, now negative. day for aound all fourth straight day. 122.86. at markets."bloomberg ♪

vonnie: from new york, i'm vonnie quinn. mark: and i'm mark barton. welcome to "bloomberg markets."

vonnie: we take you from washington to south korea and cover stories out of london, and are in south africa in the next hour. samsung is killing off its note 7 smartphone. south africa's rand tumbling the most since june. a future credit rating downgrade. cooperman joins bloomberg television and radio this hour. one of the world's best known hedge fund managers addresses insider trading allegations and how big of an impact it's having on business.