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 with david bloom. and stephen major, head of global fixed-income research at the same firm. that just ahead. but first, let's turn to our lead story of the morning, the bank of america/merrill lynch earnings. we bring in our bloomberg team. michael moore reports on banks from london. in new york we have aleshin joining a spirit michael, i want to turn first to you. give us a sense of how good it was for bank of america a few minutes ago. michael: you saw them post better than expected bond trading revenue, similar to what citi, but itm and is a good story for bank of america being that they are not as big in the macro products that had such a good quarter. this was maybe a surprise to the upside, given the results. alix: allison, a you say what affected that trading, up 39%.

that is a different story than brexit and the volatility were heard from other banks. point, like of america is more relatively focused on the trading side of things. they are more u.s. focused. where that business got help is a better primary calendar. that is another -- that is sort of related to brexit, the lower for longer interest rate. that is helping primary issuance and secondary volumes. that may have been what helped bank of america. ratethe headline is "fixed , just really outperforming." what is going on with equity trading at these banks? alison: it is really the volatility. we tend to see volatility bottom out, and we're -- we have been seeing an increase in october, which tends to be the season peak in volatility. lower volatility means lower activity, lower equity trading volumes, and that is why we are seeing some of the declines in

equity trading. the trading, michael -- we are seeing a pattern here. we thought they were out of the trading business, and now they seem to be circling back. think we will have to get another quarter of data before we call it a rebound. we have had a couple of head fakes in the last couple of years, where it has been good or a one or two-month period. investors will want to see a couple quarters of sustainability on this front. another number that stood out to me is provisions for credit losses fell. talk to us about the banks are saying now. allisoalison: if you remember, k in february, back with the fourth quarter earnings to first quarter earnings, everyone got

concerned about credit, energy, and we have seen losses coming in better than expected, and actually wells fargo saying they believe the oil and gas losses may have the in the -- may have peaked in the second quarter. that is a positive. do we learn from morgan stanley and goldman sachs after we saw such big trading? alison: the bar has been raised going into these results. the other thing to keep in mind is comparisons. morgan stanley analysts are expecting a 70% beep. analysts are going to be looking to see, are these banks doing well in equities? they will look forward to the europeans and see if it is all industry or if there is market share trade-off going on. jon: on the call on friday we had the citi cfo saying it is hard to pinpoint, but we are due to pick up in a share decline.

michael, howank, much of this could be down to what is going on at deutsche bank? stealing.s. banks market share from a big fit trader? michael: in the first half of the year deutsche bank lost a little bit of share in the business and talked about clients may be taking a step back given the volatility around the business. that is certainly something that deutsche is concerned about. they are constantly talk about staying in touch with her clients and trying to keep people on board because they do it to turn into a revenue issue. we will see in a couple weeks how much it did this quarter. so on a cost issue, a cost of banks, this is a big emphasis of brian moynihan. quarter they were

down about $500 million from a year ago. i think investors will want to hear about anything that might be going on underneath that. are there investments being made argument thatsts they have that they have 250 billion -- david: thank you so much. and michael moore is joining us from london today. let's go to outside the is this world with emmett chandra. -- with emma chandra. emma: iraqi soldiers are being backed by shiite militias. it is been called a decisive moment in the campaign to deliver islamic state a lasting defeat. islamic state captured most all -- captured mosul two years ago. the syrianuld target and russian governments.

john kerry and his british under par, boris johnson, -- his british counterpart, boris johnson -- donald trump and his surrogates have roundup there -- ramped up their criticism. saying the election is "absolutely rigged" at going places and through media coverage. says thegiuliani election board is controlled almost entirely by democrats in the inner cities. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am emma chandra. this is bloomberg. alix: equity futures are softer this money. apple computers, down 2%. the couple is -- the company is scaling back. some employees will be moved to other areas. at 1.1 thousand people. they will move forward on autonomous driving systems. they had a deadline of 2017 to

prove that is feasible. pearson is having its worst day in a year, down almost 11%. nine-month sales are falling 7%. education is now almost all of pearson's revenue. north america's revenues were down as much as 9%. to asia -- take a look at melco crown, picking up some speed to the downside. retaining -- for the 26 ight month, through july, weighing heavily on that stock. can sterling go and how high can gilt yields fly? we will speak with david bloom, hsbc's head of global research. that is up next. from new york, this is bloomberg. ♪

jon: this is "bloomberg daybreak." the tone of the fx market looks like this. switch of the boards quickly. the cable rate, weaker for the second session. bouncing off a march low from friday. a treasury slide on friday, destabilized, at 1.79 on the u.s. 10-year. bond markets are sliding as the governor and the bank of england suggests he will not tolerate higher inflation. in the u.k., inflation expectations pushed the gilt

market down for the worst performance in the developed month.his let's bring the world of data in. -- guys, great to have you with us. >> thank you for keeping us apart, by the way. a noisyre is already corner, and it is mr. bloom in the far corner. steve major has to sit next to him, unfortunately. the first question, the bond market in the u.k., yields much higher -- is that something more sinister or is it a inflation story? >> it is playing out the post-brexit inflation move. on the day before brexit, the gilt yields were much lower. it has been a one-way traffic since. david at i work closely on this one because clearly it was a

cable story that sterling was going to go now desk is going to go down. and we immediately went to shooting first and thinking later. 1.35 on the tenure guilt was quite a big call. -- on the 10-year guilt was quite a big story. looking for 1.10, 1.15? by 120 -- my 1.20 view looks like a consensus for now. i just want to pick you up on the story of some higher inflation with the central bank any,nment they cannot get we are in this iteration

as far as the fed is concerned. the fed will raise rates. bond yields, dollar up, equities go down. emerging markets go down. fed is a game we play every meeting. it gets quite boring in the end. alix: you can deftly sell it that way. you can also look at parity. at one point do you see intervention from the ecb? mario draghi will not let that happen. you cannot borrow all the bonds in the world and then all the currency at the same time. it gets exhausting. within qe, at is aimed at the bond market. i think the fx will do whatever it does. trying to fight these currency wars now, at no stage whether the intervention. alix: this is a highlight in the bond market on the back of perry the ecb and the boe.

this is spanish yields versus gilt yields for the 10-year. look at that move, the blue line. look at that catch up. now higher. jon: what do you make of that? steven: i would not say the spanish bond markets was a good reference for the u.k. the u.k. has its own currency, so it can use that as the escape valve. that is what is happening. it is not really a constraint or a target for u.k. yields, by the way. for me, the gilt yield should stabilize a little bit higher than this. 1.35 is the year-end forecast. looking ahead to next year, i am sure we will be lower again. we have seen this before. it was in 2010, 2011, u.k. inflation hit 5%. it was close to 5% for three years. you will remember the bank rate was half a percent for the entire three-year joe. we have seen that for this

three-year period. in my lifetime, there have been five episodes now going back to the 1960's, and david has seen all of this as well. so we are quite familiar with the letting the currency do -- david: part of the solution is a falling sterling, and that is how you rectify the balance of payment. it is painful when you are being impoverished every day, but it is part of the process. we need to get imports lower because -- i do not know why you are looking quizzically at me. come on. steven: that's just the way it is. jon: if you were sitting across from you cuple of years ago we would have played that game. why would it happen this time? david: because this is the most important point. this is my new theory.

currencies trade on three drivers -- cyclical, structural, and political. hascturally, the u.k. always have this problem. politically it is actually fine. it was good, it was fair. we have never focused on the structural side. now the drivers of sterling are both political and structural, and the structural side has to adjust. david: you just put your finger on it. politics. clinical real ramifications -- there are real --itical remic indications there are real political ramifications for theresa may and her party. david: we have a big current account deficit. you have to get a balance. we're just giving the europeans a poke in the eye. that is not going to happen. that ist is fine to say just the way it is when you're talking to voters and they get

increasingly agitated, how does that affect brexit negotiations? david: you have a big current account deficit and other experts can pick up exponentially. that ain't going to happen. imports will have to get squeezed. that is a painful process. that is impoverishment through the currency. i do not know what theresa may is going to tell people because fortunately, for the country, i do not have a job. comparisonu.k.-spain -- steven: u.k.-spain comparison is not really correct. between people a choice haircuts on their bonds or membership in the euro, or whatever. for people to take higher inflation, that is the least of their worries. than theh less painful alternative that greece had, for example.

so it happened before. david: the greeks have this where they need to leave so the currency can devalue. that is what is happening with the u.k. there is no free lunch. because thebe taken current -- is just to bang big. jon: up next, the fed debate. every month, yields must go higher. stephen major says -- steve mager says no. from new york, this is bloomberg. ♪

alix: bank of america on the move this morning, off the highs of the session. we had trading revenue growing by 39% to almost $3 billion. equity trading, down 17%.

you had earnings and revenue coming in beating estimates. the stock for morgan stanley and goldman sachs over the next 24 hours. jon: record low yields across the planet. yields have rebounded, closer to 1.80. as steve major are with us from hsbc. 1.35 year-end on treasuries, next year, is not consensus. walk us through it. steven: it is 45 basis points less than spot. your chart shows evolution for five years, so we have come a long way down. we are in the middle of a correction. we could be toward the latter stages of the correction. i'm quite glad to see where the yields are because it is a better chance to buy again. there are plenty of people i have met in the last year or so .hat would buy here

i doubt the yield is going that much higher. i am not saying it could not move a bit more. obviously the fed might hike, but the thing with bond markets is that we look right through the cycle. david talked about cycle and politics right now. apparently there is an election some time in the next month. rumor has it. to me, the structural story has not changed. here we are talking about the debt overhang, demographics, productivity, excess savings. all of these factors for the bond market. i think a year out, yields we look -- yields will be lower than they are now. jon: janet yellen is speaking this friday -- this is janet yellen speaking. jenna: the next question to ask is whether we -- janet: the next question to ask is whether we can reverse these side effects.

they have been trying to run things hot for seven years. allow it to run things hot. why would things change from that speech? why any do not know winters about that. there in an iteration with dollar. every time he comes forward with the fed meeting, it will raise rates, yields go up, the dollar goes up, prices go down. they back off a little bit, and then everything returns. the important thing about a fed meeting is that a move by the fed does not tell you about the next one. we usually think it is a signal for a series of -- that is why we have that big boom market in 2014. rates should be on the way because going back to 2014, race should be 2.5 in december and they are not going to be.

then wait another year? it will be 2.5% in 10 years' time. i'm sorry. we will be lower by the end of next year. 10-year bond yield -- jon: what is the the -- alix: what is the view? when you look at the same inflation expectations, it seems different than in the past. five-year 30, 10, and breakeven rates. right now we are at a five-month high. do you see this rolling over, as not sustainable? steven: you just dropped six months of history, or more. alix: this is five months. steven: if we go back five years, it will be a normal move. four out of five of the spot inflation measures are close to

the 2% number. if you look at the forwards, where the market is expecting inflation going close to 2% -- on the basis that it matters, the fed should be tightening. on the basis that it matters. but i tell people with forward guidance -- that the forward guidance was suspended back in 2014. the idea of inflation unemployment triggering aate hike. if the fed manages a rate hike this month or next, they will be on schedule to deliver one month year. it will take a decade to get to a meaningful level. therewill not be a decade will be two or three years before we are on the next downturn. four hikes per year, we will be lucky to have one hike every year. alix: such a pleasure. and david bloom, great to have you. this is bloomberg. ♪

alix: this is bloomberg daybreak. here is what you need to know at

this hour. bank of america shares are rising but off their best levels of the morning. want trading revenue beating analyst estimates, up 39%. deutsche bank said be shrinking u.s. operations because of legal issues. a post-brags it high after the fed chair suggests they will tolerate higher inflation. john: this is how the market captures those stories. dow futures up by 16 points. s&p 500 futures negative only by about one point -- .1%. ftse trading and negative territory. stabilized.ave lower.own and cable is $1.2151.at david: the wall street journal, over the last week and come had

an extra from an upcoming book about the u.s.n economy. it is our morning must-read. whoever sits in the oval office next year will find the key to faster economic growth -- it might be wiser to accept the truth. the u.s. economy is not behaving badly. it is just being ordinary. we talked to tom keene. this is one of the major issues we face globally. her it is who it is from mark levinson is usually respected. his book from a decade ago is superb. this is important. think in the article, we it is normal, what happened after world war ii, and actually, it was an aberration. it was really extraordinary. morewhat i would look at

is this phrase -- a one-off. a one-off, andg what is normal? in the late 1990's with the internet bubble and the generation and the equity market, was that a one-off? was it to get back to the confidence levels we saw in the late 1990's? david: there was a drop in productivity growth in 1973. he said the latter part of the last century began to turn down to what can you do? of: part of that is the idea productivity growth, goods producing. how brilliantsure david westin is? david: small number, small neighbor. tom: the answer is, measuring the service sector is a real of, and that goes in to part

the study. david popper a lot of this goes to innovation. poppe a lot o -- david: a lot of this goes to innovation. owns this study and says you need that innovation. it is not the innovation you and i think of. did you purchase an apple product this weekend? not with the laureate from colombia is talking about. he is talking about the innovation processes, the innovation of manufacturing, of service sector processes, the idea of doing business. that is what everybody sees, including in the bookmark levinson is going to bring up. david: this is far heaven reaching. , forructural unemployment example, we will not be able to employ all those people. tom: and the key idea of where

the productivity optimists -- we know productivity has come down. i do not see any productivity optimists out there. there is a lot of history that when productivity changes, nobody sees it coming. so maybe that is a little bit of comfort. this book,s not because there are 18 other books like this, but it is mark levinson, which makes it a big deal. david: a fascinating read, critical to where we are going. thank you, tom keene. watch from 7:00 a.m. to 10:00 a.m. everyday for bloomberg surveillance radio. that is with tom keene and david gura. alix: bankamerica reported third-quarter earnings that beat estimates. off it raising over 7%. fixed-income trading business was better than expected, up by 39%. charles peabody, compass point managing director, joins us.

-- was there something negative in the report we're missing? revenueeats on the side, $21.6 million in revenue versus 21 million expectation to most of that is fixed income trading. so is that reproducib? they added about four cents to the beat. and about a penny a share was added to the beat. so can you keep your provision that low? keep the they provisions low if they start lending more? and can they keep the fixed trading revenue this high? >> i think normalized provision is closer to $1.8 billion. they will have a huge credit win if we normalize credit in 2017. on the fixed-income trading said, i see stresses in the

currency markets that are starting to spill over to the commodity markets. john: we have been talking about brexit and the regulatory move in the volume. and then there was the deutsche said we'reo definitely seeing a pickup in wallet share. or arepie getting bigger they just getting a better -- bigger chunk of the same pie? >> both spirit in the third quarter, the pie got bigger with good fly and -- good client flow in trading volumes. but if you look it jpmorgan, bake america and citi, most of their beat was in fixed income, very little inequity. david: bankamerica is waiting

for a rate rise. if it goes up a quarter appoint or continues to go up, what effect will it have on the bottom line? basis pointhim 100 parallel shift in rates, which will create net interest income. most of that is tied to the long end. so not as much to the short end. i am getting into the weeds, but ,hey just changed accounting $2.5 billion of the $4.5 billion out of the equation. so they are a beneficiary the not as big. they are going for stability rather than earnings leverage. alix: you say weakness and currencies could spread to commodities. do you think bankamerica will go more towards m&a? typically after you get the surge in fixed income, the next cycle is more of an equity and m&a cycle. if you look at the market that was picking up in september,

that bodes well for equity and m&a. that is bankamerica's strength, more the equity than fixed income, although they did very well in fixed income. john: cost discipline is there to be seen. what are we missing in terms of growth? are investing in wealth management. every bank is trying to build up that wealth management, because it is low capital intensive. they're trying to build other mobile banking platforms on the consumer side. they are still investing in merrill lynch for the capital markets. att has been the problem bankamerica, they have not been able to invest in businesses, revenues have been coming down year after year after year era discord or, you actually did see some revenue growth and surprises. that,digging deeper into apposite balances were up by about 6% and mobile revenue up 16%. we have seen that trend.

david: it has been a big push for them on the mobile. what about taking shares from wells fargo? with these big banks. they all have their own historical scandals. i think the market share shift out of wells fargo, and there will be some, it will be more amongst the regional banks, like u.s. bancorp. alix: why? >> because they do not have that scandal stigma from 2008 to 2009. these banks will still face some issues as investigations go on. david: as the banks move more into the digital online banking, how much of a cost issue is that? >> when you look at expense structures, there are three things to spend on. compliance is one. cyber security is another. and building on digital banking pipelines and that is what is driving the crisis on expenses. david: but they do not have to

have as many branches or tellers, employees. youxactly, and that is what are starting to see, rationalization of the brick-and-mortar branch structure. before, it was cliques, not bricks. that breaks and cliques. thingse're having some trickle appeared the cfo talking about a 17% drop, and he says clients are shifting from active investing strategies to other ones. sounds like that is a reference to pass of etf's, passive asset classes. does that prevent the big banks from pivoting to equity m&a? in wealth big win management were core margins have been under pressure. alix: looking ahead, morgan stanley, goldman sachs, next 48 hours, what will be the highlight? >> i do not have formal coverage of them yet. i think the reach through is a big plus for goldman sachs.

john: thanks for being with us. coming up next, 22 days away from the elections in the united states, and donald trump is repeating his warning that the outcome will be rigged weird from new york city, details, next. this is bloomberg. ♪

alix: this is bloomberg daybreak. hour, howin the next

the u.s. election is impacting the market. david: this is bloomberg. imed david westin and we're 22 days away from the election and two days from the next and less presidential debate. if you thought the rhetoric cannot get hotter, you were wrong. donald trump says the election will be rigged. instead of being held accountable, hillary is running for president in what looks like , to many people, a totally rigged election. by election is being rigged corrupt media pushing false allegations and outright lies in an effort to elect hillary clinton president. and then the republican house speaker, paul ryan, came out and the stints himself from that position, as well as mike

pence, his own running mate. then an office in north carolina was firebombs, and mr. trump blamed hillary clinton followers for it. to sort through it all. what about this claim that it is rigged, and how concerned are people in washington, the establishment, about an illegitimate election? >> people are talking about this rhetoric because it hits and a core ascension and our democracy, which is that you cast your ballot in your vote gets counted. it is an underlying principle of where the country is founded. when he talks about rigged, he is talking about the media and bias and that he cannot get a fair shake on his allegations, on the women who have come forward alleging improper behavior in his past. so he's not exactly talking ,bout people stuffing ballots but strangely, many of his surrogates are. rudy giuliani yesterday saying they count dead people,

democrats. with this message, even though he is focused on one slice of what he's talking about, media bias, the message is he is unable to get message in the campaign about the same thing. his own running mate came out yesterday and said, of course we votes in thehe election and so it is all over the map. david: it is all about the media. but it is not about us, it is about the candidates. i saw newt gingrich yesterday on abc saying that it was unfair because they played so much of tape, but the trump they do not do nearly as much with the wiki leaks and hillary clinton's speeches. just not true.s when you look at the history of the campaign and the coverage, one thing that has been consistent is for media to get

more transparent on her campaign, both on the e-mails in the e-mail server. there is no other topic in terms of her campaign of the media has pushed farther on then, where are those e-mails, and how has this happened? no with wikileaks and the transcripts of her speeches, the media was incredibly focused on it happening. is because the media believes in transparency and revealing both sides of the candidates, stuff that is important to the electorate. her e-mails and her server always rank among the top issues when people have concerns about her trustworthiness and fitness to be president. i think the trump on campaign, if they were honest and look back at the coverage over the past 18 months, and even more than several years, that has been quite even. david: turning back to what matters, the voters. what do we know about how the voters are reacting? is it registering? is it changing minds?

>> i think voters are increasingly turned off, and you see that in the polling. there's no question that since the tape was released showing donald trump making this comments about women that stretched back to 2005 the mother has been a huge movement in the polls and a huge gap opened up in terms of the race, which now shows about 10 and 11 points of a gap between the two candidates. slinton is showing as much a womenoint lead among voters prove but so much of the electorate say they're just turned off ride the election and by both candidates. donald trump up's strategy is depressing turnout. he feels a people turn out and do not have enthusiasm for her, it will help him. but he is not polling at a number that would get him to win in sort of national election.

he's not polling in this swing states at a level where we see him going over the line to take it home. he in a quandary. david: they are both running out of time. in one offt to go up the last major events will be wednesday night, the debate. what will we hear from donald trump? >> it will be smash mouth again. when you look back at st. louis and the last debate, his campaign, he really hit her hard and did so well. cleaned up against her. i think they feel their strategy needs to double down on being incredibly aggressive, being personal, and hitting or were they think there is weakness and actually staying away from as they can.e policy as there is no question when you match up the two candidates, she has more of the expertise. her policies backwards and forwards. she studies harder. she does do better in that type of forum. when he keeps it on republican talking points, he is also able

to do well, as well. but it is a huge difference between them on the visions of the country, their economic future, our foreign-policy future. those positions are quite start when presented evenly in terms of a policy debate. but we have not had that much time and these forms for them really to go head-to-head. david: the noise has been so loud that is hard to get back to the signal actually. >> but when they have that, it is quite interesting to it when you talk about, is it better to cut taxes on the rich and what will stimulate job growth -- when they do it, it is very different, and voters can see that. david: thank you to our washington bureau chief. now to other stories making headlines. apple has drastically scaled back its ambitions to take on detroit. according to people familiar with the project, apple has got hundreds of jobs after deciding that, for now, it no longer wants to build its own car. the have refocused on creating

an autonomous driving system and partnering with existing carmakers. deutsche bank is considering whether to shrink its u.s. operations. that is according to people with knowledge of the matter. deutsche bank faces mounting legal expenses, including a proposed penalty in the u.s. deutsche bank has proposed cutbacks and are in talks with u.s. officials. the executive shake a bit mcdonald's renewed this week. the fast food chain's chief field officer in key senior vice beendent -- the ceo has making -- remaking his management team. that is your bloomberg business flash. this is bloomberg. alix: coming up, three charts that explained the surgeon fixed trading revenue at big u.s. banks in the third quarter. this is bloomberg. ♪

alix: this is "bloomberg: daybreak." tell a storyto having to do with fixed income commodity trading revenue coming in at 39% year on year. this is thehy are amount of treasuries exchanging hands each day, and it is now billion or97 jpmorgan fixed revenue up 48 percent. of 35% with citi. 39% for bank of america. the volume is stabilizing. in fact, a little bit higher than it was back in early october after years of steady decline here at a similar theme when it comes to the investment grade market. look at this huge jump here.

the amount of security changing hands in the investment grade market is now almost $15 billion. a lot of issuance and longer rates keep going. if yields continue to stay low, more committees will issue and come to market. that means more trading for ig. in high-yieldy market. this is junk trading volume, now coming in at almost $8 billion. a huge jump from where we were here and a huge jump from where we were just a few years ago. the question becomes for these big banks, can they actually sustain itself? on the flipside, equity trading revenue did not have this kind of volume. volume was weaker appeared jpmorgan the only big tank to --iver a year on year growth the only big banks to deliver year on year growth in the equity business. there is talk that perhaps we will see a shift into equity and m&a due to the fact that currencies and potentially

commodities might roll over. the question becomes, is equity trading going to be enough to offset any weakness in mice in that fixed income, considering trading volume and volatility is so much higher in fixed than it is in equities? john: one thing i am interested in is how much market share we have gained, taking away from deutsche bank and their fixed income trading unit. i will be looking forward to seeing the numbers out of deutsche. that is the story for us in the next part of the program. softer, down 23 points on the dow. negative three points on the s&p 500. from new york, this is bloomberg. ♪

morning, and welcome.

90 minutes way from the cache open in new york. features negative, down around about 19 points on the dow. no drama here. any other asset classes, cable is weaker. treasuries just stabilized after friday's selloff. alix: here is what you need to know -- bank of america shares arising but off the highs of the session. bond trading revenue beating analyst estimates, up 39% year on year. deutsche bank is said to be exploring shrinking its u.s. operations as mounting legal expenses threatened to eat into the firm's capital. highuries at a post-brexit . it is suggested that they will tolerate higher inflation. david: bank earnings, we turn to dakin campbell and alison

williams. there is a big jump up in the stock, 2% or so, when earnings were first announced. it has the trenched some. is there something in the earnings we missed first time around? >> the question we saw stock action like this us we for citigroup and jpmorgan earnings. there are some questions about efficiency ratio, expenses for bofa. they brought them down. analysts and investors would like them to bring them down even more. the efficiency ratio, expenses to revenue, is still higher than most other banks. that is one potential catalyst for the stock, bringing it back down. david: it appeared to have a leg up on friday off the jpmorgan an announcement, as well. >> yes, coming into a higher bar, a higher low bar. alix: 39% year on year -- is there some to be said for the fact that the market is worried that might not be opened to

continue for another quarter? >> correct. so the big gain. analysts want to know with again is from here it fixed income trading, a good quarter follows a better than expected last quarter, but as always, investors are looking at if that is sustainable, at it is tough to tell. management has said that october, so far, so far so good, but we are only a couple weeks into the quarter. what is bank of america's strategy at this point? is the strategy to grow the bank? >> from a bigger perspective, one of the big things they are focusing on is costs. as far as revenue growth, they have answered questions. there was a media call, and they're sort of sticking with their strategy. they feel like it is sort of a payoff to some growth strategies put in place over the last

several years. now what they are focusing on is still continuing to bring down the cost side, and their cost ratio is higher than peers, but it is important to remember that they have a wealth management business that has a very good margin compared to peers, but that has a higher cost ratio compared to get super--- to consumer-type businesses. they are looking to bring down their expenses. , expensess quarter versus last quarter, down about $500 million from a year ago. the overall cost ratio much better than a year ago as they are moving past some legacy costs. alix: there was a reporter call on wells fargo, sort of stealing market share from there. have they benefited from issues at wells fargo? the cfo says they have picked up

customers, but they are not doing anything differently. they just have a strong addict offering. is that fancy cfo speak to say yes? >> good question. they also been asked if have the sales problems that wells fargo has. he said they have not seen those issues. bofa and wells fargo probably have the two biggest branch networks in the u.s. so you want to consider competitors, they are the two sort of biggest head to head competitors. wells fargo is having issues with consumers or customers leaving. bofa would be the logical choice to pick up customers. these banks do not want to get .nvolved in wells fargo's story they are all trying to keep their heads down to the extent that they can. it does not really behoove bofa

to come out here and say, yes, we're crushing wells fargo or stealing all their or something. alix: and it was clear on the call that, no, they're not interested in cross-selling. that is not something they're interested in when they cross-sell products. thank you very alison williams is a senior banking analyst for bloomberg. dakin campbell, and was for bloomberg. ubs's bring in the securities banking analyst, who is joining us and new york. what is your take away right now from this quarter and what we saw from citi and jpmorgan and wells on friday? cents of a cannot 41 versus our estimate of 34. a couple cents in tax rate. they still beat our estimate by about a nickel. better trading revenue and better credit are primarily the drivers. what is encouraging about that,

trading was in line with what we saw last friday. jpmorgan and citi both better, especially unfixed. credit was better, but it was driven by credit costs. it is more sustainable. so i've of the b of a results were good, actually. -- i thought the b of a results were good. i heard discussions before, and i would have liked to seen the beat, but at that point, you are starting to knit take a bit. -- a bit.t-pick jon: and fixed rate, was the same from the big banks on friday. we talked about whether the pie is getting bigger or whether they are getting a bigger slice of the pie. people are looking at the loss of market share from deutsche bank and what are you seeing? banksdo not get european until about the end of the month, so we will not know the

full picture until then. there has been a great deal of attention on deutsche and some of their concerns. maybe in the near-term, we some or trading volume shift to u.s. players. that is very plausible, tough to know here it and tough to know whether it is really sustainable . most investors do not really want to pay for this excessive delivery on the fixed front, which is why -- good that they're capitalizing on the opportunity. people are not exactly run rating that though. so trading always comes to get a little bit of a lower benefit when they beat significantly like they did. david: we were talking about wealth management, and there is the merrill lynch operation with financial budgets scattered across the country. are they going to help bank of america in this regard or hurt them? >> that is a really interesting point. we just wrote on this the other week. right now, we expect to see policies come out around the

fiduciary rule, right about now. they are not going to use the best interest contract exemption . what that basically means is they will not allow for commission type revenues and retirement accounts. why is this important? the sec is working on their version of the rule, so eventually, it will not just be for retirement but to all accounts. does this mean bofa will go the no commission route entirely? other large warehouse competitors are going to use it, from what i understand. so we will see an interesting diversion of strategies. i think that is very important to watch. david: exactly. will they lose customers, retail customers, as well as advisers, or will they gain? >> i think the bigger threat for b of a is on the advisor front rather than the customer front. what is driven is the relationship of the advisor.

individuals, retail folks tend to connect to their fa, not to the farm. if you have an fa that leaves con they need to have the flexibility to have commission trading, because sometimes that is in the customer's best interest. they might decide to shift firms. and i am a little bit nervous at bofa will lose advisers here. jon: great stuff. thank you for joining us. the premarketa in trading higher by about 1.5%. let's see what is making headlines. emma: u.s. defense secretary calls it a decisive moment in the fight against islamic state. iraqi soldiers launched an offensive to recapture the city of mosul. it is backed by shiite militias in the u.s. coalition. mosul forate has held

more than 25 years. china has sent two astronauts into space for the country's longest mission yet. the crew was been more than a month and space. version of a space station that china hopes to launch by 2022. donald trump has revved up criticism of the election process. he says the election is absolutely rigged. media coverage. former new york mayor rudy giuliani says the election board is full of democrats in inner cities. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. chandra. this is bloomberg. alix: u.s. equities off this morning, but on the upside, hasbro up over 5%, topping its highest estimate for earnings. you have girls toys revenue actually up 57%. disney princesses, frozen, and troll dolls helping to lead

hasbro higher. selling a supervalu, save a lot grocery store to a canadian p/e firm. about 1.30 7 billion dollars in cash to repay debt. a potential deal in the refinery space. refiner gotnt oil an all-stock offer from a delicate -- from adelic. convenience stores and gas stations. citi said this deal between the two comedies could happen. this is something we will be watching going forward. david: coming up, fed chair janet yellen hinted at letting u.s. growth run hot, which pushed inflation expectations to five-month highs and what effect the bulls have on market in equities?

and stanley fischer speaks today to the economic club of new york on low interest rates. that is at 12:15 p.m. eastern time. this is bloomberg. ♪

let's get a check of the markets. about one hour 16 minutes way from the open in new york. equities, futures marginally lower. the dow down 11 points. s&p 500 down not even a single point. treasuries sliding friday, stabilizing today. down by around basis point. market seemse bond to be run and get hot. -- chair janet yellen adjust addressed the audience friday

and considered the benefits of a high-pressure economy. >> if we assume that this is present to some degree after deep recessions, the natural next question is to ask whether it might be possible to reverse these adverse supply-side effects by temporarily running a high-pressure economy. at letting u.s. growth run hot, which pushed inflation expectations to five-month highs. a chief mark strategist is joining us. so allowing to run things hot, it appears to be very different from things will actually run hot. where do you stand? >> it is theoretical musing. this is not a new idea. the international monetary fund came out with a people a couple years ago that was much discussed that said perhaps we should reset 2% up to 3% and allow global economies to march higher. it was a big to-do.

but what was interesting about janet yellen was that they then talked about the fact that perhaps where the economy is now, the 10-not matching where the economy is. then we saw the two-year march to 1.8%. we cannot go back and forth. up for theenue is banks. part of it is the back-and-forth, the parade of fed speakers keeping trading floors alive and well. this is getting a little bit out of control. and stanley fischer, the number two at the fed, coming out after janet yellen, saying two rate hikes perhaps this year. last year rate hikes as the market was going through a tug-of-war on whether a not we were stalling in the economy. this is keeping markets jumpy and keeping trading floors active. yellennt here is, janet

previously, after leading the market towards a rate hike last year, she then came back and gave a speech resurrecting the term of secular stagnation, which comes from the depression. larry summers writes about it. this was after she actually led the market, through many speeches, to believe we were going to have a rate hike. years ago, the boston fed confab would never have been ved, because we were not be interested in it. another thing, they are looking for labor per dissipation rates to move higher. janet yelled -- they are looking for labor participation rates to move higher. the more people who come in and look for jobs, the more it keeps wages down. so it keeps inflation down.

wages is the transmission towards higher prices. wasof the things i interesting on friday, that banks cannot with better earnings. interesting that they traded lower at the end of the day. what traded higher? -- the bondties surrogates. perhaps the market is saying, look, a rate hike is in there already, despite those comments. maybe as we get toward set rate hike, the markets is maybe she wants to raise rates for a different reason. alix: when you look at the yield curve, which has been steepening -- hsbc said, yes, we will see lower yields at some point. buyers come in. you buy that even though inflation expectations are higher. >> you see that the banks perhaps are overbought and the

bond surrogates are oversold. fr was class example of banks come in -- it was nice to have them above consensus estimates, yet they traded down. i think the buyers are saying exactly that, that perhaps we wind up pushing the yield down a bit. some say inflation expectations are more important than numbers. part of what janet yellen will do is recast inflation expectation, and is that such a bad thing? are quiet today because it will be more expensive tomorrow. we have seen it in japan for decades. we have seen and in the eurozone now. but she knows, we can push rates down so low, but it does not matter unless there is confidence to go out and borrow. remember, you had depression

babies until they were 95 years old keeping rubber bands from the post office and glad wrap that had no -- because they were always afraid. it is about confidence. alix: my grandmother was probably one of them. thanks very much for joining us. coming up later today, the fed vice chair speaking at the economic club of new york at 12:15 eastern time. coming up, mounting pressure for deutsche bank, said to be considering a cut to one of its key business areas. details next. this is bloomberg. ♪

david: this is bloomberg. deutsche bank continues to feature prominently in the news on reports it is considering coming back its u.s. operation, particularly in investment banking.

the cause may regulatory difficulties in the united states. in ouroined by a member european headquarters in london. what do we know about what they are thinking about doing, and why would they be doing it? >> the short answer is we don't know a lot in the sense that this is yet another report of what the bank is considering doing. remember, there are long-term issues, not just the short-term urgencies starting this potential fine, they legal settlement that could go up to $14 billion here at it is about long-term issues, balance sheet profitability. but the bank is considering some partial retreat or cut back in the u.s., and hopefully this would avoid potentially worse solutions such as selling asset management. it is about which of the many bad choices will they make to try to make this situation right. jon: seems they are stuck between a rock and a hard place.

a big chunk of revenue comes from the united states. help me understand the delicate dance between the short-term issue and pulling out of the u.s. and getting that fine down? long-term, where does the revenue growth come from? >> exactly. it is very delicate. we still do not know the number of the u.s. estimate. we cannot say a lot about how much would go towards paying that. you are right, u.s. investment banking revenues, some thing obviouslythe u.s. is a critical and crucial market to any bank that pretends to be a global investment bank. if you look at the profit line, you can see that investment banking has been volatile, not what it was. yes, the more you cut, the more pain you potentially inflict to revenue. that has not changed, but it is

all about priority, about what shareholders and regulators want for now. if the cuts are towards the investment bank, it makes more the lowan squeezing hanging fruit of other businesses. alix: europe has stricter labor laws than the u.s. there is the idea that you cut or you can, and the u.s. is an area where they can cut easier. >> good point. we have seen european banks run into trouble, and even deutsche bank. it is hard to cut jobs and europe. and regulators and politicians are happier with investment banking cuts than with retail bank cuts. whether it is the u.s. or london, this is about the cuts that are easy to make. it is not just about the labor laws. it is about what happens when you cut those jobs. it is such a complex, delicate balance.

ultimately, i think the u.s. retreat makes more sense than the other things they have discussed. jon: great to have you on the program. what strikes me as interesting as we look at the bank reviewing strategic options. we look at deutsche bank maybe becoming exclusively a german lender. they are facing new regulations. our fed talking about resolving it. a burden. jon: maybe that is way to get the capital of without having to go to the markets to get it. coming up, post-brexit highs. this is bloomberg. ♪

alix: this is bloomberg daybreak. it it is 8:30 a.m. this is what you need to know at this hour. bank of america shares arising and on revenue beat estimates

you're on your. exploringank is shrinking at u.s. operation. legal expenses are eating into the firm's capital. andsuries are sliding yields are sliding to a post brexit high. they will tolerate higher inflation. bank of america is stabilizing futures markets. they are negative almost two points in the s&p 500. this is a weaker cable for a second straight session as the pound trades at 12152 and yields slide. right there in the u.k.. the prime minister has signaled the u.k. departure from the european union might be a hard brexit.

it's great to have you with us on the program. we are told that official negotiations haven't started yet. when salt and vinegar can no cake, i assume it officially began it. john: if you talk on the record with officials, they will tell you know, the negotiations don't start until 50 is triggered. we do have a run-up to the negotiations. it is interesting to note that there really is no hardening of the rhetoric at all. the rhetoric on both sides is hardening. the eu is saying they want to control immigration and they are going to have to leave the market for that key point. it doesn't seem to be room for maneuver. confusing it's been

in the last couple of weeks because we have had a domestic facing prime minister speak to her call and beyond in the u.k. then we had chancellor hammond come to the event states and say we are open for business. do we have something to analyze here? john: no. we are far from that. there are significant questions about how united never 10 and number 11 downing street may be. clearly, there is a big difference in the language. that's coming from theresa may's circle and from philip hammond's circle and the other backbenchers in the conservative party. that's causing serious questions to be raised about the unity of the government and if there is a clear vision along what brexit should look like.

they don't have that. suggested,onathan there is an inward looking and outward looking component to this. do we have a sense of how outward looking theresa may is now? is she focusing on populist messages? john: for now, we see the government negotiating with itself. she knows she can't -- it's difficult for her to go to the eu in march or april without a clear and united platform behind her. right now, it seems that her focus is very much on getting the party behind her. it's much too early to say. we have four or five months to get that. if you look at some of the comments coming out of her own party, there is not a rebellion, but there are signs of lawmakers about

how hardline she is taking. johnathan: if youant to see a party that is not unified, look at the labour party. that is an extra layer of complexity. it's anybody talking about a mandate, looking at the polls there is a message there. go out and get it. john: it's true that the labour party has had a lack of unity over the last 18 months. it's important to bear in mind the last week we have seen signs of the opposition doing what british oppositions do and, with the issue. there is some staggering going on there. majority,rness of her it's only 17 mps. there's chatter that

more than a 0% chance she could go and call a snap election early next year. that would give her an opposition to increase her majority and allow her to shut down some of the murmurings of discontent we are starting to hear coming from her own party. david: thank you so much. he is the bloomberg editor of international government. felix.joined by he is the ceo of asset management. in asset long career management. pick up right with that. there is a fair amount of confusion. it takes a long time to figure what the position is at a lot of contradictions. but to the markets make of that? felix: i applaud the british that they have voted to exit.

they do europe a big favor. the eu has been moving in the wrong direction ever since the introduction of the euro. more is at stake than from great britain. the negotiations will be very difficult because of so much at stake for the eu. others could follow the brits. that is a big problem. i think the bank of england made a big mistake i going into qe easing after the brexit. the brexit has not happened yet. decided, but economically, there are no effects. that will come later. the negotiations will be very very difficult. we haverom switzerland a special situation with eu. they are tough negotiators. i think the british pound is a week currency by definition. it is a chronic deficit currency.

obviously, there is uncertainty around it. into this situation comes the bank of england with massive easing that pushes the currency further down and that's detrimental to the yield market. yields are going up and right now bond yields are moving higher. it's been negotiating position. the bank of england is what's happening in the market. let's begin with the negotiating position. isn't that a massive incentive to make sure that the u.k. is punished in these negotiations? we saw that with greece. there is an incentive to make this difficult to ensure no one else follows. felix: the u.k. is the biggest client of the eu. you have to keep that in mind. the exporting industry on the continent have already told

their capital they should handle the situation gently because they do not want to u.k. to be punished because it backfires to them. alix: there were also special deals. we learned that nissan is freezing plans to build a u.k. auto plant. we will give you special treatment and that cascades to other industries and other companies. do you see that happening? felix: it definitely. i think the eu will become a more attractive place for the industry. attract more industries. have to make sure that they keep inside great britain. i think they will eventually come out as the big winner. david: we are going to hear from mario draghi later this week. you said they made a mistake with the qe. what should mario draghi be doing? they are of the same

school of thought. they think they can prove the world by printing money, which is nonsense. it won't solve the world and it won't solve the problem of the you and of europe. take all this and put money to work. when you look at yields backing up, what do you do? do you do something else? felix: the bond yields are rising into the first half of next year. that is a mini cycle that is ongoing. i think we come back down again. in 2017, it will be a global recession year. the imbalances are building up dramatically. what's not talked about is the weakening of the chinese currency that will eventually bring inflation down again. the inflation will rise a little bit. then it will come down again. david: that means the bonds will be a bargain.

felix: yes. sometime in the first half of next year. johnathan: good morning. thank you very much. americap, bank of earnings call is underway. they beat analyst expectations. 1.31% in theup premarket. we will discuss that next. this is bloomberg. ♪

>> coming up in the next hour,

the need for clear to me vacation from the fed. johnathan: this is bloomberg. i'm jonathan ferro. shares are climbing the premarket. the company is reporting earnings which beat estimates. for our professional clients, you can follow along. for everyone else, you've got becky campbell to take it down. >> the ceo began the call. deposit growth. that was one of the things he called out to analyst that had bond strong.

they did say checking account was down a little bit. they had the balances in each account higher. they are feeling good about that are in johnathan: they are achieving the trade-in results with fewer workers and fewer assets. dakin: that's a good question. banks whoone of the exceeded expectations on fixed income trading. question as to whether that will go through to the fourth quarter. it was mainly a pickup in good volatility. there is some believe that may continue for the fourth quarter as the federal reserve policymakers debate the passive interest rates. ,n an environment like that they may be able to keep it up with fewer workers and fewer assets. johnathan: great to have you with us. the call is a wrapping up over at bank of america. it's an impressive earnings

story boosted by what's happening in trading revenue in the premarket. alix: in an effort to overhaul enterprises, china is planning a merger between him china. the merger would bring together assets of more than 100 billion dollars. with us is jeff mccracken. the real issue is they were going to buy syngenta. this raises questions over that bid. : they have approved the deal here in the u.s. on friday we broke the news that sify us will take a second review. i think they will approve the deal because it's not really an agriculture company. they do a lot of fertilizers and that's about it.

this is more about the chinese government trying to streamline the soa's. there is a lot of bloat. there are jobs that aren't needed. they are hoping they can shrink them a little bit. alix: what is the synergy between these two companies? jeff: i don't know for sure. what we know is the debt is overwhelming between these two companies. the chinese government is trying to figure out a way to streamline those companies. they are state-owned so there could be some fat. that always comes around to bite you. if i see what's happening in china right now, give me some color on what they are thinking at the moment. the euhey were thinking is not going to have any issues. that was the final regulatory thing to get over. is going to be will

the eu take another look. will they delay the process. here we are with 2.5 months to go. you throw in this big change in plan. you have companies doubling in size. that makes it more money to borrow and refinance down the road. how will the government do this, especially the government in the eu? johnathan: it raises the question who's running the company. david: it's a dangerous time. happens, other competitors are moving in and doing deals while you're not sure who runs you yet you jeff: that is the whole issue of the soa's. the rest of the world is not comfortable or familiar with that are in david: last week there was a report the president had met in beijing. let's make sure who owns you.

the communist party owns you. you are responsible for building the comments -- comments party. jeff: it's not something you are comfortable with. you have the head of the government dictating to the companies this is what you need to do. there is a lot going on in this space. dow in dupont are trying to do a merger. is you throw the deal that leading all of this consolidation. this has been thrown a bit by these tim china & account. we expect it's early. it seems like this is something that's going to get done later this year. the question is what is the timeline. we still anticipate the deal would get done this year. it may get pushed up. we don't know. positioney took a big

in the refining business in india. $13 billion was the report. jeff: i think that's more about geographic diversification. i think that's the main take away. find af you need to refinery, you send them oil. that's where they are going to get it from. it's creating market share. it's good to see you. it's time now for other stories making headlines. here is, with the business flash. emma: according to people familiar with the project, apple has cut hundreds of jobs after deciding for now it longer want to build its own car. they are refocused on creating and a thomas driving system that gives apple the flexibility to partner with existing carmakers.

elon musk has made his move to merge two of his countries. tesla has unveiled plans to collaborate with panasonic to make payment -- solar city projects. and could electric cars solar powered electricity the will power them. to britisht risk housing growth. prices have risen in the last year. according to the copy website, that's the second weakest out of the nine areas it surveyed. the average house prices $787,000, twice the national average. this is bloomberg. next, to cracks that were revealed friday in the university make michigan consumer report. fascinatingmost

story. this is bloomberg. ♪

johnathan: from new york city, this is a bloomberg daybreak. let's get you caught up. we will get the september reading on industrial production. muchey fischer speaks in a anticipated speech at the economic club of new york heard you can watch that live right here on bloomberg television. we will get earnings from ibm and netflix.

it's a busy week we have in store. david: we are going to have a battle of the chart right here. you are visiting. you are becoming a regular. you go first. oliver: i am looking at a follow-up to some of the bank earnings we had last week. there is a lot of deciphering about what's going on. thing to talk about one it, the return on equity. this is more like efficiency when you look at r.o.e.. this is with the help of kevin kelly. bankars are the s&p 500 index overall. the lines are for specific banks. jpmorgan is in blue. deutsche bank is red. all things considered, even though we had some good numbers from earnings, when you think about profitability and efficiency, it's pretty flat

when you look at the bank index. it's half of what it was. we are nowhere near where we were. the bars are almost twice as big as we are today. there are some stand out losses. deutsche bank was way down. some companies are doing a little bit better. ones, they are still flattening out. david: they're not covering the cost of capital if you look at this. alix: i am taking a look at the umass survey. we're digging deeper and showing some cracks. this bottom panel is the one we know. this is what happened to the university of michigan consumer sentiment survey. 87.9.coming in at shows theanel percentage of consumers that

deal they are in worse financial condition than a year ago. when you look at this unbelievable spike, this is a 12 month moving average. but how much that increased. expectation is perilously low on that survey. david: this shows what citigroup did. the fed has got to be looking at this. david: the spike up there is amazing. up, we weighming janetthe suggestion that yellen might run the economy from your. this is bloomberg. ♪

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i am jonathan ferro with david westin and alix steel. we are counting down to the market open. we are down about five points on the dow. we will take you to the other board quickly. we can check out the other asset classes. here's what you need to know. bank of america shares are rising and bond revenue beat estimates. reading yet hot. atasuries and yields are post-brexit highs. they will tolerate higher inflation and speaking with the fed, stanley fischer will address the economic club of new york later today. johnathan: let's start with the bank earnings. bank of america's earnings are led by the cfo. the call is still going on.

just run us to the headlines. spent a lot of time so far this morning on the conference call talking about their consumer business and their wealth business. though they may not use the terms cross-selling, it's clear there is a lot of overlap between the two. they have highlighted consumer deposit growth. a lot of that is coming through their wealth is this, the merrill lynch retail brokerage platform. they are highlighting that and growth in mobile banking. said on the call they loans are up 7% from a year ago. is that eating market show from wells fargo? dakin: they have not spoken to that in the call yet. it does seems of it what we heard from wells fargo last week that b of a is picking up market

shell. -- share. credit card uses down. whichare two big areas in b of a competes directly with wells fargo. david: did they talk about any future cost cuts? dakin: they continue to caught -- cut costs. they have a plan to get annual cost down from 58 ilion dollars to $53 billion. this quarter they had 13.5 billion in expensive. they are right in line with their plan. they need to do that over four quarters. they are telling us about continued cuts in personnel and employees, back office staff. they told us we should continue to expect that. david: that was dakin campbell. going back to the running it hot

story. over yellen's speech boston, she said it might be necessary to run a high-pressure economy in order to rebound fully from the 2008 crisis. the bond market reacted immediately. remarks, goldman sachs said inflation does not always evolve as expected. the risks are larger than they might seem. joining us is rich. what is your reaction? rich: i think that's our view as well. the goal is to overshoot the 2% inflation target. she is less forthcoming print i think the boston speech was important. she would like to run the economy hot. i think she will tolerate a modest overshoot of inflation. alix: we do have some breaking news.

the ceo of caterpillar will be retiring in 2017. dave calhoun will be the nonexecutive chairman. he has really dan the forefront of the shift of his company reorganizing. he shut down dozens of factories and eliminated thousands of jobs to help the company survive. it killed sales. the market is down by 2/10 of 1%. i am trying to see if this was expected to i will update you on that news. david: he has had a really rough go of it. and that hetough has played the best he could. 2012 ise stock since down by 25%. johnathan: let's pick it up the

fed debate. writing it hot. can you define for me what an overshoot on inflation would be? performedt now, the measure is 1.6%. to, aseasures are above is wage growth. but one the fed focuses on is the one that is lagging behind. this they have fallen short. we have set for some time that we think the agenda there is to engineer a modest overshoot. she finally acknowledgment friday. johnathan: had you achieve that? rich: you don't. the challenge the fed has is they are trying to have inflation below target. this goes back to the 70's, they have never tried to do that before.

they are probably going to hike in december, but it will be very gradual. the hope is to get higher rates, but an increase in inflation. that is not an easy challenge. david: who was her audience on friday? she said you could have your december hike, we are not going to be going again anytime soon. view i think the baseline we will get a december hike. it depends on the data. i think you are exactly right. the committee is split. of saidhe governors they don't think there is a case to do inflation. we may see from the chair an indication that we may hike in december, but it will be very very rad jewel. is that a chair showing weakness or restraint? this is what we should be doing. isn't her job to bring everyone

else with her? i think i have commented on this show. i think this year the chair has not really shown where she comes down in this debate about how fast the hike. i do think the committee needs this leadership. the committee is split. said they have a failure to communicate. you've got to lay some of the responsibility on the chairman. for tenthsould see of 1% decline in the rate and you would see a 15 basis point interest rate. that doesn't feel like on my and like a big overshoot. is that material?

rich: that's a good point. the fed has been below target for four years. i think they should engineer a modest overshoot. if you are trying to tell you have a credibility problem. i think there is a case to overshoot. the execution may be tricky. i think that's where they are going. it does make some sense. marketshat message are taking away from this? if you really want to overshoot, you would never raise in december. rich: that is exactly the point. others will be pushing for a hike. this is the fed up by committee. she has a big influence. ultimately she has to get the votes. that's why you get a mixed

message. harde said before that's communications challenge. it didn't used to be the fed by committee. it used to be a dictatorship. that has changed radically. stanley fischer will be speaking to the economic club of new york and we will bring you that speech live at 12:15 p.m. eastern. let's cross over to the headlines. ana: iraq has launched offensive. they are being backed by shiite militias and the us-led coalition. ash carter called it a decisive moment in the campaign to deliver islamic state lasting defeat. joining the u.s. and the u.k. in considering new sanctions over attacks on the syrian city of aleppo. it would target syria and

russia. john kerry and his british counterpart of all the ruled out a military response. police are investigating the firebombing of a local republican party office. a bottle filled with flammable liquid was thrown through the window of the office saturday. someone spray-painted a nearby wall. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. alix: thank you so much. equity futures are relatively flat. i want to take a look at had a pillar on that breaking news. in 2017.e retiring he has been ceo of capital -- caterpillar since 2010. who will take his place? andpresident of energy transportation will become ceo.

his increase in compensation will be to $1.2 million. take a look at futures. they were down earlier and climbed their way higher. you have a dollar index around the seven month high. off those highs, stocks are coming off a down two weeks. individual movers, we have some mixed ear. hasbro is on the upside. strong girl toy sales. that revenue is up 57%. supervalu here is selling off here. they are selling off for $1.7 billion. wrapping up, this is a company that develops health care systems for medical and dental

practices. it this is through a deal reporter the company had already made. ,, money managers. we will bring you the reason why a potential downside. a turnaround in apple's automotive ambitions. they are cutting hundreds of jobs in the self driving system. this is bloomberg. ♪

johnathan: this is bloomberg. the cache open is about 15 minutes away. futures are lower. the other asset classes are

soaring. we tried. the pound is weaker. theds are grinding lower on u.s. 10 year. a selloff on friday from janet yellen's remarks. data acrossnomic the bloomberg terminal. production comes in line. the previous month is slightly lower. negativeous month is 0.5%. if we look at manufacturing production, that comes in at a marginal upside. month actually also revised a little bit lower. the overall headline here, node drama.

no big surprises. alix: we are putting oil as the future in focus. this is the chart that really tells the story of the last three weeks. this blue line is oil contracts. the white lines are shorts. unbelievable buildup. this is the highest level since june 2014. you've got those short positions shrinking. you need the risk in the market. this is getting overdone. 560,000 aibya pumping day. count is continuing to climb. what is the trade with positioning. .oining us what you think about what i just said?

are lessened a little bit they are outpacing the longs. the question here is not only production. they are actually at levels if you look back two years ago that are almost 60% lower than what rig counts were at. what we see is robust to man. it is still continuing. we have increasing production. we have a global increase in demand. that could be a nice catalyst for the upside. alix: that is not what i expected to hear from you. where is the potential upside it? joe: there is going to be challenges.

donald trump is still in the mix. who knows. as a now, we look at 55 level we could see challenged to the upside. maybe get a little bit more murky on the upside. david: thank you so much. alix: coming up, we are just over three weeks until that election. we will talk about the possibilities the market isn't pricing and for risk. this is bloomberg. ♪

johnathan: the open is about 10 minutes away. the political world is the dominant story for markets in the week to come. hillary clinton is holding her lead. the democratic nominees lead widened to 10 points.

us, is rich. two weeks ago everybody said it was a complacent market. now it's a complacent market that is not pricing in a democrat sweep. that doesn't make sense to me. how can you be complacent on one thing and then not the other. rich: i think it's a comment on the election year. certainly as hillary clinton's numbers have improved, people in markets are thinking about what the composition of the congress will be. that's very important. i think the numbers have seen it to be difficult for there to be a clean sweep. we will have implications for particular sectors. if you are putting together a port olio, what do you do? rich: there are different analyses of this. i think of you would be if you

congress, maybe the bill clinton presidency is a good model. there was compromise in the middle and things can get done. with a clean sweep, you have to think that clinton's agenda gets passed into law. implications for infrastructure and health care and for energy. i'm not going to go through sector by her here. there will be sectors that benefit and will be heard. the rhetoric with a trump when was that you go along with the dollar. is that erased? is that what we are seeing today? rich: i think markets tend to have a comfort level with the known candidate. she has been very well-known globally for 30 years.

one might argue you get something of a relief compared to where we were a couple of weeks ago. i think it's going to move from from a the signal we get president-elect clinton. if she talking about meeting in the middle with speaker ryan? if she talking about the clean sweep? i think there are important implications. david: is there another possibility that there is cash sitting on the sideline and once we know what's really happening, that clash -- cash may move into the market? rich: i think there is a case for that. if you look it indicators of cash, levels are higher now. uncertainty about the election could be one of those. johnathan: i have asked this a couple of times now. we equate low volatility with complacency. this wordkeep using complacency.

why is that a complacent market? rich: it is in the sense that the stability we see globally is very frale. we call it an insecure stability. it is supported by massive quantitative easing. uncertainty about what is the next step. thinking?net yellen with all that in the background and with bond yields low now, there is not a lot of push in markets. the vix and these other indicators appear to be too complacent. alix: this is a fun chart. it looks at the clinton trump splendid. -- spread. this shows what you are talking about. as the white line rises, it means she is gaining in the polls. this is the vix going nowhere fast. this is volatility going nowhere fast.

we don't know where treasury volatility is. does this at all ever pick up? rich: as long as i don't have to tell you win, it will pick up. often times when you talk about quantitative easing, we focus on rates and markets. there is another element that suppresses volatility. the analogy i like to use is when you take your kid to the pool and you give them the beach ball and they hold it underwater and then you let go. it pops up. i think there is that risk down the road. the underlying tension in the global economy has not gone away. i think that is a factor. usually when it picks up, yields fall again. why would it be any different next time around? you go back to treasury. rich: i think it goes back to

the shop. stockso to a downturn, tend to do well and bonds poorly. if the cause is higher inflation, we know from the 70's that stocks and bonds go down. it depends. we are so used to having inflation low. if you do have an upside, that does change the correlation in the market. johnathan: thanks for being with us. we're counting down to the opening bell. we're counting down to the beginning of the new trading week in the united states. futures are lower marginally. from new york, the open is next. this is bloomberg. ♪

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these medicare advantage plans can combine your hospital and doctor coverage with prescription drug coverage, and extra benefits all in one complete plan for a low monthly premium, or in some areas no plan premium at all. other benefits can include: $0 co-pays for an annual physical and most immunizations, routine vision and hearing coverage, and you'll pay the plan's lowest prescription price, whether it's your co-pay or the pharmacy price. or pay zero dollars for a 90-day supply of tier 1 and tier 2 drugs, with home delivery. don't wait, call unitedhealthcare or go online to enroll in aarp medicarecomplete. jonathan: this is how we stand globally as we kick off a new

trading week. futures marginally negative. not much in it as we go to the cash open. yields climb a little bit lower on a u.s. 10-year. crude a little bit softer on the session, down by 0.4%. as we kick off the new trading the, once again, it is world of banking. let's head over to alix to strip back this open. alix: it is a pretty muted open to be sure. the s&p totally flat. at one point, it was down in the futures market by 10 points. this would definitely be an improvement. bank of america and hasbro earnings both helping stocks maintain gains. crude treading around the lows of the session. individual movers, i mentioned

hasbro up over 4%, earnings on the high end. ,ts revenue for girls' toys up that helping the stock. schwab relatively flat to slightly negative. trading revenue fell by 5%. jb hunt, revenue was a little bit better, but earnings did miss. volume did rise by 7%, but freight rates dropped. double-barreled hit for jb hunt. jon was talking about what was happening with bank of america helping to lift equity indices today. this is fixed income trading revenue at the biggest u.s. bank. and how it has grown each september year on year. we are now at the highest level since september 2012. we have had bank of america, citigroup, and jpmorgan

reporting earlier. jpmorgan, 49% increase. 39% increase from citigroup. a 30% increase from bank of america. we are waiting for morgan stanley and goldman sachs and we will get those in the next 48 hours. can this increase in fixed trading revenue really sustain itself? jonathan: let's ask that question. following the bank of america earnings call. fixed income trading revenue from one of the big banks on wall street. october 27, deutsche bank numbers. that is when we are going to find out if this is getting bigger or if the banks in the united states are taking a bigger share of the pie. what are we hearing? >> bank of america has not given us a ton of insight into this. citigroup said they are taking market share in fixed income trading from european peers. one thing that has really led to

the outperformance for everyone this quarter is the federal reserve and the heated debate that they had during the third quarter about the path of interest rates. that led to what wall street considers good volatility. it is a narrow window to hit the volatility that would make it good. because of that, clients look to position themselves around the speeches and pronouncements from different fed officials. thathan: somewhat ironic they say they are confused about the federal reserve communication and yet it is the best communication to help the bottom line. david: they can make money off that communication, so maybe janet yellen is doing a good job. bank of america has been lacking with citibank. they are making money to pay for their capital. where are they now? >> 10.3%. david: that is a return on

tangible equities. they like tangible equities. that makes the number go higher. >> it strips out some securities that could be considered equities that are not. they may flee in a crisis. america, theyk of may tell you it is above their cost of capital. if you talked to analysts, they would say that the cost of capital for b of a is higher than 10.3%. they are not quite there yet. it is worth saying this is one quarter over a year's time. they are still below the cost of capital, as is citigroup, as is goldman sachs, i believe, and morgan stanley. had stayedd wells above that threshold. the others are frankly still trying to figure it out. big strategyca's is cutting costs. revenue was roughly flat

year-over-year, but they have this big expense driver. they are looking to take $5 billion of annual expenses in the next year. that is where they think they are going to make their returns. alix: the deposit balance is up 6%. talk to me about wells. >> wells fargo does not have good numbers to show. they told us last week that checking account use was down 25%, credit card applications were down 20%. they told us, they were quite open about, this is as a result of our cross-selling scandal. we think it is going to take us a long time to get customers back. bank of america being basically the direct competitor to wells fargo certainly in u.s. branch footprint is a big winner. jonathan: it is somewhat telling that when you follow these calls, the majority of the questions are about investment

bankers. the cease we always wants to talk about -- c suite wants to talk about the other arm. it is not just necessarily positive news coming out of these banks. mike mail asking how much smaller the physical branch network can get. you are investing in digital, that's great, what is going to happen to your physical branch network? when are we going to get more clarity on that from the banks? politically speaking, when they going tongs that are cut branches and jobs, doesn't that make things a little more complicated? >> it does. mike has been talking about this issue and pushing it recently and we have been talking about the smaller branch networks for years. to a lot of the extent, you have not seen that yet. that is one reason why he will see bank of america talking about mobile banking, growth,

that is what you do. you move people out of the branches to the mobile application. you would think that branch footprints are going to get caught in the next few years. i don't know when we are going to see that. wells fargo has defended the size of its branch footprint, the biggest in the nation, saying it is advertising, it is marketing. even if people don't going to the branches, it is a big sign, a big shiny logo for people to see and recognize. jonathan: what is the response on the call? the banks would like them to go to the mobile apps and do a lot of the stuff online. 80% of deposits still happen at atms and deposit -- tellers. there you go. david: that is interesting. thanks so much. great to have dakin campbell with us. stanley fischer is going to be speaking at the economic center of new york at 12:15 eastern

after janet yellen at her remarks on friday. we are joined by mike mckee. really is, after janet yellen came out and said she wanted to run the economy hot, what can stanley fischer say? no, sorry, i don't want to run it hot? mike: her job is to calm fears. i brought a chart that shows what she is talking about. you look at the economy's trajectory before the great recession. it was on a much higher path than it is now. there was a sharp detour down in 2008 after trend growth. she feels if you run the economy hot, if you move the unemployment rate low and let wages rise to the point where inflation is above the target, that will help close the gap. that is the rate cut forecast. on friday, after she said that, the odds of a december rate cut went down a little bit. we will see if that continues after stanley fischer because what she did was worry the bond

market even though she was speaking hypothetically. the bond market ticket as, they are going to do this and that is going to erode the value of bonds. alix: can she really afford to talk hypothetically? is the confusion. i warned about this on friday morning when we were talking about what the fed chair might say, that this was a conference about what had happened and the theoretical possibilities for why the economy was not growing as fast. the problem is that the markets take everything as gospel and they took the theoretical and made it real, at least they priced some of it in. jonathan: is that really the fault of market participants? we talk again and again about the university of the federal reserve. janet yellen ran the subcommittee on communications and she knows exactly how the market is going to take comments like that. she also knows able to market participants will just see the quotes and not read the speech.

there is a certain amount of naivety coming out of the fed to think you can deliver a speech like that and not think people are going to act on it. mike: it may be that she does not care. maybe she is guessing that the market reaction, while there will be some, is not going to be enough to upset the market. they have let the genie out of the bottle. they have gone to full transparency at the fed. moved thegren really markets by saying he thinks they are running that strategy. you cannot really put the genie back in the bottle, so they got to guess how the market is going to react. yellen feel like janet always comes out more dovish and then it is up to stanley fischer to pull her back to the hawkish side. if that is the case, what can you say today to help walk back her dovishness? mike: i expect them to repeat the fed's mantra that they are

going to because this and slow in raising rates, that we still have some time before inflation breaks out. he would not say december 14 we could raise rates, but he will say we can raise rates soon. that a fewt he say weeks ago or a few months ago? mike: that is in the fed dot plot. he could say, we are on track and we don't see any reason to deviate. the fed is on inflation watch and we won't cause any problems, we are just following what we have always said. david: is it possible that she was not trying to be hawkish or dovish, but try to steepen the yield curve? the long-term bonds really reacted. it suggests perhaps that there is a steeping of the yield curve, the short end did not move. mike: you would get a steepening of the yield curve if you think inflation is going to be higher because the long-term bond is going to need protection. i'm not sure that was her idea because there are other ways to

do that and it could not be lasting. any other data could come along and affect that. we had better than expected data on industrial this morning. i don't think the fed is trying to actively manage the curve through its beaches. it is happening, but it is not a plan. david: thanks a much, mike. that's mike mckee joining us. coming up at 12:15 eastern today , federal reserve vice-chairman stanley fischer be speaking at the economic club of new york. we will bring you his remarks live on tv and online. alix: coming up, netflix reports third-quarter earnings after the bill. can it revive subscriber growth? this is bloomberg. ♪

>> stay with bloomberg. stanley fischer's address to the economic club of new york at 12:15 eastern. jonathan: from new york, this is bloomberg, i'm jonathan ferro. here is the state of the equity market in the united states. equities markedly lower. no big drama to the downside. the nasdaq also a little bit lower. let's head over to the nasdaq now. office, looking at some movers. >> hi there, jonathan.

we do have a couple of movers. tokin' brands trading lower underperform from neutral. david palmer is saying that shares are fully valued, citing valuation, saying that all the catalysts are priced in. aey have failed to find national value platform and need to find a more cohesive stand for sales improvement. it is the first down week in five. stocks trading higher on the open. groupon, shares are nicely higher. analyst erin turner has upgraded the shares to outperform from neutral. he is saying that he thinks the third quarter could exceed estimates based on traffic growth. more than 20%ees upside potential for the shares of groupon, a stock that is amazingly up 70% year to date. alix: thanks so much, abigail.

netflix is down 2% in early trading. third-quarter earnings out after the bell. it is all about subscriber growth and international. subscriber growth should be 2 million. for more, michael olson is with us from minneapolis. what is your expectation for today and the quarter? >> good morning. in general, we think it is going to be an ok, but not great quarter, but we think that is really all they need this quarter. expectations are really low. there has been an avalanche of negative commentary from the media and analysts suggesting that domestic subs will miss as a continued on grandfathering of the price increase and continued challenges for internationals. expectations are arguably quite low and we think it is an expectation game. they can miss the sub numbers for domestic, as long as

international is ok, at around 2 million, and the stock should be just fine. alix: it is not a quarter on quarter comparison for netflix, but you were looking at a longer-term growth trend. >> that's right. this is one where you have to say quarter by quarter numbers are clearly important, as they are with every company, but this rising tide in an industry where they have a leadership position. they have gotten the content that they need in various markets. really, the margins are low right now because they are investing, they are putting resources into international. they are making changes in the business with some price changes and things like that. it creates some volatility, but you have to look at longer-term trends, which is generally up into the right. thattations are low enough an off quarter is ok. david: subscriber numbers were

net numbers. do we have a sense of churn? how many people are leaving and coming back and what number they are putting into marketing to keep that number up? >> they don't just close churn any -- disclose churn anymore. in thehurn having spiked last couple quarters, this quarter included, we are about to see churn start to fall. we did have this un -grandfathering of the price increase. internationally, churn is probably something that is going to remain relatively high because you have so many new subscribers joining. churn should be toned down a bit as we get through the price increase. alix: as we get a miss on some

subscriber growth. hear target chatter again tomorrow at 7:00 a.m.? >> probably. whether it be various larger internet companies or other consumer electronics companies that may need to add content, it is the old mantra of content is king. you will need content to perform well going forward. netflix has done a good job at amassing a huge content base. david: michael, thank you so much. he is an analyst at piper jaffray. at the top of the next hour, it is "bloomberg markets." what are we looking forward to? >> we are looking forward to the details of the conference call with brian moynihan, the ceo of bank of america. maybe underneath the surface,

the beat was not quite as good as it looked at first sight. we will also be speaking with the priceline ceo. how to the terror attacks affect bookingnd half when travel? how is competition between priceline and expedia going? obviously, the brexit question, as well. that will come up with our next ,uest, the chief jobs officer we will be asking him about rising gilt yields. jonathan: looking forward to the program. crude rolling over. $49.71. more fed speak up next. what to look ahead for the rest of the trading day. this is bloomberg. ♪

jonathan: from new york city, this is bloomberg.

fed vice chair stanley fischer speaking at the economic club of new york, you can watch it right here live on bloomberg television. a little bit earlier, we spoke about fed speak. we asked about inflation and the impact on markets. iteration. are in an the iteration is every time we come toward a fed meeting, yields back outcome of the dollar goes up, emerging markets come off, they back off a little bit, and then everything returns. the most important thing about a fed meeting is that a move by the fed does not tell you about the next one. we usually think an interest rate rise is a signal for a series of rises and that is why we got the big bull market in 2014. , so they back to 2014

are going to raise rates may be december, and then wait another in 10it will be 2.5% years time, are you really worried about that? no, i'm not. will we be lower by the end of next year? it is quite close. alix: when you take a look at inflation expectations, it does seem to be different from the past. you take a look at the terminal at the 30, 10-year, and 5-year. do you see this rolling over and unsustainable? >> is that chart six months of history or more? alix: five months. >> we are at the upper end of the range over the past five months. over the past five years, it is quite normal. they are close to the 2% number.

matters,sis that it the fed should be tightening. on the bases of it matters. the forward guidance was suspended back in february 2014. -- manages anagers hike in this month or next, they will be on schedule to deliver one hike per year and it is going to take a decade to get to a meaningful level. they will not be a decade, there will be two or three years before the next downturn. four hikes saying per year and we are lucky to have one hike per year. jonathan: david bloom and steve from, a highlight "bloomberg daybreak." ♪ ♪

vonnie: it is 10:00 a.m. in new york. i'm vonnie quinn. >> i'm mark barton.

welcome to bloomberg markets. vonnie: we are going to take you from new york to london. here is what we are watching. four majorrica's businesses post increases in earnings. global bonds selling off from asia to europe today. janet yellen fuels concern that policymakers will tolerate faster inflation. also getting hit hard today. we will discuss the latest moves with an asset manager with over $1 trillion under his belt. the ultimate winner for brexit may be far beyond the winners of ee.