thecine: shareholders back biggest italian banking merger in almost a decade. we speak to the man who will head the bank. germany's biggest bank is sent to consider shrinking its u.s. operations. why brexit is putting bankers in a new york state of mind. how the big apple could be the big winner. this is bloomberg "surveillance." i am francine lacqua in london.

rupert harrison joins us for the hour and in less than 15 minutes we speak to the banca popolare di milano ceo. weekso look ahead to the big bank earnings headlined by goldman sachs. bank of america is coming up. the first thing we have to do is check the markets. a little bit of volatility, 16.84 gaining from 0.5. overall european stocks a little bit down. there was movement after we heard from janet yellen that she would not mind a u.s. economy that is a little heated up. that would help with growth and she believes that would help with consolidation of the labor market. banks, i have put those in the cross asset check because we are speaking to the ceo of dpm. the european impetus is getting

a little bit of left desk lift. -- lift. let's get to the bloomberg first word news. u.k. economye the has been more resilient than expected since the brexit vote may be lulling people into a false sense of security according to a report. concerns that written could lose its access to the single market or even tumble out of the european union without a trade agreement in place has driven a pound to a 31 year low. means companies are likely to scale back investments and hiring plans. north american banks cut their share of u.k. property lending by half ahead of the u.k. vote amid a cooling market. u.s. and canadian lenders market share dropped 7% according to a survey. painse president she's in

--she jinping has wondered he said the underlying causes of the 2008 crash had not been fixed and the threat remains a repeat. the group represents nearly half of the world's population and one quarter of its economy. policy are facing a dilemma over the u.n. which is hitting new lows -- yuan which is hitting new lows against the dollar. that poses a dilemma as they seek to arrest a plunge in exports and shore up economy growing. the pboc weekend today by the most in a week. taking a hit at the polls as allegations of sexual misconduct and an old tape of him making vulgar comments about women damage his bid for the white house.

women in key battleground states increasingly prefer hillary clinton, giving her an overall 6% lead. trump blames the media for "rigging the election." global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am nejra cehic. this is bloomberg. fedcine: the beer week and hit at higher inflation -- boe and fed hint at higher inflation that is likely to rise above 2% fueled by a weak pound. alone the currency is down more than 6%. this is governor mark carney says he is prepared to tolerate and overshoot of the inflation target. on friday fed chair janet yellen floated the idea of letting dui -- letting the u.s. economy -- rupert harrison is formally chief of staff to george

harrison and joins us for the hour. thank you so much for coming in. says, if we overheat the economy a little bit it is not the end of the world because it would solidify -- solidify the labor market and the markets freak out. are we oversensitive or is there a slight shift in policy? rupert: i think there is the underlying inflation dynamics in the u.s. where we have been saying for some time the u.s. is the only major market where you are beginning to see core inflation creeping up and i think that will continue. the second is the debate about running the economy hot. people on the other side of the debate worried about leaving things too late, having to hike rates to quickly and trigger a recession. i think that janet yellen's speech was a significant move toward running the economy hot is maybe the right balance of risk.

the economy seems to be drawing more people into the labor market in the u.s. that is supporting this argument that maybe allowing the demand side to run a bit hot can have the supply side benefits that go along with the balance and risk argument. they will probably hike in december, but the path after that being gradual as they try to balance risk on the inflation upside. francine: it does not put december off the table? rupert: i do not think so. i think it is hard for them to justify not going in december. i think this debate is more about the path of hikes in the future and about trying to signal that this is a gentle path of hike, they are going to be very sensitive to the data. they are not too worried about inflation. francine: one hike in december and what are you expecting? rupert: i would say maybe two next year. francine: boe, we heard from

mark carney say he is waiting -- willing to look through inflation. what is the market signal to theresa may? rupert: the u.k. situation is very different from the u.s. until the first half of the year the u.k. look quite similar. this is now all about sterling and the signaling is basically mark carney and other members laying the ground for higher inflation, explaining why they are not going to act ahead of. the public have noticed the headlines about sterling increasingly over the next years they will realize the reality on their budget, and they will be asking questions. the bank will be saying this is a natural consequence, we will try to support the economy rather than target the exchange rate. francine: inflation is what, 3%, 4%? he needs to make sure that

inflation is not too high. rupert: we have been here before. sterling fell dramatically in 2008 in the bank of england the next year looked through that. at the same time the mpc was easing policy because they were worried about the underlying dynamics. i think we will see the same thing again. 2013 they are explicitly given the right to say we can look through this for a few years and focus on the underlying pressures and demand and the economy which i think the bank of england will be focused on. inflation is an unfortunate consequence but i do not think they will be concerned. francine: you look through it if it does not have a material impact on growth or no matter what? rupert: the exchange rate has a complicated relation on growth. there is going to be an impact on higher consumer demand and prices.

looking at the impact of ongoing uncertainty i think one of the judgments they have to make is to what extent is brexit a stop shop and a supply shop? the more of a supply shop it is the more inflationary it will be and if they see that, you will see real concern on the mpc about inflation being domestically generated. not much evidence about that yet, it is all about the exchange rate. need to: do they actually take an educated guest on the impact of the investment? rupert: they have to take an educated guess and so far they have put their chips on the u.k., they are basically all in for now. i think this communication over the last couple of days is all about trying to maintain that flexibility. they want to be able to focus on the real economy and not be distracted by the exchange rate

or inflation rate. they are signaling they are able -- willing to look through the other stuff. francine: what kind of impact does it have on gilt? d.c. the day after the flash crash 10 days ago and now it is starting to percolate through gilt. rupert: it has mainly been expressed their inflation expectations in the u.k.. gilt is verye strong so this is mainly showing up in break events. i think people are looking ahead to the bank of england's decision about whether to extend qe. i do not think we will have visibility on that yet. adjustmentde a major but look around the world, they are still relatively low. we have had a big adjustment to the idea of a hard brexit. i suspect most of that is probably in the price now and

people will be looking for signals from the bank of england about the future of. francine: rupert harrison stays with us. italy's biggest bank merger, we speak to giuseppe gstaad not. trump, 3-0. the candidates face-off in their third debate. candidate fixican his woman problem? -- we look ahead to what the season hold for wall street. this is bloomberg. ♪

francine: this is bloomberg "surveillance." let's get straight to the bloomberg business flash. nejra: deutsche bank is exploring shrinking its u.s. operations as mounting legal expenses threaten to eat into the capital. banksy's biggest rank -- supervisory board discussed the business stateside and the topic had come up with u.s. authorities. a spokesman for deutsche bank declined to comment. chinese authorities detained 18 employees of australia's crown resort. the head ofd after its international highroller operation. intelligence of

asian casino stocks down to one half percent. apple's plan to switch to go led japaneses pressuring suppliers to up operations. they dominated the market with 99% of shipments within the first half. apple is in charge which -- talks with sharp to procure oh led displays. that is the bloomberg business flash. backede: investors have into the biggest bank mergers since 2007. voted in favor of the tie up this weekend and joining me is giuseppe castagna, the ceo. he will head the new combined company and joins us from the lawn. thank you so much for joining us. give us a sense of the think this is just the first in a wave of consolidation in the banking

sector. giuseppe: thank you, thank you for your question. the farmeally believe of the bank, that a wave of consolidation should happen. nothing happened up until now and we are the only one with the bank to decide to have a merger which we reached on saturday. it may be now all the others have no time to consolidate the four the transformation -- before the transformation, but most likely next year we will see some other can validation. francine: do you believe the process of consolidation is slower because of capital requirements and because of these nonperforming loans? giuseppe: this is for sure one of the reasons, maybe the main reason. for oure ecb asked

merger to have an increase of capital of one billion, all of the other banks were maybe a bit scared that the same request would be done also for them, so for sure this was a bit of a slowdown. but i think consolidation is needed in any case, hoping the ecb would be a bit more willing to encourage this possibility. itunderstand that either way requires the banks to be more profitable or will require the bank to be more capitalized, and the two are very difficult right now. francine: how frail are italy's banks? if we do not have resolution for a lot of the other banks, do you think your share price will suffer as a result of investors also discounting you guys? giuseppe: yes, i think our approval last saturday was

really important, not only for our banks, our shareholders, but to show a signal to foreign investors that it is possible to have a consolidation in growth in italy, also without having resolution. +++ go ahead with a bit more confidence. talking about monte paschi, unicredit, the other banks. if these can be sold in the next two months, i am sure investment will come back to italy and try to come back to invest in a sector that is really -- has a

tangible book value that is low. francine: what will it take to solve this or turnaround investor sentiment? giuseppe: i think the most important things right now is the monte paschi situation. a sort of solution has been but theyh atlante, still need some capital increase. nowadays i know they are working on their strategic plan which will exactly ask for an amount which, the first time with a 5 billion, maybe something less than that. and of course we need investors to believe in this strategic land. this would be the potential turnaround of the sentiment on the italian banking system. francine: do you worry about the referendum, then a negative reaction puts extra pressure on all european stocks, especially the italian banking stocks? giuseppe: for sure, investors need to have a situation which is much more clear. stability is important for investors. otherwise, if you have volatility, it is for speculation not for investors of longtime.

i hope really that a good result and the referendum can help all the other banks to have the right move. what sets you apart rivals?r two bigger what is your business model, is it much more focused on smes and lending? giuseppe: i would say meanwhile they are really nationwide, we are much more concentrated on the north of italy region, which rich, the more reach, -- the more profitable with more manufacturers. , wealthy families are concentrated in the north of italy. businessave 80% of our so this is very much important. we will be a proxy of the richest part of italy. then we'll will be focusing on mid-cap as far as for --

corporate business. we may be the only ones who have the size and the arms, because we also have an investment bank which is very good which is focused on mid-cap. we will focus on the private banking which is splitting two different banks, only one bank. also for the private banking we will have only one bank dedicated to our client. we will have 4 million more clients so we will be very much .inked to the territory francine: thank you so much, giuseppe castagna, of bank of popularity mono. clinton, trump, round three. their final debate ahead of the election. can trump make up lost ground, particularly with women? this is bloomberg. ♪

francine: i am francine lacqua in london, this is bloomberg "surveillance." time for our morning must-read. imagine the state of the race -- u.s. politics -- where he is capable of staying on message -- talking about donald trump -- instead of denigrating the women who have made allegations of sexual misconduct against him,

mr. trump would be focusing on his case for americanism versus mrs. clinton's globalism, he might have a serious chance of winning. can he get it back? rupert: it is tempting to say but there's a lot that can happen. at this stage in campaign your big anxiety is turnout. arehillary campaign, we worried about this narrative that she has it in the bag is a dangerous narrative because if that suppresses their turnout it could be a worrying development, particularly if you have a huge amount of uncertainty about turnout on the trump side. a lot of people who maybe have not voted for a long time, will they turnout and surprise people? ♪

francine: this is "bloomberg surveillance." let us get to the first world news. ties the u.k. economy has

been more resilient than expected since the brexit vote, maybe leading people into a role sense of security. concern that britain could use its tariff-free access to the market or tumble out of the european union without a trade agreement in place has driven found to a 31 year low. are likely to scale back investment and hiring plans. north american banks cut their share of u.k. commercial property lending by half ahead of the e.u. vote amid uncertainty and a cooling market dampened demand for british real estate. u.s. and canadian market share dropped to 11% from 14% in the first six months of the year. hasese president xi jinping warned that the global economy is weak and vulnerable to problems that could trigger a new financial crisis. heaking at a summit in goa, said the underlying causes of

the 2008 crash had not been fixed and the threat remained of a repeat. the groups represent nearly half of the world's population and a quarter of its economy at $16.6 trillion. chinese policymakers are facing a dilemma over the yuan, which is hitting new lows against the dollar while strengthening against peers, posing a dilemma to policy markets as they look to shore up an economy growing at its slowest pace since 1990 area the previous see -- since 1990. donald trump is taking a hit in the polls with allegations of sexual misconduct as an old tape damaged his bid for the white house. women in key battleground states increasingly prefer hillary clinton, giving her an overall 6% lead in the states. trump acknowledges he has lost women, but blamed the media for "rigging the election."

news powered by journalists and analysts in more than 100 country desk 120 countries. political leaders across europe are preparing to discuss the terms and conditions of the u.k. exit from the e.u. lebron options are so-called hard brexit or soft brexit, with theresa may thought to be leading toward hard brexit. what is really at stake with these options? rupert harrison is the chief mackie strategist -- macro strategist for blackrock. this is what i wanted to show you. u.k. 10 year gilt yields -- this is in white. the yellow is actually the u.s. 10 year yield. white when climbing past the 200 day moving average at 1.185. i know a lot is still to play in gilt. i think what is interesting in this chart is it shows part of the move recently has been the global yield factor

, a reflation very dynamic in the global economy. unwinding some of that to the downside that guilt has built up -- that gilt has built up, there is signaling of inflation. francine: i love speaking to you because you are one of very few insiders that we have, in that you were a chief of staff for george osborne many years. i know you still speak to people at number 10, number 11. what do we know about theresa may's thinking? what global investors want to know is your strategy going forward. rupert: one of the problems is, we do not know very much. we are in the very early stages. that is important. we are also at a stage where the government is not interested in talking publicly about the debate. --are left in a position of as are many people in government -- working backward from some of the red lines that have been set up. i think one of the important dynamics has been increased

understanding that there is a so on the hardy, brexit side, we have some clear red lines -- control of immigration, no jurisdiction for the ec j. on the softer side, we just have aspirations. which is as much freedom to trade as possible. this asymmetry between red lines on the one side and aspirations and ambitions on the other is making people nervous. i still think there is a huge spread of possibilities between the two. one of the interesting things talking to people in the government is, there is quite a lot of ambition in the single market, a desire to re-create as much of that is possible. one of the interesting stories of the last few days -- noticing that a redline that has not been set is contributions. it is a must is interesting that politicians do not say is what they do say. maybe that is being held back as a card to be played in order to maintain some access. i think the question is, how much are e.u. partners willing to grant similar market access,

given what has been said about ?mmigration and the ec j -- ecj francine: we do not know, because negotiations have not started -- the e.u. is taking a hard line. even yesterday, donald tusk was saying the only alternative to hard brexit is no brexit. rupert: you would expect nothing else, particularly at this stage. the idea that the freedoms of the single market are indivisible, that you have to have freedom of movement as an inseparable part of movement of goods and services, is one that i think will be maintained for at least a year. areave a period where we going to french and german elections, and this is setting out the public line. the big unknown is to what extent that line can be blurred as we get into the real meat of the negotiations. the u.k. is going to want to come to the table saying, look at all these goods industries where we are incredibly integrated with the european economy. surely it is in everyone's interest to maintain continuity. they will try to make

the same argument about financial services. that will be a lot harder. is, is then commercial interest in the rest of the european union in keeping continuity in car manufacturing or any of these industries that are very integrated. thehat going to trump politics of saying this is a hard line, and we do not want to encourage other countries to head in this direction? that is going to be the balance. francine: how do you think theresa may's balance is formed? we had people coming out and talking about the column published by boris johnson a couple of days before he decided saying the euit, is great for the u.k. because it gives us much more certainty. do things like this influence the prime minister or the team around her? rupert: there is a slight sense of the absurd that hangs over this debate, the idea that boris johnson has written two articles , like coming out with a war novel.

part of history. the truth is that boris johnson, for theresa may, is someone to be managed rutted than someone influencing her opinion. i think the decision and the strategy is going to be made by a small group of people in number 10. i think philip hammond will be an increasingly influential voice, the analysis of the treasury. that is still powerful. david davis, boris johnson -- these are voices, but for theresa may, mainly voices to be managed as she tries to hold her coalition together. they are not really, i suspect, the ones drawing up the strategy. francine: what are the chances of a general election at this point? because there is no opposition, dovely, to be top down -- in terms of widespread politics, does that mean she is the prime minister the next 10 years? rupert: it must be counting to call a general election when you look at the polling, which

suggests a landslide victory for the conservative party at this point. one thing they will have learned from what happened to gordon brown in 2007 is, if you are thinking of pulling a snap election, the last thing you do is even hint at it. we will not know anything about it until it happens, if it is going to happen. maybe this is too much of a conspiracy theory. i think the march timing of a maye 50 would work with election. you can say, i am triggering article 50. here is my principles for brexit. let's have an election to give a mandate for this. if i was theresa may looking ahead at four years with a small majority with very difficult votes in the house of commons, it would be tempting to do that. everyone always says she is a cautious politician. she has four years to govern unchallenged. why put that it risked? we will not know how she is going to weigh those two arguments until the day before. francine: rupert harrison, thank you so much. we will get back to talking

about european and u.s. banks. stay with "surveillance." after several u.s. banks beat estimates last week, we look ahead to results from bank of america, goldman sachs, and morgan stanley. we also look ahead to the ecb. will mario draghi extend qe? and trump's going women problem. we asked betsy mccoy if the republican candidate can reverse course in his slumping poll numbers. ♪

francine: i am francine lacqua in london. markets down today. let's head to mark barton for

your asset check. mark: we are down by 0.4%. janet yellen on friday talking about allowing the u.s. economy to run hot has seen long yields rise today. talk of inflation overshooting, hitting core bond markets throughout the world. today, fall or in europe the world's biggest education company, reporting a 7% drop in comparable sales for the first nine months amid a slowdown in the key u.s. market for textbooks. pearson gets almost cap its profit from education and is facing sluggish the man for textbooks. googling u.s. college enrollment ling u.s. college enrollment. big news at the weekend -- shareholders of bengal, lori -- banco pololari approving italy's biggest bank merger since 2009,

the biggest since monte dei paschi. it is going to create a lender with a market value of 5.7 billion euros, 171 billion euros in assets. this is how the shares have fared since 2007. polare town. -- down. they have lost almost all their value. janet yellen hinting at letting yields run hot. treasury 30 year yield surging friday, ending the biggest two-week slide since may 2015. this is the spread between the ..s. five-year and the u.s. 30 long dated yields are rising today on those yellen comments. francine: that you so much. a big week for banking news.

the biggest banking merger since 2007. deutsche bank is said to be exploring shrinking operations. in the united states, earnings out of the wall street banks, including goldman sachs and morgan stanley. in two hours, we get bank of america. janet lauren and rupert harrison. italian banks, deutsche bank as always, and u.s. earnings. let's kick it off with deutsche. we are not closer to having a even ifrom doj, and they shrink and downsize u.s. operations, what does it do to the business model? crimet is a problem for -- cryan. we are no closer to getting that number. in the meantime, we are getting leaks and reports. obviously, all these options look painful. but i think trickling from the

u.s. looks less painful than selling a business like asset management. i think deutsche bank is maybe to global, and the cost of accessing the u.s. market, with new regulations coming in, more capital restrictions, will mean all european banks will have to leave their u.s. operations sooner rather than later. francine: with the u.s. be happy? it seems they want to punish a lot of these banks, but also make sure there is no risk taking. if they get rid of assets in the u.s., would they be doing the u.s. regulators a favor? what would doj say? laurent: if you look at the u.s. thanks next to the european banks, there is a real gap. u.s. banks are more profitable and their balance sheets look healthier. there is clearly a message for european bankers to get to say it will take a lot of money and work. that is a priority for the european banks now. francine: it is partly business model, but i do not know how long it takes. the ceo of deutsche bank has

great respect among his peers, but i do not know how long it takes to come up with a new business model. 10 years? rupert: it involves confronting difficult truths. the interesting thing is to see the u.s. banks, the investment banking arms of those banks, starting to go back to profitability and to make some serious money. but it is only the u.s. banks. what we have learned since the crisis is, we are never going back to an era where anybody who sent up a global bank, that was a license to print money. banks andose european european businesses simply are not. that have to confront the reality that the good times are never coming back. that entails shrinking your ambitions. what can deutsche bank become in terms of business models that make sense to investors? things it could become. it could become a smaller version of itself, more of a universal bank. imagine if it became a more

german universal bank. i do not know what that would do for the egos of the investment bankers who have global ambitions. clearly, john cryan had a different view. we do not know what model he has in mind beyond getting smaller. but i think politically it might help if you become more german, or european. given all these talks with the u.s., the need for european regulators to wake up to what is happening to the banking industry and have a more uniform and unified approach, maybe that will help. francine: in terms of u.s. banks, they are coming out -- today, we have bank of america. what am i looking at? dividends and strength in trade? laurent: buybacks, dividends. it is a gap between the u.s. and european banks in terms of being able to get capital back to shareholders. u.s. thanks clearly profiting from european banks, including deutsche. it is unclear with the european banking system will look like in 10 years. are we going to give up on the

investment banking model and give a free lunch to the u.s.? rupert: we seem to be doing this. it is a long cycle. you go back 30 years, there are several times when the u.k. tried to build up global investment banks and decided it is not working, got rid of them, tried again. i think we are in another of those cycles. one interesting problem for deutsche bank is that the core business is not great either. in a low interest rate environment, particularly in the german domestic market, a lot of lending is done by banks that are not behaving in a traditional profit maximizing way. they are perhaps more of a utility funding the german export machine. it is not clear what you pull back to when some of your core businesses are not profitable either. bancoe saw in italy with popolari, consolidation is going to have to be part of it, but it has been slow coming. francine: you have written a lot about italian banks. the merger -- is this an

inflection point? only going to see more consolidation? or because a capital requirements, it is not going to work? it is babythink steps. the merger has been rocky and complicated. there is a bit of relief. investors see these italian assets and want to get in. we are still a couple of hurdles away. monte dei paschi, still not clear. the referendum, not clear. it will be next year before we see a turnaround in the sentiment on italian banks. francine: what will it take for italian banks to be really investable? rupert: if i knew that -- francine: you would be very rich. rupert: it is going to take time. you have to clear the hurdles. there are difficult come along issues to work through. npl and costs, dealing with . none of this happens quickly. francine: thank you so much. the blackrock strategist rupert

harrison stays with us. yields rise to a post-brexit high on inflation wagers. this is bloomberg. ♪

francine: we just got news in the last couple of minutes that popolare- that banco -- this is after it fell more than 4.3%. the counterpart it is merging with was halted on the upside. you have two banks combining. a lot of people saying this may be an inflection point for the italian banking sector. you can see banca popolare di milano halted on the downside. let's get to the bloomberg business flash. nejra: deutsche bank is exploring shanking its u.s. occupations as lending expenses eat into firm capital. one person familiar with the matter said germany's biggest bank supervisory board discussed the business stateside at a recent meeting and the topic has come up in talks with u.s. authorities.

a spokesman for deutsche bank declined to comment. casino shares have fallen after chinese authorities detained 18 employees of australians crown resort. the head of its international highroller operations was detained. indexoomberg intelligence in asia-pacific casino stocks is down more than 2.5%. that is the bloomberg business flash. francine: let's get final thoughts from rupert harrison, chief macro strategist at blackrock. we have covered a lot of ground today. we went around the world almost in 60 minutes. we did not touch on china, and the market is pretty much ignoring china. chartshave here is compared to the u.s. dollar, the yuan plunging to new lows. this means it is a problem for policymakers as they seek to arrest a plunge in exports but also ensure the economy is growing at around 6%. background to this

-- you and i were both in washington few days ago. risksk one of the main everyone sees for their medium-term outlook is china, what not now. i think that sums up the issue. if you look at this chart, there has been a learning process for the authorities. you can draw a straight line through this chart going back to last june and it is pretty clear that the only way the chinese economy is going to successfully rebalance, wean itself off these incredible rates of credit growth while maintaining activity, has got to be a lower exchange rate over time. they do not want it to be a straight line. they want speculation to be costly occasionally. they are maintaining flexibility around these baskets to preserve some uncertainty. it is a pretty one-way move. francine: how do you manage this? rupert: they are managing and at the moment. they are not spooking people.

i think people understand this has to happen now. you go back to august or even january, it was more scary for people because the communication was not there. was it hinting at far greater weakness in the underlying economy then people were aware of? some of those uncertainties are going away and we understand the long-term pressure is still there. there is still scope for a short-term policy mistake, but it seems like those are less likely than six months ago. francine: thank you so much, robert joining us for the hour. "bloomberg surveillance" continues in the next hour. we conduct a conversation with edward james of bnp paribas. we also greg earnings from bank of america. that and much more. ♪

francine: yellen's hot economy. the fed chair placed on a case

for keeping economy easing. treasuries fall. germany's biggest bank is said to consider shrinking u.s. operations. we'll pull back mean pressure on the bank? shareholders back the tile of bengal, lori and bank rudy banco popolare and banca popolare di milano. a focus on the fed. the trifecta. tom: a trifecta of financial news. i will go with that. no one in america cares. this is -- francine: what do americans care about? the election. the election is stunning. the popular vote moves around. the predictions are here. we will have this through the week. we have to go to the wednesday

debate. francine: remember of course the economy is probably the big one to watch if donald trump does get into the white house. here is taylor riggs. taylor: iraq has launched an offensive to retake muzzle from mosu -- mosul from islamic state. u.s. defense secretary -- carter called the operation a decisive moment in the campaign to deliver the islamic state a lasting defeat. i.s. captured mosul two years ago. consideration of attacks on .leppo u.s. secretary of state john kerry and his british counterpart boris johnson at all but ruled out a military response to end the siege and aleppo. -- in aleppo. the chinese have sent to restaurants and the country's longest mission yet. they will spend most of the month aboard an orbiting

laboratory, a simple version of a space station. vietnam, flooding triggered by heavy rain has killed at least 24 people. have been5,000 homes flooded. the situation may get worse. bracing for the approach of high-tech boom. tough once talked china and is now leading a trade delegation there. he and business leaders begin a four day visit tomorrow. he is the first philippines by xi invited for talks jinping. relations have been strained due to territorial disputes in the south china sea. .lobal news i am taylor riggs. reset from at gorgeous weekend in new york.

yields higher, up to 1.80 over number of hours. the euro weaker, under 1.10, bouncing but weaker. oil does not move. at a 17.as we are at a 16.87. trading before the market open, i showed euro-dollar again. elevated, but8, not range breaking. the mexican peso -- i do not know what we are in a five digit this morning. it is a five digit morning. the clinton/trump barometer. francine: this is what i am looking at. dated bonds falling in asia and europe after comments from federal reserve chair janet yellen. that theed concern lessee makers will tolerate faster inflation. european stocks down 0.5%. possible news on deutsche -- we do care about that in europe.

thatou talked about 6.1687. a report roundly denied by the government moving markets earlier. a lot more on that in this hour and on through "surveillance." the u.s. economy -- scott brown joining us in the next hour. this is industrial production. thank you, jason shanker. that is a 15 year moving average. the pink line. only once before, back to the depression, have we been below the 15 year moving average. we did that in the crisis. we have leveled out. the blue line is the extrapolation of where production should be and it is not in america. francine: i did something a little bit different as well. i know you have been focusing on former u.s. production for quite a while. i wanted to show you something on china. we were at the imf together in the sea

medium-term, china is the biggest concern, though it is not playing in the markets. is against the dollar. it seems china's currency is strengthening against peers. this is a headache, a dilemma for policymakers. they are trying to arrest the plunge in exports and shore up an economy that has grown at a slower pace since 1990. you like my chart? tom: i love it. further weakening of the yuan over the last number of days -- that is great. i completely missed that. francine: it is an important chart. we will also talk about brexit. but i wanted to get away from brexit for a minute to focus on china. get more from edmund shing, globalhead of equity -- head of equity strategies. a lot of headwinds if you are looking at the markets. the focus on janet yellen, on with the ecb will do next.

while we focused on central banks? people want to think about the political situation. we could talk about the u.s. and europe, where there is the italian constitutional referendum. we have key legislative elections. i would say the direction for the political angle is somewhat uncertain at the moment. what we can say is that qe has to continue at least in europe and in japan, and in the u.k. as well, and even in the u.s., when we talk about janet yellen. let's face it, whatever she does is going to be incredibly slow. we can be sure of that. she can allow inflation to rise rather than accelerate the rate rise. she is looking at the economy. she is keeping the economy on an even keel in the u.s. francine: that is fair. upon is to janet yellen say if it is over too much, you have to raise rates so much quicker next year.

does that make recession more likely? edmund: i think janet yellen would love to have that problem. i do not think she is going to get that. i think she realizes growth will slow, particularly from the consumer. if you look at the big chunks of consumption in the u.s. -- auto sales being the biggest -- auto sales have fallen from double-digit annual growth rates to negative growth rates on a year on year basis. there has been a real slow down in car sales. car sales are very important. tom was talking about industrial production. a key component of industrial production. if people are not buying cars, the big three can stop making the cars, and that slows down industrial production. tom: with your world of derivatives, measuring correlations and measuring the drift, the agitation that is out there -- what is the dampening right now in the market? is everything's sake, or is there a bit of spirit going on? or iseverything soggy, there a bit of spirit going on? edmund: everything is sog

central banksgy. -- everything is soggy. financialkeeping markets under control. if we stop believing central banks can exert that type of downward pressure on volatility, if the put ceases to work, volatility could explode as investors take fright. it is a pressure cooker. you are under control. the lid is firmly clamped on for the moment. but at some point, it might just fly off. tom: i like the idea of the pressure cooker. that goes back to financial stability. out of imf and even before that, a real question about the greater oil in the engine of the system. how is the short-term indicators that you look at every day? we look at thef macro indicators, they seem ok. i would say they are nothing exciting. but what we are looking at is

trend growth, some trend growth in the developed markets, which is fine. it is what you would expect. what it does tell you is that qe , quantitative easing as a monetary policy tool, is becoming less and less effective. for me, this is where governments and institutions need to take over and inject some fiscal policy. now is the time to do it. hopefully after the election that we see coming up, we will start seeing some action. tom: edmund shing getting us started on a monday. in his last speak to the economic club of new york, i heard the phrase for the first accommodative." this afternoon, stanley fischer speaking to the economic club of new york again. without question, the speech of the day. ♪

francine: this is "bloomberg surveillance." straight to corporate stories. taylor riggs? says the new survey european central bank will extend qualitative easing at its meeting in december. according to a bloomberg poll of economists, mario draghi will prolong the bond buying program. consumer prices are barely rising in europe, and the economic recovery is still fragile. the city of london is at risk of becoming beleaguered when it comes to british -- of becoming the laggards when it comes to british housing price growth. according to write move, it is the second weakest of the nine areas it surveyed. the average price in london is $787,000, more than twice the national average. that is your bloomberg business flash. francine: thank you so much. it is a busy start to the week

for banks. budgeting is said to be exploring shrinking u.s. operations as legal costs eat into firm capital. meanwhile, italy's biggest bank merger in almost a decade. shareholders voted in favor of banco popolare and banca popolare di milano merging. laurent still with us. talk about italian banks, first of all. the first big consolidation since 2007 creates the third-biggest italian bank. does it mean consolidation is right, that we will see more banks merging? laurent: i think it is good that it is happening. but it has been such a rocky road to get here with capital increases and a lot of surprise and worry in the markets, with various regulation declarations. i think we do need more consolidation. but banks are also clearly worried about what regulators are going to say, execution

risk. this is a good step, but just a first one. francine: we spoke to the ceo of encoding milano, who -- of banca popolare di milano, and he believes it will spur more consolidation. >> i think consolidation is needed in any case. hoping the ecb will be a bit more willing to encourage these possibilities. so i understand that either we want banks to be more profitable , or the kind of bank to be more capitalized. the two of them is very difficult right now. look at theen you italian situation, the problem is that politics might get in the way. an important referendum december 4. and you have these capital requirements he was talking about. the italianink banking situation is complicated

and the december referendum is absolutely key. we know it is on a knife edge between the us and the know, but we know prime minister renzi in the past has talked about resigning. he has stuffed away from that recently, so maybe he will not resign even if he loses the referendum. milan, what is very important is that italy reforms. it has one -- has been one of the notable laggards among the major eurozone economies. her many has done more, spain, ireland, italy has been slow. i think renzi needs the popular launch ais side to reform bill that will really drive productivity growth for the first time in a decade. banking mergers -- that is exactly the problem. .ou cannot find people it is almost impossible. there is no point merging banks if you cannot reduce costs as a result. tom: help me with what is next for mr. cryan.

we are wondering to the end of the year. you are the pro on this. what are you watching about john cryan? in the immediate term, he needs to get a number from the doj, some kind of settlement. we keep getting promises that it is around the corner. has not happened yet. what we get in the meantime our reports about what the bank is doing or considering outside of that. we hear there is various asset sales being considered. not even a retreat or a partial retreat from the u.s. that is welcome news. shareholders want to know there is some kind of plan. but the short-term has to be getting that number. tom: what are they going to do in london? forget about the united states. this is frank and london. what are they going to do -- this is frankfurt and london? what are they going to do? edmund: i do not -- lionel: i do not think the u.s. is irrelevant. brexit is a three-year, for your

risk. u.s. banks that do not have a city --ropean eurozone subsidiary will move business back to the u.s. or stay in the u.k. u.s. banks do not want to increase euros on exposure either. brexit is long-term. deutsche bank needs to cut back. i think shanking from the u.s. is going to make sense. forcine: what is the future european banks? in 10 years, are we going to have any investment banks left? edmund: i think that is the wrong question to ask. asuld you really care -- long as there are investment bank somewhere? francine: i care because you are giving a free lunch the u.s. banks. veryd: it is not a profitable business. if you want to take a long-term analysis of the investment banking sector over decades, few have only ever been -- firms have consistently beat brackets and made money.

they have always been american. that is just a fact. european banks have tried. you could argue credit suisse has kind of got in there in the good old days. but ultimately it is the u.s. that has always dominated the investment banking seen in the medium-term. and frankly, nothing changes. tom: edmund shing with us. laurent, thank you for getting us going. 28 degrees centigrade in new york. i just looked it up. 28 degrees. it is the 5:00 a.m. hour. we do fahrenheit. is like christmas comes early for francine lacqua when you speak in celsius. tom: i feel very dickensian. hour, we look at bank of america. that is an important discussion.

this is bloomberg, in centigrade. ♪

francine: we are looking at live -- 27 degrees celsius? it looks more like 18, but not bad. we are looking at gilts. pushing 10 year yields to their highest since the brexit vote. it's time for my morning must-read, and we picked out something to do with brexit. ft, iu. -- this is in the

believe lionel barber. he writes about staggeringly high unemployment. well, we are back with edmund shing, bnc paragraph -- bnp paribas head of global investment. you have certain politicians that are becoming more extreme, either to the right or the left, because of brexit positions. always a badis not thing. it can force the current centrist parties to do something. in's face it -- when you are continental europe, whether you are on the right or the left, you send -- you can to be pretty centrist. it is a lot of consensus politics, what goes on. beenentrist parties have in power, generally, for a long time. they have got comfortable. i think it is quite good that extremist left-wing and

right-wing parties come in and challenge that, because it forces centrist parties to rethink their strategy and maybe think about doing something different, which is exactly what we needed europe. -- need in europe. tom: and modest correction on francine's wonderful mmr. columnist for the ft. he is the ft, their editor in chief and profound force behind the excellence at "the financial times." when i look at that ft article, what it means for me is currency, which is sterling. help me out with the ramifications for the broader u.k., and for that matter european system, as cable goes 1.20, 1.19, etc. edmund: it is pretty -- you would say it is good for exports. that is the obvious knee-jerk reaction. let's face it, pretty bad for the consumer. pounds, so i feel

the pain. every time someone goes abroad on holiday, you feel the pain straight away. you have lost 18% of your purchasing power. that is an awful lot in a short time. tom: help me here. you are at the airport, trading your doubloons four pounds. or pounds. with the spread, are you below parity now? francine: i am still just above parity. we are also courting inflation. if you look at mark carney and his important comments on friday, he said we have to look for inflation. rupert harrison was at treasury when they decided to actually give this mandate to boe to look for inflation. you can look through inflation if it is 2%. when food prices start increasing 4%, 5%, there may be a little bit of social unrest. edmund: social unrest -- i think that is going a little bit far. most people in this country are

employed. if you look at the u k versus continental europe, even use unemployment in the u.k. is 10% or 11%. in france, it is 25%. francine: i thought people were badly off, which is why they voted for brexit. edmund: that is true. the average real wage, you are a percent were soft today than you were in -- worse off today than you were in 2007. we are far away for the average u.k. household. that is the problem and it will get worse with inflation writing. tom: edmund shing with lots to talk about. on "daybreak" this morning, richard claret jug -- clarita of pimco. ♪

tom: good morning, everyone. i am tom keene in new york. right now on first word news,

here is taylor riggs. thatr: ashton carter calls a decisive moment in the fight against the islamic state. iraqi forces have launched an offensive. the iraqis are being backed by us-led coalitions. russia's president vladimir putin hopes relations with u.s. can be restored after the election. he spoke in india. ties have gotten worse since the agreement of a cease-fire. democrats say that russia is behind hacking of e-mails in the clinton campaign. donald trump and circuits have ramped up the election process. they say the election is absolutely raked. former new york mayor rudy giuliani says that election

fraud is committed by democrats in inner cities. flammableilled with liquid was thrown through an office overnight on friday. someone wrote a slogan related to nazi republicans on a nearby wall. llande endorsed a book just weeks before deciding to run another term next year. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. francine: thank you so much. for more on investing, let's take with patrick armstrong.

the global head of equity derivative strategy. thank you so much for joining us, staying with us. when you look at the global environment for investing, we're seeing a movement towards the pound. a lot of the things reporting today. we have uneasiness because janet yellen spoke on friday. what do you base your decisions on? where you have very muted returns and risk is in equities right now. you still have an option from the u.s. federal reserve. it is a significant selloff environment. any economic strength, you will see higher interest rates. cheaply justification is

bonds. i think that is where the real risks are. francine: you are selling u.s. equities? >> we are short u.s. equities. they are very interest rate sensitive. francine: this is regardless of the u.s. presidential race, right tackle >> it is. there are a lot of risks, but i think it is the interest rate environment that you have to worry about. veryan hedge those risks cheaply. it is a way to hedge against that. tom: i want to graduate you on actually hedging. it is wonderful to have someone who is long and short. help me with hedge funds. why are they underperforming. is it because they are not hedging like you?

>> it has been a tricky environment in some respects. if you use it, you have probably lost. the best approach has been buy and hold. if you pot equities a long time ago and hold them, q have done well. i worry now that the correlation that has pushed those up is based on interest rates. that is exactly what i wanted to go. what will be the true catalyst to change the call and say with a chuckle >> i think it is interest rates. definitely. you don't have an alternative right now. see anu start to opportunity cost, on a 10 year yield, i think that place to a significant selloff in the defense of equities. tom: this is why stan fisher's

speech today is so important. todaynder what he will do . francine: i was speaking to someone from blackrock who said what he interprets of janet yellen is more on the table but the path may be diminished or small in 2017. tom: i think we need evidence. what is the evidence that you will get a race backtrack go >> -- race back? >> i think you are starting to see steady job growth, early signs of inflation. i think the position that we did not do september, but should werything stay status quo, are able to reduce the ultra accommodative. what she is really worried about is that the market worries.

this is the beginning of said rate hikes. what she is trying to prevent is a recession. she says, we will hike in december, but don't panic, inflation can move fast too. francine: what is your take on cost?d rate we talked about it at the beauty of the show. are the markets oversensitive? >> i think they are. i think any rate rises will be very gradual and much slower than previous cycles. for me, that is enough. talking 25it, we are basis points or 50 basis points over the entire year. francine: what is your take on the treasury? >> i think they will be well past 2% in three years time. in five years, clients will be

asking, why weren't you short. at some point, there will be a return to normalization. tom: do you agree with mr. armstrong's thesis, the idea that now is finally the turning point for blue chip stocks? >> one thing that is very interesting is if you come back to the idea of low volatility stocks, the idea that the u.s. you only been low trade -- look at the concentration of consumer staples and utilities, that is very dangerous. , utilitiesis right will continue to suffer. in the u.s., they are very sensitive.

i think that is the danger. strategies have underperformed for the last four years straight. there will be a time when this will work. tom: fairy quickly here, our european dividends legit? will they stay sustained and high? >> you don't even have to bet they are sustained, you just have to bet they don't fall in the next five years. way to go.ong tom: patrick armstrong with a decidedly cautious view on u.s. equities. coming up later today on bloomberg television, a speech by the vice president of the fed, to the economic club of new york. this is monday. this is bloomberg. ♪

francine: this is bloomberg surveillance. oil and gotalk about to the middle east. oil investors must be getting dizzy. -- he two months we are joined by patrick .rmstrong tracy, good morning. talk to me about oil. >> sure. good morning. if you want indication of just how big a deal opec's potential freeze agreement is, take a look

at the position data we have been getting. in the last two months since speculation of a potential deal started to build, we saw a turnaround in sentiment. positions turned around. not long are now up 13%. really a huge swing. it has been some speculation that what saudi arabia has done is catch some hedge funds off guard. francine: to put it very simply, if you are going short, you are betting against the saudi's. >> that's exactly right. you have seen bets against oil drop genetically and long positions in oil increase. theinteresting thing is timing. we know saudi arabia is suffering from the drop in the oil price. the kingdom gets a lot of its revenue in crude.

one of the things it is looking to do and it is meeting with investors this week is to raise money in the international bond market for the first time, potentially raising more than $10 billion. some analystss i have been speaking to our saying that this was a brilliant move by saudi arabia to talk about a production deal at the same exact moment it is pushing a bond deal to investors. tom: that is no different than doing the thing on madison avenue or park avenue, for that matter. are they being anymore transparent? come on. do you know anymore or does abu dhabi know anymore about saudi fiscal policy? >> look, everyone here has been pouring over the perspectives we got last week. it is 220 pages long.

for instance, they do not intend to impose a personal spending tax anytime soon. oney provided on audited -- audited estimates about how much oil is in the ground. in terms of risk factors, it is very general. it is not necessarily unusual for a bond perspective but it does mean the investors meeting with saudi arabia and representatives will have to weigh the risks. tom: does everyone have to show up at the trough? >> that is the question. you could argue that it is the first time saudi arabia has gone sointernational markets,

people will be very excited about this. on the other hand, you know investors have never done this before. so far, people are expected sometime this week. they talk about getting 120 basis points. that is the low estimate for pricing. it will be closely watched. not just a sentiment about saudi arabia and oil but clues as to how per se since -- pervasive the search for guilt is. tom: to see how tracy holds a punch line for the end of the interview? this is all we wanted to know. she waits and waits and waits. francine: that is how she keeps the attention of tom keene. well done, tracy. tracy alloway there in abu dhabi. we're back with patrick armstrong.

how do i look at oil check go it is amazing, even on the talk of fromsible freeze, oil seven dollars-$10. >> it is quite volatile. whole in september pumped at record levels. that is a fact. they talk about the freeze, including russia. that is enough to get the oil price of. what is interesting to me is what is the long-term future for fiscal policy for saudi arabia. they have to have something well over $100 per barrel. they will not get that. however they ever going to balance the budget? i do not see how. francine: they may bring it to $45. >> a can influence the price. clearly if they start to cut out, they can influence the

price in the short term. if they think about buying the bonds, the rate is doubling minus today. if you look at the fiscal spending track for the next 10 years, i don't see how it can stay on track. tom: to take it broader, can you be long emerging markets here? >> you could. i don't like commodities as a whole. if you are bullish on commodities, you have to be long for emerging markets. depending on your macro view, argue would be opposed to going long now. francine: thank you so much. this is a picture for your asset classes. we both decided to show you this today. let's get it up city can see ixx at 17.

thanks, because they were higher after a merger in italy, now they are back down. this is bloomberg. ♪

tom: good morning, everyone. thrilled to are with us. bloomberg surveillance. stan fisher speaking later today. right now, and even bigger deal with the business flash. here is taylor riggs. taylor: elon musk has lost his latest move to merge two of his companies. has pledged to make solar panels. the shakeup at mcdonald's resumes this week. a key chief officer will announce their retirement. they have been remaking their management team all trying to turn around the u.s. business. and, the big winner for the decision to lisa european union

might be new york. new york has been a top ure bankingo le talent. it is the only place that can rival london when it comes to the depth of markets and amount of expertise. tom: thank you so much. it is a big deal. it was at the imf meeting, mr. diamond up on stage. i can't remember right now. everyone would move over to new york. at that there would be a lot of pushback from francine. francine: i actually have it. when you think about dublin and seeproblems, that they may a pullback. you look at frankfurt. there is a joke amongst ceo y speak german in fix it, don't they? if you move there with your

kids, they may be alienated. there's a lot more buzz with new york. now ise buzz right outside of trump tower. give me the morning must read for those of you worldwide, i cannot convey how america is consumed by this election. with mr. trump's attorney in a lawsuit. tom: this is a wonderful, informative speech. it is front and center. is this a distraction to you, or are you focused on next year?

on next year. with hillary moving clearly a head in the polls, that is looking like a status quo. i think a trump victory would make a higher premium. the only way he gets elected is pushing the fiscal aspirations and tax cuts and spending. francine, within all of your context, over the weekend, the last few days, is there a belief the election is over? francine: there isn't. careful.eople are very i spoke with rupert harrison who used to be chief of staff for george osborne. he says, we cannot underestimate popularity. it is all about voter turnout. people are concerned to say the election is over because we thought with brexit. polls you on what

look at. there are still three or four weeks left. tom: the one thing i would say is the basic idea of a popular vote comparison versus state-by-state the looks old vote -- electoral vote has never been wider. the popular vote is close. votes seen electoral x likelihood. >> we should not forget that the u.s. is not alone in that. what do i know? i think it is clear that it is 100%.ore likely, but not the thing investor should always there in mind is people generally overestimate the power

of a president to do anything. the best thing that most leaders of government can do is precisely nothing. but the economy do its thing, don't metal. that normally works out for the best. in,hillary clinton does w you will see the u.s. economy to somewhat better. tom: it has been a great briefing in the 5:00 hour. thank you. in the next hour, we will forward on banking. withof america out earnings after good results from other banks. this is bloomberg. ♪

fisher noon, stanley fitch

will speak on modest accommodation. thursday, mario draghi, they will decide, the two big to fail , bank of america bears all. and, we speak to a trump supported. we will see, on economic policy, who cares? your life from new york headquarters. francine lacqua, we go to wednesday's final presidential debate. i really do not know who will show up. francine: we know who will show up, there are two main candidates. what is not showing up or may show up to quickly is inflation. i think this is underpinning any market movements. dynamicsvery different .

now to first word news. iraq has launched an offensive on the islamic state. the u.s. defense that terry -- secretary called it a decisive moment in the campaign to deliver a lasting defeat. u.k. areand considering new economic sanctions. sanctions would target the syrian and russian governments. john kerry and boris johnson have all but ruled out a military response to end the siege and aleppo. china has sent to astronauts into space for the longest mission yet. in vietnam, flooding triggered by heavy rain has killed at

least 24 people. roughly 125,000 homes have an flooded. the situation make it worse. for am is now gearing typhoon. china's president once talked tough about china. after 400 business leaders begin a four-day visit tomorrow. relations between the philippines and china had been strained in the south china sea. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. so much.k you quickly to the data on a monday morning. a little bit of currency movement. next screen. the yield, 1.7. maybe fisher will move. i look at the mexican peso

gyrating, still a stronger pesto . that was not very good. you can do better. francine: i can do better. the markets are much higher. government bonds retrieving around the world. global shares declining with oil in europe. you can see banks unchanged. we have to watch it because of brexit. tom: we will speak with scott brown on this. here is the chart of the tea. this is industrial production. the 1920's and 1930's way over on the left as well. twice, here and here, we have gone below the 15 year moving average.

we will do a blowout chart of this area later. something to talk to, mr. brown, as well. francine: this is a little bit of a currency move. i'm showing get because we have not paid that much attention to it. this is the picture over all. still strengthening. what this chart shows us is it is a dilemma. on the one hand, they are trying to plunge exports. on the other, they are trying to shore up the economy. tom: let's begin now. it has been an interesting hour. joining us, brad hence of new york university. .e have an economist are the kids in class riveted by

the election, by the fed? >> no one has asked me about the election at all. careers,so focused on is wall street a good place to go? tom: can they get a job. what will stanley fischer say this morning? >> they will be focusing purely on what will happen with rates. december break? >> december most likely. november, still a possibility. tom: that would be a shock. it is a dead meeting. what to say? >> i don't think so. it is a life meeting, in that they will discuss whether or not they raise rates. >> they will not raise it. >> yellen has said that it is possible. >> are you making a prediction?

tom: i'm not making a prediction. , modestlyit mean accommodative? >> a means, where is a neutral policy position. the whole point is trying to normalize monetary policy. what is the new normal going to be? productivity growth has been slowing down. the natural rate of interest will be much lower than we have been used to growing up. you're talking maybe 2.5% or so on the rates. i think the figures we got from the fed is they are getting closer to raising rates. at the same time, they're looking to be less gradual over the next several years. francine: i'm fascinated by this november possible call. it's unclear to me whether you are calling for the fed to do something in november. if it is a live meeting, does it

mean the art ignoring politics or they may get catch me to guess that hillary clinton gets into the white house chuckle >> i don't think it has to do with politics. if you look to the reason why they have to lead at the last meeting, they really want more information. we have a little bit more information. i think the same argument would hold at the november meeting. scott, theut, problem is one of timing. this is right before the u.s. presidential election. if donald trump gets into the white house, and it is still a possibility. if he gets into the white house, what does it mean for stocks? why with the fed take a chance of a move right before that would be a possibility? >> certainly the presidential

that far in the air. there are a lot of down ballot totests that we need consider. it is likely that the democrats take control. it will be almost impossible to flip the house. tom: what have you learned about the banks so far? are you concerned about the steepness of the yield curve? they have actually done pretty well. >> right. but you solve them being squeezed. imb. were n what you saw was the interest rising. we did have a move with the yield curve across the curve. the curve actually went up a little bit. that took some pressure off the banks. you have these investment portfolios that will roll off. we would like to have higher

rates with the banks, but, so far -- tom: can the fed help your world? >> they can help my world incredibly. tom: we will leave it there. much more coming up this morning. 12:00, stanley fischer, an exceptionally timely speech from professor fisher. stay with us from london and new york erie this is bloomberg. ♪

francine: this is bloomberg surveillance. let's get straight to the bloomberg business flash. here is taylor riggs. taylor: a new survey says that the european central bank will inend quantitative easing

november. the ecb president, mario draghi will prolong a bond buying program. the economic recovery is still fragile. the city of london is at risk of becoming the laggard when it comes to british housing price growth. 2.5% inave risen just the last year. that is the second weakest of nine surveyed. still, the average price is more than twice the national average. hundreds of jobs after deciding that for now it no longer wants to build its own car. instead, they are focusing on an autonomous driving system. that is the bloomberg business flash. thank you so much.

and engineering, getting into the auto business, everyone wants to do it, what a mess. don't know if you want to build your own. theoes back to conundrum that a lot of phone makers had. and sure there are a lot of car companies lining up -- tom: i think deutsche bank would like to build a car. francine: or get bought by apple. let's stop speculation. deutsche bank is said to be minimizing u.s. operations. meanwhile, italy's biggest bank merger and more than a decade. still with us in new york, rat hence.- brad

let's focus on this is how you merger or deutsche bank. i think deutsche bank is more significant. it does not make it clear what the business model is for deutsche bank >>. > right. because investment banking is such a big piece for investment banking and half the people are in the u.s., you have to maintain some u.s. presence. part of this stems from the fact that new roles is forcing them to keep some capital in the u.s. certainly scaling back the capital would help the picture. you cannot risk losing a lot of revenue. francine: tom has been talking about consolidation for some time. certainly we have two smaller companies to be merging to create number three.

i spoke with the ceo and he said that he thinks this could spur more consolidation in italy. >> i think consolidation is needed, in any case, hoping the ecb would be more willing to encourage this possibility. either way, they require banks or morere popular capitalized. the two of them is very difficult right now. francine: the problem -- and to a wider range, a european problem -- you have a really nonperforming and stringent requirements. it is unlikely we see more consolidation. >> right. this is a big first step, seeing a deal like this get past. the shareholders, that is one obstacle that they were facing. as you mention, the capital

picture is an important one. if you have two banks that are both struggling to get to the capital position, combining those two is not solve the problem. that is going to be one of the big issues going forward. up a picturering of the banks and the story in europe. this is jp morgan with excellence. this happens to be a french bank . osha bank lacks -- deutsche bank lags. if they exit america, what does that do to their income statement? don't cut back, you jettison. if you were to jettison, you would have a tough time holding on to the client base. the large corporations will want a dollar syndicate in the united states and a euro syndicate in europe. tom: i don't get what they are

doing. >> every major central bank and the miter want to ask in the banks to come up with these roles for resolution. to do that, they're forcing them to maintain capital with in the subsidiaries. that is a direct attack on the universal banking model. transferficult to trading books around the world. it is difficult and you are being left with stranded capital. they are trying to free up some of that capital. resizehey will be size -- the united states. you mean to say they will run the new york is this out of london? >> no, they can't anymore. essentially, you say, i'm going to be more of a german bank supplied european clients who want access to north america, rather than a resident north america bank. tom: has anyone done this as

proposed? >> to an extent, you have seen ..n.p. paribas o they have not left north america, they have just downsized their north american operation. francine: any reaction to this? >> i think part of it comes down to profitability. the u.s. has been a more profitable market since the financial crisis. the markets have rebounded a bit quicker and the market has been a bit healthier. if you do shrink it, and become more focused on europe, the economic activity here has not been as robust. it has been harder to generate a decent r.o.e.. tom: thank you so much. we will come back on thinking. bank of america with us. we will speak to scott brown in

a moment about the lack of production in america. daybreak, of pimco, richard clarida. this is bloomberg. ♪

tom: bloomberg surveillance. francine lacqua in london. i'm tom keene in new york. we have to get the first derivative here. bring up the chart right now. this is a way cool chart.

you know this. this is industrial production short-term. -- dy-dx, how about that. two slopes, pretty deep into the recession. we are not as steep here. does a pullback signal an impending recession or is something else going on? >> we would call this a slow patch. if you look at the decline, a lot of that is the energy sector . if you throw that out of the equation -- it's not as bad. it is mixed across sectors. we don't expect to see it taking off anytime soon. bigger servicech

sector economy now. how does it work in a huge >> service sector economy? the greata legacy of depression. they decided to collect a lot of economic data. as we moved to more of a service economy, it is a little harder to measure all the that. manufacturing, it was more or less steady. then, 2000 something happened, and we think it had a lot to do with china, where there was a big increase in capacity for importing stuff. we had not had much of a rebound. a bit of an improvement since the great recession. it also did not fall much, in terms of manufacturing employment. autos have been one of the key stories in the recovery. the banks are very much willing to make auto loans.

not sure you are out of pace at a sustainable level. it will not add much to growth. francine: should we stop worrying about productivity so much to go >> this is a big, big issue. you put that on top of the slower population trends we're notng and you're looking at just lower growth in the u.s. but around the world. other countries have to deal with the same demographic issues as we are. them are ahead of us. china's labor force peaked in 2011. you put low productivity on top of that and you are looking at gdp growth being a lot slower than the kind of numbers we grew up with. use uber, we go to airbnb. the world has changed. maybe we are just not measuring

it right. >> it does not seem to be much of a measurement issue. anddidn't bring up uber other issues. you are looking at advancements in robotics, self-serving cars, we could also have self driving trucks. we have 3 million people driving trucks in the u.s.. those are longer trends where you could actually have greater output with fewer people. it is really hard to see where that is going exactly. tom: thank you so much. we will continue with bloomberg surveillance on the radio with david gura. the vice chairman will speak to the economic club of new york. stay with us, worldwide. this is bloomberg. ♪

francine: this is "bloomberg surveillance." let's get straight to the "bloomberg first word news." taylor: u.s. defense secretary

ash carter calls this a decisive moment in the fight against islamic state. launched an attack to recapture mosul. islamic state has helped it for more than does go years. vladimir hopes relations with the u.s. can be restored after the election. he spoke in india. ties between the u.s. and russia have gotten worse since the collapse of the cease-fire agreement in syria. he says he has no influence over the u.s. vote. donald trump and his circuit's have ramped up criticism of the election process. the republican presidential candidate says the election is absolutely rigged. former new york mayor really jute -- rudy giuliani --

in north carolina, police are investigating the firebombing of the local republican party office. a bottle filled with flammable liquid was thrown through the window at office overnight on saturday. someone sprayed a slogan, republicans""nazi on a nearby wall. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. tom: you would think she would give up. she has been a supporter of donald trump, and in the last number of weeks she has had the courage to talk about economic policy. what is really cool, she has gone to a vote, unlike a lot of the bloviate is out of their -- a lot of the bloviaters out there or you can say with a lot of quality that the vote was not rigged in 1984, right? .co true. -- dark oh true.

do you agree with mr. trump, disagree with him? do you think he is nuts? is there something about a rigged vote? >> the observations of the new commissionerction last week, who complains that in new york city, there is a lot of fraudulent voting. that was a direct quote, when he described exactly how it happened. tom: i do not believe new york city is a battleground state. >> let me just explain. former new york mayor rudy giuliani weighed in. the trump us major concern is not with the mechanics of the election. tom: he went after the media again. >> that's right. and there is a lot of compelling evidence that the media is working hard to tip the election toward hillary clinton. that weneed you here

need to hear from a former public official -- we need to hear from a former public official. >> that would be i. mr. trump over the weekend suggest that the mechanism of the voting is rigged? comment, did make that and it reflects in some places that it may be. i am not in expert on -- i am not an expert on election fraud, although i have seen some of it. the more important issue is that he would like the media to cover wikileaks, which includes some very important information for american voters. for example, hillary clinton's commitment to totally open borders. i looked at the bureau of labor statistics, and i can see that over the last year, growth among -- growth of jobs among foreign-born in america, up 5%.

american born workers, up 1%. there is tremendous displacement with forward workers coming in. tom: i give you the point that of mr. trump'srt supporters, particularly among white conservative america. i want you to tell me how your candidate gets back aboard the ughey track. h can convince americans that he can release energy production so this economy gets jumpstarted -- francine, is it tilted media? could give you

examples, but i do not want to waste your valuable time. am staying firm. the problem is that there is that tape, and the chick changed everything. and it was with lewd comments, so i do not -- and the tape changed everything. and it was with lewd comments, so i do not think you can blame it on the media. betsy: this election should not become a referendum on body language or whether air kissing versus lipsmacking is where america wants to go. the fact is americans are facing a stagnant economy, still learning -- still earning less than they did in 2007. and donald trump has a plan to slash corporate taxes, deregulate. those things alone will put more americans back to work with higher pay. francine: as a woman, when you hear the tape, how can you

defend him? betsy: how can i defend him? because we have heard party language like that our whole lives. i deplore sexual-harassment, sexual correction -- sexual harassment. that is not a single focus of this election. ask men and women all of the thesey, do you want charges against donald trump's behavior, unproven -- francine: do we not deserve better as your commander-in-chief? betsy: yes, but women also deserve more pay. i would look at women right now and say, if you're a woman earning more than $50,000 he or, you will get a $2700 tax cut under donald trump. that is enough to make a down payment on a car. tom: we are lucky here in that aughey is a historian.

you know the history here. is donald trump going to be a william jennings bryan? is he going to go once? let's assume he loses. he goes twice, three times, or is this one and done? betsy: i will tell you what we do know, regardless of who wins. this is not the end of the issue, that immigration raised. the longtime republican party was identified with free trade, and open immigration. not anymore. number does co, this is only the beginning -- number two, this is only the beginning of politics is equivalent to reality tv. you will not have -- tom: do not describe george pataki. this is one final question. this is really important. party forevercan changed, or is there some

normalcy? betsy: i hope they do not go back. the republican party was not listening to the people. for were not taking action growth. the media is think tilted. i have to defend the media every time here. this conversation will move forward. mark halperin and john heilemann -- look for their special on wednesday with the debate. 8:30 p.m. coming up, brad hints and bank of america earnings. this is bloomberg. ♪

francine: this is "bloomberg surveillance." let's get straight to our

stories with the "bloomberg business flash." motors and solar city -- tesla has unveiled plans to collaborate with panasonic to make solar energy is for solar city. the executive shakeup at mcdonald's resumes this week. according to "the wall street journal," the chief field officer and the vice president will announce their retirement. the ceo is remaking the managed team that the management team. -- new yorkor over is emerging as a top candidate to lure banking talent if london finance industry is hurt by brexit. executives, new york is the only place that can revive it.

francine: let's get more on whether or not new york is a big brexit winner. we are back with brad hints of nyu. the problem, if you look at if there was an exodus from brexit, would people really go to new york? brad: well, i don't think so. unless i am wrong. the earth rotates in the new york times own does not really ink well for managing europe. fundamentally, you are going to need a time zone center. you have hit the right issue, which is the continental european centers do not work because either they are not large enough or they do not have the infrastructure to support. foreign schools, to handle the expatriates that are going to be

there. i do not think london is going to lose a lot out of this. i suspect there will be some movement back and forth, stomach establishment of new subsidiaries, but the infrastructure of london is pretty solid. you can make the argument that new york would be the next logical place to move, but i do not see how you -- how do you get people into new york or london trading hours? you cannot -- francine co london is expensive. if youis expensive, so do not have access to the rest of europe, then why would you stay here? i'm sorry, i would love to be able to say that new york would be the logical place, but i also find it hard to believe that the european union does not want to sell its manufactured goods in the united kingdom. they will. in the dnd, you will have it -- in the end, you will have a

very difficult financial negotiation. tom: i think brad hintz informed us all this morning -- i love this -- the earth rotates. these are basic facts. somebody went into mr. moynahan after the debris he picked up for mr. lewis, etc., and said, i'm sorry, brian, the earth rotates. you have some tough decisions to make. give me the scorecard on brian moynihan. he figured out the earth rotates and made some tough decisions given the cards delivered. brad: that's right. bank of america is a difficult bank to manage her he has taken his expenses down. the merrill lynch franchise is still a very powerful wealth -- wealth management franchise in north america. he has a powerful retail business in north america. a lot of the other things we still have some problems. the powersone of

that i -- i guess i think this has gone slower than it could have. tom: let's go faster to taylor riggs with the bank of america earnings. looks like it is a beat, $.41 per share, coming ahead of the 44 cents per share. looking for an occasion of just .ver $20 billion the other thing we want to look as the -- the other thing we want to look at is fixed income. last quarter, brian moynihan said things could still grow earnings if rates stay lower for longer. we had the rate pickup in september, so we will keep following that. but for now it looks like $.41 34 cents is ahead of per share. tom: we went from the billion dollars of credit losses to $700

million. this is the evolutionary thing that we are seeing within all these banks. is it all clear for bank of america? i know it is not for wells fargo, but are they doing a new regime of thinking like the other banks, be on the crisis? brad: the worst problem is that they are behind and they have taken a lot of expenses out, and that is good. what you are seeing this quarter for the banks is a boom in fixed income that came about because of brexit, because of monetary policy uncertainty, which led to a good trading summer. i do not know whether that is going to be sustainable, because typically when everything comes together and fixed income is a one-time event. the issue with the u.s. banks is that they are getting closer to the cost of capital. they are operating below the

cost of capital. if you look at last week, we only had wells being the cost of capital. jpm was close but not really there. expenses,in terms of one of the main reasons bank of isrica has cut costs -- this a new bank of america. i do not know how much the figures are comparable to what we had last year, but it is fair to say that the bank has 210,000 employees at the end of the second quarter, 25% less than in the same quarter of 2009. we went through some of the trading. be i think there should focused on cost cuts. that is right in line with what analysts are expecting. equity,rn on average 7.3 -- the single digit return on equity is miles away from what the others are doing. bring up this chart, anthony.

brad hintz talked about this with his impatience, the idea of the impatience of what we need to do with bank of america. there is the chart. kbw banking index. from the 2007 peak, jpmorgan is in blue, bank of america is in red. they have to hurry this up, don't fake, not to catch up with -- don't they, not to catch up with dimon. but they have to put that up. given a tough hand when he came on board, but it has been 11 years. there is no choice at this point in terms of the banks that you have to continue to push on that efficiency ratio. tom: i get that, but help me han has to do moyni to change a failed universal

bank. : you are seeing the universal business model shrink in various spots around the world. they do not want to walk away from universal banking. deutsche bank does not want to get away from universal banking, but they want to get the profitability of, and they want to improve their capital ratios. bank of america has the same issue. was a strong u.s. brand, not a strong international. that followed through when you took that around the world. you do not want to pull back, but you have to cut around the edges. that is difficult because half these banks are dotted line down the -- there is no dotted line down the center of the banks to say cut here. francine: tom, you are a little bit harsh. numbered income revenue is better than expected. that is what we saw with other banks reporting last week.

for bank of america it is 2.7 billion, an increase. there are trading fixed income, things are getting better. things in europe are still not using that, but in the u.s. that seems to be the main bright spot overall. brad: if we think of merrill lynch, bank of america merrill lynch, good equity player in the united states. good equity underwriting in the united states. the wealth management business provides distribution for them. fixed income good. it was not one of their strengths, but they certainly are a good underwriter. so on the trading side, they never were this giant risk taker, but they have continued on that. loan syndication, one of the great powers. it is more domestic, less international. tom: i love your timeline idea. the old days of the mckinsey five-year plan are -- you have

to get it going. absolutely fabulous. brad hintz, thank you so much. we will get some final thoughts here in a moment. bank of america, showing a better quarter as well. let me look at some data here. on a monday. x, 16.85. stay with us. this is bloomberg. ♪

tom: it is a gorgeous new york. oynihan'sn m0o new york. they be bank of america is from boston to i cannot remember right now. anyway, it is a gorgeous view of new york. we do the euro, getting some strength. at sterling in there because i did not know what to do. -- 1.2168. brad hintz is here to talk with us about the world of banking. will there be fewer jobs in five years? can you the percentage number on

it within global commercial banking? brad: yes, there will be fewer jobs. marginal 5%, 4%, or something more substantial? brad: you will see jobs moving out of the eurozone banks and into outsourcing operations, into shared utilities. they really have no choice but ofdo that, so the idea do-it-yourself, build your own technology, have your own back-office, you will see many more of those. they do not have a lot of choice in that. there will be some automation. they have done a lot of work in terms of that. we are not certain really where some of that is going to go. is it going to be a good business? sure. the banking world is not going away. corporations need banks. individuals need banks. will there be career paths in it? yes. will the capital markets business do well?

absolutely, because global wealth continues to grow. that is the driver. francine: would a u.s. bank ever by bank a european one? brad: there are a few european that are doing just fine. of two banks that are good. you can think of two that are doing well. tom: thank you so much. hugely valuable, on a bank of america with some interesting, good results today. later today, stanley fischer from the economic club of new york. stay with us. this is bloomberg. ♪

jon: good morning and welcome to

"bloomberg daybreak." we kick off a fresh trading week on the back foot, with futures -35 points on the dow, down almost five points on the s&p 500. the fx market, the euro is south of 110 -- of 1.10. weaker after two weeks of losses. 1.2167, alix. alix: bank earnings continue. egg of america shares rising. bond share revenue is beating analyst estimates, up 39% per deutsche bank is said to be itsoring shrinking operations and running it hot. treasuries like gilt yields primed for a post-brexit high after their chair yellen and the bank of england both suggest they will tolerate higher inflation. david: we have a lot more on the gilt story, how brexit is weighing on the market. we will speak live