jonathan: good morning and a very warm welcome to "bloomberg downeak" as we count you to the open of the markets. futures are positive. the dow is positive 10 points. the fx market looks a little something like this. the pound is stronger. onget an upside surprise u.k. inflation. david: here are the three stories you need to know about. goldman sachs will reveal earnings 30 minutes from now. and the question is, can be trading house keep up with jpmorgan who has already reported a big increase in fixed income businesses? we did get inflation numbers out of the u.k.. core inflation grew. from bothe now heard janet yellen and her vice chair, stanley fischer, both talk about

running the economy hot. emphasized fischer it could go too far. i be putting the same emphasis on the policy? alix: 80 members of the s&p announcing results this week. goldman sachs is front and center this week. let's get a deeper look at how lloyd blankfein is feeling about the numbers -- the numbers don't lie. they have been positive so far. jpmorgan, up 40%. it is the second quarter of those, so what will that mean for goldman sachs? estimates coming in by up 30%. and on trading, goldman relies on that. you see investment banking is moving a bit higher but it really is all about sales and trading. 40% of their revenue over the last 2-3 years.

saleshen it comes to the and trading revenue, take a look at the fixed numbers, you can see what has happened with equity and fixed trading. a similar story with all the other big investment banks. a huge surge, up i-40 percent. equity trading is up higher but relatively flat on the year. if we take a look at what this for bank returns on equity overall, this tells a compelling story. the gray bars here shows a return equity overall around 8% in the third quarter. goldman sachs is the orange line here coming below the overall banking index. nonetheless, 8.1%. wells fargo beating them all but declining when they come to their own r.o.e.. cuss cutting will come out in the reports. it is a key part of the goldman profit story.

you had declining legal and compensation costs, helping to pose any increase in profits in the second quarter. and that concept could be pivotal for helping the company grow. estimates of for the third quarter coming in by about 8%, they could rise for the first time in over a year. we are also looking for any kind of details on goldman's reported details to cut jobs across asia. especially during the conference call. so a lot on tap. be joinede want to now by alison williams. she is here with laura keller who covers banks. laura, let me start with you. six income has been a lead story so far. how critical is this to goldman sachs, even who they are and where they come from? bond trading has always

been something that is definitive for them. and they really need that. they have been lagging behind their peers. we did see a little bit of this last quarter. analysts have put them in the middle. jpmorgan over a 45% decrease year-over-year. 29 percent for fixed. so we will see if they come in here. if they do, they are still nd jpmgan. income infixed jpmorgan and bank of america are not the same thing. what is the reader cross to goldman from the warnings that we've seen? someone like jpmorgan, rates and currencies are very big. and they also saw help on the credit side. credit is a bigger product for bank of america. they are not as big in the macro but it is a broad-based strength across the business,

that will be good for goldman sachs. david: goldman has stuck to their knitting. they haven't changed. might they be in a position to really trade in on the success and actually do better than their rivals? alison: they have remained more committed to the business over the long-term. but they do specify that they haven't ignored the profitability. they have made some cuts to their businesses but they have remained committed. and what they've said is that you don't see the benefit of that in a down environment. so when you see the benefit of that is when he start to get returns. so that perhaps is some of the hope here. 23% ofncome is roughly their business. equity is a similar amount. and fixed income has gone to the upside and equity has been disappointing but the degree of positive surprise with a 40% increase is well outweighing the decrease that we've seen in the equity trade. alix: and what we heard from

bank of america yesterday is that the bad equity hurt the volatility side. going forward, if we don't see fixed revenue being able to hold up, what will be the big growth driver? don't have the equity side and the fixed side, that is the trading. so then they would have to look at other addresses. goldman asset management? we haven't seen a big growth in that segment so will be interesting to see what the goldman sachs will be able to do for capitulating there. america, one of the things that kept coming up over and over again on yesterday's call was confusion over bank of america strategy. and they said look, we are moving to a future system. how dople were saying, you get customers to differentiate? so i think of goldman moved in that direction, i think they would have some of the same challenges with the customers

there. jonathan: maybe it comes from market share? we'll find out when the deutsche bank numbers come out. the cfo thatrom this could be a deutsche bank story. you just wonder how much room is left for the u.s. to say come on, let's grow. beson: that will definitely a question from goldman sachs. we have heard from bank of talking aboutti fallbacks. and it is hard to talk about any given quarter. and again, we have had changes by the banks and they are in the process of of lamenting big plans but there could be more changes ahead and that is probably what we are to hear from deutsche bank, the shift in strategy. every day, we have another new story on what that might be. selling asset management or pulling back in the u.s.. we did hear from citigroup about european companies pulling back

with rates so there may be questions from gold front on that today. david: we will have the goldman numbers out. thank you so much to alison williams and laura keller. now, an update on what is going on outside of the business world. turn to taylor riggs. taylor: donald trump's wife is urging people to focus on the issues. broke her silence for an interview on cnn and was asked about the taped conversation with billy bush. >> i was surprised. it is that i know. if they even knew that the microphone was on. because it was kind of boy talk. and he was egged on. say, dirty andto

bad stuff. withr: nbc has parted ways billy bush. b trump interview caused an uproar amongst staff members. in syria, russia has suspended the bombing of aleppo. they are urging civilians to leave the city. russia is facing increasing pressure from the west over aleppo where residents are trapped in the eastern neighborhood. the u.s. and u.k. are threatening to impose more sanctions. and do not cut off access for julian assange according to wiki leaks. he has been holed up in the embassy of london since 2012 under diplomatic immunity. the u.s. has accused russia of providing wikileaks with stolen e-mails aimed at undermining the presidential election. global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries. i am taylor riggs.

this is bloomberg. have equity futures drilling higher today. and these are some of the movers on the upside. earnings when it comes to the drug companies, top and bottom line, helped by the remicade drug which deals with rheumatoid arthritis. the downside is that a similar drug is coming out christ 15% lower so there will be competition for that drug. united health, similar story. raising the year earnings forecast. by the technology and consulting units. it expects to lose money from obamacare this year. and earnings after the bell yesterday that we are tracking, netflix, a huge pop. up over 20% a subscriber growth grew by over 3.5 million locally. a huge blockbuster number. however only $1.3 billion cash at the end of that quarter, that

was lower from the last year. they say they will be selling bonds by the end of the year. also, take a look at ibm looking for the ninth straight fall after earnings are off. revenue down by 3/10 of 1%. growth margins also shrank. a blockbuster, cloud revenue, it did rise as overall numbers fell. so little bit of a silver lining for ibm. david: johnson and johnson came out with a earnings today and their shares are up. next, we talk with dominic caruso about the quarter and what lies ahead for johnson & johnson. this is bloomberg. ♪

johnson & johnson raise

the profit forecast after beating estimates on strong drug sales this morning. caruso, joinsic us. welcome back, good to have you. as i said, you exceeded expectations and you actually took up the earnings per share forecast growing up. so what drove this? dominic: we did have strong 5.9% underlying growth as products continue. we have acquisitions. that is very strong. and very strong earnings growth, 12.8%. primarily, the pharmaceutical business had another exceptional quarter but all the businesses are doing well. with theevices, restructuring efforts, that business is coming back and in fact, there are several platforms that are growing at double digit growth so we are very pleased with that. david: break it down, domestic

versus international? were a: domestic sales bit higher than international sales. we did see a slowdown in some markets in europe and in some oil-producing nations. overall, u.s. thomistic sales increased at a much faster pace than international sales but overall, the breadth of the business gave us positive results and gave us confidence that we will end the year in a nice place. david: were you hurt by currency exchange rates? dominic: not much, this quarter. year-over-year, it was about a .1% decrease in sales. so overall, a very minor impact. david: pharmaceuticals are such an important part of johnson & johnson. were.ig lead dog, as it where are you on the challenges from others? obviously read the

press release that pfizer tends to launch late november. --believe a launch of a would be an at-risk launch because we still have a patent that is valid and we intend to defend that vigorously. we have been in competition with amount ofith another compounds for some time, so the amount of discounting and competitive atmosphere, we are well accustomed to and we are competing very well. more importantly, we have a broad pharmaceutical portfolio. we will talk about that today we have the lead meters of the commercial and r.o.e. part of the business and the strength will continue to palace above market growth regardless of remicade. david: when does the patent expire? dominic: september, and 2018. about -- how did it

do in this quarter? dominic: it added almost two points of growth through all pharmaceutical business because it was not launched last year. and it is just one of the 10 energies that we launched 2016-2019. it has the promise of being the backbone of a devastating disease but it provides patients with extraordinary outcomes. david: do any other pharmaceuticals have the remicade?to replace or is it that there are several to make up remicade? dominic: when a drug is in a marketplace for a certain amount of preference and following. but we have a number of drugs in immunology. used insteadich is of remicade in some places. we have still era which is used with psorias.

thate have two new drugs will be launched in rheumatoid arthritis and g.i. indications whererheumatoid -- remicade is. so we feel confident we will be able to maintain the leadership in immunology. david: i noticed that you increase your earnings per share. how do you do that? is it cost-cutting? dominic: earnings per share, we narrowed the range, we are now ,loser to the end of the year the midpoint of the new range, a narrower range than before. we have a higher midpoint than before. so we are consistent with the overall earnings that we provided last quarter, an increase, but we feel much more confident in the earnings picture and therefore, we narrowed the range. ask you aboutto potential acquisitions because you have a lot of cash in the balance sheet and you have a lot

of ammunition you could bring. what are you looking at? what would be smart and strategic? what areas? dominic: as you know, we are broad-based. device andnd medical consumer, we look across the landscape and see if we can capitalize on opportunities, wherever they might he. we have five therapeutic areas in pharma so that is a logical place to look. medical devices are strong in surgery and orthopedics, we can build an additional presence in cardiovascular. as a consumer, we have strong brands already. so the beauty space is an area of focus for us. goode wide open to do transactions at the right price at the right time. but we are disciplined in how we do acquisitions. david: dominic caruso, johnson & johnson chief financial officer. thank you so much. inx: the cost of living

britain is going up, and fast. a weakening pound creates a new dilemma. , will he still cut rates in november? and we are moments away from goldman sachs quarterly results. this is bloomberg. ♪

jonathan: from new york city, this is "bloomberg daybreak: americas." global equities are up. . 76 points up on the dow. byeurope, the ftse is up wonderful percentage point. here are the other acid marketplaces. the marginal curve is flattening. yields on treasury and as well. 122. 70. rate, an upside surprise

today. surging to the highest level in two years and fueled the pound. let's bring in the bloomberg team. from london, jamie murray. and guy johnson. an upside surprise, coming in at 1%, does this change the calculus for the bank of england? it should,n't think really. you have seen fuel prices falling out of the annual comparison, which is just lower oil costs which has nothing to do with domestically generated inflation. we also have seen a pickup in closing costs. and that lifted the correlate -- lifted the core rate. so that could balance out next month. so it isn't enormous amounts of news for the bank of england. that inflation is set to rise anthe sterling exchange rate will push up on that. down,an: sterling come

boosts prices, ghost was the bank of england, goes down another pipe towards westminster -- does it matter to prime minister theresa may when prices go up at the fuel pumps in the shops? think it will matter greatly, and here is the reason why. it will go into people's wallets. whether they get wage rises on the back of this is the open question to her. the prime minister will want to see wage rises coming through and it would be fantastic if that happens. if they don't, this is going to be a squeeze. and here's the thing, most people in the brexit referendum didn't vote to become poorer. -- if it turns that they're going to, it will have a big impact. that for howr long? what does experience tell us? quickly does this come through and how quickly does it come back out? jamie: the exchange rate effect

hasn't been felt at all, barring fuel prices over the past month. what we expect is that to feed through over the course of 1-2 years. ofk impact on the level prices 18 months down the line. so a long time for this to feed through. households will start feeling this quickly. jonathan: we speak to economists every day and now we are returning -- in the united kingdom there are legal issues we have to deal with. what are we learning about the process of brexit? guy: we are arguing in the high court over here about whether or not parliament should have the final say on triggering article 50. we have heard from one of the barristers involved adjusting the parliament will probably be involved in giving a green light once negotiated. theresa may can trigger article 50 using the world prerogative remains to be seen.

that is at the core of the case. that the article will have some sort of engagement with the treaty. i expect many people fighting on the other side will believes that actually, they want involvement as we get into the triggering of article 50. we are wrapping the case up now. whether or not we are going to get a clear view over the next couple of days remains to be seen. but we are expecting it within the next week. you have seen market reaction even on these comments, post article 50 comments. jonathan: guy johnson, jamie murray, but you very much. coming up, goldman sachs said to report earnings. this is bloomberg. ♪

alix: this is "bloomberg daybreak: americas." 7:30 in new york and here is what you need to know.

moments away from goldman sachs third-quarter results. the question is whether the traditional tower house will be able to keep up with jpmorgan and citibank who have already reported big increases. we got inflation numbers out of the u.k.. inflation risen to a two-year high driven by a plunging pound. we heard from janet yellen and stanley fischer, both talking about the economy running hot. it where janet yellen said could be helpful, stanley fischer said it could go too far. they agreeing or -- are they disagreeing or are they putting different emphasis on the same point? by onen: the ftse is up full percentage point. if you look at the stoxx 600, all 19 industry groups graining on the session so it is a broad-based strength. ere fx market, a strong

pound. inflation is at a two-year high. the commodity markets, it beat the bid. is close to a 52 handle. in the bond market, the curve steepen or is the domint sry over the last couple of weeks. a marginal curve flattening with heavy yields coming in at three basis points. we are trading at one percentage point flat in today's session. david: turning out to the morning must watch, courtesy of stanley fischer. he spoke at a lunch yesterday and he returned to the subject that chair yellen had addressed in her speech. but this time, with a different emphasis. below the full employment, people's estimates of full employment rate, by a couple of tenths of a percentage

point, i don't think there is any danger in that. but saying that we should keep going until the inflation rate shows us we are wrong -- then you are going to change too late. now by tomre joined keene. help us read the tea leaves. when this came out yesterday, a lot of people said he was disagreeing with janet yellen. jonathan ferro says it is a difference on emphasis. this is an exceptionally important speech. it comes on the heel of other speeches of adjusting and adapting. speech,to -- after the this is a new fed and it is setting up lower growth and lower inflation and lower rates for longer. arguably the most important speech that i've ever heard at the economic club. stanley fischer was brilliant. david: so he is setting up an entirely different rubric.

what does that look like? rubric in it wasn't a like the 16th century. when you look at the idea of stanley fischer, he had read in his eyes about inflation. you really got a feeling he is not that convinced. thathing he did say was the basic idea of being almost there in employment and inflation, and he goes, to overshoot, and the idea that overshooting can have a beneficial effect on an economy. and he really pushed against that. jonathan: we are not talking about an aggressive overshoot, they are talking about a marginal overshoot. tom: you are too young to know walter heller. and that is the ghost in the closet. alix: but goldman sachs pointing stayat even if you under and you have a 15 basis point

rise in inflation, it isn't much on where we said but on the margin, it is something. tom: he walked through the theoretical functions of how you get to the rates. david: i think we have the chart used. tom: bacharts are a big deal. david: we are working on it. there it is. we have it. there. slower growth. lower investment and international. tom: here is what the doom and gloom crew would do would be to add those bars up into an ugly bar which means we will all die. and stanley fischer said, do not do that. and the key phrase here was a complex mosaic -- if you read dornbusch fisher's stars, the ,lassic textbook, it is complex it is a mosaic.

and they are feeling their way forward. assumption made the that stanley fischer and janet yellen are talking about the same kind of theory -- onwe surmise that they are the same page, relative, the market is that the rest of 2017 is up for grabs. tom: that is an important distinction. i would say, he is not talking about december. what we are talking about now is goldman sachs. four dollars $.88 a share, well above what the industry was estimating at $3.89 a share. abovel revenue was well what the street was estimating. these are very high. with all of these, we have to be careful because there are adjustments. it appears at least to be

significant. alix: the number of rome will .are act is the fixed trading that is up from the second quarter. equity is continuing a trend. .oming in at 1.7 billion that is the theme we have seen from the big investment banks. investment trading a little bit weak. trading revenue a little bit weaker quarter on quarter and total trading revenue is $3.75 billion. david: we want to bring in michael moore from london. we just got the numbers but initial reaction? it looks like they are in line with their peers in terms of six income being impressive. equities, about in line with expectations. ratio down acomp little bit to show they can do that on the cost side. investingks like the

and lending line was a little bit higher than most analysts had. it looks like they weren't hit by some of the market decline in the third quarter. jonathan: you can follow all the action on the live blog on bloomberg. looking at the fixed trading revenue, it is up 34%, largely in line with what we have seen from the major players. ago, can6% from a year we assume that is what they keep pulling in the coming quarters? michael: i think that is the one they have been focused on. and have taken comps down the noncom side is really where you can narrow in and focus in on that. and they have been doing that over the last couple of quarters. and you wonder how much room a have to go on that front before they need a rebound. alix: a great point. i want to point out that the total is down year to date but

this brings the question front and center. how long can you get the trading revenue up? how long can you cut costs? becoming much more of a bank. i seldom perceived goldman sachs as the bank but they are becoming more bank-y. lloyd blankfein's theory has been, let's cut the costs to get through the ups and downs of trading. me, michael moore, i would defer to you, but to me, the idea is that they never want to be number three or number four in a category. if they're going to do something, they will do it right. michael: i would agree with that. focus on the businesses where they are number one. asset management is one where they are not at that number.

they do tend to focus on the businesses. on the retail side of things, where they have started dipping a toe into, i think it is a bit of a lotto ticket. if it takes off, great but i don't see it being central to the story. u.n., up 13%. can you talk to us about how big that is fixed to be with goldman sachs? and why does a little bit more stable? michael: that is the appeal, the stability. .ou get a higher multiple they are able to predict that going forward and they have shown nice growth there over the past few years. jpmorgan is a business that helped, so i think goldman sachs would like to replicate the success they have had. and maybe distract people from the fact that trading revenue

isn't even close to where it used to be. the they are making $.37 on dollar. and we forget how profitable this is, day to day. we look at the minutia and the press release, but they took on $34 billion and they yanked it down to a pretty good margin. is reactinge stock to that. goldman sachs trading around the highest level since january. if you're just joining us, we will recap the numbers. a big headline numbers are fixed income trading for goldman sachs. at -- equities trading in a little bit lighter. earnings revenue all look like they exceed profit. $2 billion. so another solid quarter for goldman sachs. david: we want to thank michael moore and tom keene.

bloombergery day to surveillance radio with tom keene. up, stat oil major campaign in several parts. cementing their role in the region's leading operator. the men in charge of norway's top integrated gas and oil company will be joining us. this is bloomberg. ♪

alix: -- taylor: this is "bloomberg daybreak: americas." coming up, lisa shalett.

♪ from new york city, it is time for the other stories making headlines. here is the bloomberg is is flash. united health care reported profits that beat estimates. brexit. for the making up company's issues in asia. -- worsening reports for the wholesale unit. down 10% in six months. and the cofounder of nike is getting $500 million to the university of oregon to start a new campus. he is an oregon graduate. it is the largest donation to a flagship institution. that is your bloomberg business flash.

having a look at the markets, the idea for me that janet yellen is having some kind of spat with stanley fischer goes to show how bad the communication is coming out of the federal reserve. we talked about this before, that maybe not that many markets read the speeches. problem is that? is it the problem with the federal reserve? they are having academic debates and messages for the markets. david: and they communicate so much and so often that it is hard to keep up. make of this morning and say, there is a disagreement between the vice chair and the fed chair when in the speech, he didn't even pressure -- he didn't even focus on the pressure economy. on the margin, he basically says yes, you can go a little bit over and big deal, that is ok. it seems like the worry is

what happened in the 1970's when there was an overshoot. but we do want to point to the fact that inflation is so grow -- is so low that the system is different. jonathan: but we are talking about a central bank that is try to spend the last seven years to do something about inflation. the last seven years. i think the idea that suddenly a global economy is doing ok but really?t, david: and you know, that was the high point of opec. you had fuel prices through the sky that drove the inflation. quick look here as goldman sachs are out with earnings. losing a bit of steam in premarket. equity trading is up. another big beat for goldman sachs.

coming up, what does it mean for one of the world's biggest integrated oil companies, statoil? we speak with the ceo next. this is bloomberg. ♪

alix: this is "bloomberg daybreak: americas." all the world leaders of big oil are meeting in london for the conference and the topic of conversation is when to start drilling again. in therig count is down last five years and if opec can deliver a production freeze and $50 is the new normal, when he rakes come back to work? someone makingis this decision, the ceo of one of the biggest oil companies in the world, statoil. eldar saetre. thank you so much for being with us. i have charted the drilling

rigs, they have plunged over the past few years, right around a record low. at $50, what are you doing? we are working very hard to take down costs and deal with cost reduction and preparing a , the next generation portfolio for the upturn that we are expecting to come following this rebalancing. so that is our main focus. does that mean at $50, you are not putting more rakes to you know, in -- we take a long-term view on the oil price. and we make our decisions with a long-term perspective. we don't put any new projects to work until they are as good as they can be. our portfolio has to break a

balance of around $40 a barrel and we are ready to move forward on this project when it is ready. in the u.s. onshore, it is a wait and see approach. we want to see stronger commodity environments. alix: that seems to be a trend. many other ceos are doing the same thing. what are you waiting for? is it the absolute price level or less volatility? eldar: we are waiting for an upturn in the commodity market. the oil market is heading towards a rebalancing and we think it is going to happen at some point during 2017. beyond that point, we expect an uptick in the oil price, reflecting the fact that investments and current oil production has been cap significantly over the last few years. we expect that to happen for the next year and it will drive up. and we are preparing for the

upturn. alix: what does the upturn look like? what is the level? know, i think the basic nature is that there is going to be volatility during the rebalancing time. we should expect significant volatility around the current levels and may be during the rebalancing level. it is very hard to see where the price level is going to end. cost has come down significantly and that is going to impact the cost level going forward. but it is a tighter market in general. it will impact the price market. alix: when you are modeling plans five or 10 years down the basisyou have to use a plan for oil. so what is your model right now? it is higher than the current level.

at current markets over the next three have them for years and then we have a projection and it is likely upward from that level. and it is a significantly higher level than we have today. alix: are you waiting? eldar: excuse me, i didn't get that -- taylor: will you be -- will you be edging production at those levels? didn't get your question. alix: are you locking in gains? oh, hedging, that is your question? no, we are not hedging. we are open and exposed to whatever the market does at any point in time. no hedging. a big player and we have a strong financial capacity to

wait for the right moment to launch our project. last question, everyone wants to know, will and opec deal get done? what is your probability of a freeze or cut for opec? alix: -- eldar: i think it is more likely that opec will reach some kind of agreement. in november. it is complex to allocate production cuts but i think they will achieve that and they will do so. , statoil ceoaetre joining us from london. david: now it is time for the bloomberg trends. these are the top stories that people are reading on the bloomberg now. from gadfly. netflix subscriber gains net a

pile of cash. they came out with subscriber numbers yesterday. and they beat by a long shot, particularly on the international but it turns out they are going through $480 million in one quarter. that is how they are making up all the subscribers. on how you want to look at it. it could be a positive or a negative. butd: they are up 19% now last quarter, they were down. jonathan: typically, very volatile. iamb looking at oil. saudi bond sales, it ends today and the question is, how big will the offering be and who will want to buy it? it looks like 150 basis points on the 10 year but that was an upside bond issue. so if you look at the conversations that are happening

at the roadshow, can you tell us a little bit about what you think will happen with crude? but they say they won't talk about that and they want to talk about the roadmap. wonder how spooked potential investors are by that. 70% ofhey still get their revenue from oil, so there you have it. coming up on the program, more our numbers out from goldman sachs. shares are up in the free market after they noted an increase in bond market trading. up by 1.72%. another upside surprise. this is bloomberg. ♪

jonathan: good morning.

a warm welcome to "bloomberg daybreak: americas." i am jonathan ferro alongside david westin and alix steel. we count you down to the cash open in new york. decent bid globally. the fx market looks a little something like this. inflation ratee in europe sends the pound stronger. and treasuries are unchanged. alix: here is what you need to know at this hour. out withachs third-quarter earnings. reporting a 47% rise in profits from on to trading. net income rose. and a short while ago we got inflation numbers out of the u.k.. for inflation driven to a two-year high driven by a plunging pound. we have now heard from both janet yellen and stanley fischer, both talking about

running the economy hot. but yellen suggested that overheating could be helpful and stanley fischer said it could go too far. are they disagreeing or putting different emphasis on the same point? david: we bring in laura keller now to talk about these earnings. this is the first time in quite a while that goldman has been up, year-over-year? laura: i'm hoping to write about that a little bit later. it is a big day for them. if you look at bond trading, it came really high above even about our estimates. and year-over-year, it is a really good quarter for them. and then looking at this further , i don't know if we have time to talk about m&a but i would love to talk about that. m&a is a key part of the business and for goldman, it is the marquis of what they do.

and actually there, things are not quite so great. david: they beat estimates by a little, not a lot? laura: i think specifically for m&a, they might have been down from what we were looking for. david: what is going on there? they cited a worldwide slowdown, blaming it on the environment. but since they are a big player here, hopefully will -- hopefully little here on the call. is it just a slowdown? they have a big pipeline. you look at staff levels, down. what is the story that is emerging there? they did have, if you look at the previous quarter, they did cut a little bit. they areinking maybe going with lower paid workers. firing more expensive people. we also saw expenses were a

little bit hard and part of that is having the big trading revenues, you have to pay people bigger bonuses. and when you increase that, it is something that gets a little bit hard as time goes on. so it is a bit of hard management. you want people to be making money. david: stay with us. we will be bringing in gerard maine. from the phone in what do you see in these numbers? the numbers were quite strong, particularly in the fixed income trading area. this is similar to what we have seen with the other capital market banks that have reported such as jpmorgan and bank of america. so fixed income ruled the day for the banks which enabled them to give earnings higher than expected. alix: does that actually

continue? theregoldman sachs said was an operating environment that was categorized by low interest rates and slow global growth, and cannot actually sustain their numbers? really good is a point. that will be the challenge for all of the capital market banks, including goldman sachs. the cfo for jpmorgan highlighted that issue as well. that it was a very good quarter and it will be tough to repeat it. so that will be the challenge for all of the banks, including goldman sachs, into the fourth quarter. alix: and we talked a little bit earlier about m&a, that was down by about 19%, year on year. laura keller pointed out that they are the leaders in that. what happened to them with m&a? therd: across the globe, m&a activity slowed down. they are the marquee name on acquisitions.

numbers came in lower than our expectations in the quarter. and i think it really was market conditions. and as we go forward, hopefully we will see more m&a activity as the economy starts to pick up in 2017. but that was one of the shortfalls they had this quarter. jonathan: they do have control cost face, uc expenses down 15% from a year ago. what does that tell us about the banking industry at the moment? when they are cutting expenses down 15% from a year ago? the industry has been going through a gutwrenching lowering of expenses across the board, including goldman sachs. byir numbers were influenced it lower litigation charges, which had a lot to do with that non-comp expense line. but generally speaking, you put your thumb on it in this revenue environment, which is challenging. all banks are being forced to to cut, and noncom

expenses. and this won't change unless we see a pickup in all of the businesses, which would come with a stronger economy and higher interest rates. jonathan: maybe they just go after market share from elsewhere? the deutsche bank numbers -- from what you see looking at and the research you have done, can the u.s. take a big chunk out of what is happening in europe? u.s. players, are, in our view, steadily increasing market shares. areeuropean and u.k. banks still struggling, particularly deutsche bank. and i think what we will see is the u.s. banks are better capitalized and they are further along in reorganizing their institutions. therefore, they have been able to capture more market share. it is in significant numbers. these are small increases. that are steadily small increases.

they seem to be doing a better job than the counterparts in europe and the u.k. david: thank you so much. that was gerard cassidy with our own laura keller. taylor: hillary clinton's campaign has the traditionally republican state of arizona in its sights. they are increasing advertising .or the state first lady michelle obama will visit the state on thursday. ecuador has cut off internet access for julian assange. that is according to wikileaks. he has been holed up in the since 2012.cuador he is trying to avoid extradition for an alleged sexual offense. the u.n. has accused russia at --aling emails undermined

angela merkel meets for a chance to talk about the fighting. >> the first visit to berlin since fighting broke out in eastern ukraine two years ago. joining ukrainian president as tol as the french president focus on talks over ukraine. the kremlin says they will be open to talking about syria as well. taylor: global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries. alix: thank you. aside from big bank earnings, we have kerning struggling out from the drug sector. johnson & johnson is relatively flat. estimates but the concern is that pfizer is coming to market with a similar drug that is a competitor to one of their blockbuster rheumatoid arthritis drugs. .5% below

so the fear of a price war is creeping up. in other earnings news, take a look at black rock. profit of 4%, acid under management was up almost 14% over $5 trillion. they have a $51 billion inflow, so lots of big numbers from lack rock. and bourbon, a different sector and a different feel. down by almost 7%. revenue fell by almost 4%. currency is not enough to offset weakness coming out of asia. and that is what are very really struggled with in the last quarter. i'm not seeing bourbon very cut costs in new york. [laughter] david: no bargains. no bargains. jonathan: coming up, the fed and

the u.s. dollar. we will delete into the fx market next. this is bloomberg. ♪

jonathan: this is a "bloomberg daybreak: americas." let's get a check of the markets. global equities up 90 points on the dow. positive 13 on the s&p 500. switch up the board. the bond market looks like this. unchanged for the u.s. 10 year. this steepen or has been betrayed. in the fx market, a cable rate 1.23, an upside

surprise. for your inflation rising to a two-year high. the fed vice chair stanley fischer spoke at a lunch yesterday at the economic club in new york and turned to the subject that janet yellen addressed in her speech last friday. running the economy hot. at this time, a different emphasis. stanley fischer: if you go above -- if you go below, for employment, people's estimates with employer trade by a couple ,f tenths of a percentage point i don't think there is any danger in that. but saying that we should keep going until inflation rates shows us that we are wrong, then you will change too late. with us now is nick bennenbroek.

i think there's a bit of a danger here in getting to read up. sure, in terms of the correction that we have seen with the weakness of the dollar, it does come after a little bit of volatility. there is a slight difference of be, but the case for a rate hike is strengthening and we await for more evidence. so i think we are still on track. be surprising it enough to have a material strength in the dollar? sincee gone sideways 2015, what will take us higher? it isn't fully priced. it is about two thirds priced at the moment. headingwe saw last year into the rate increase was the consistent run-up in the dollar. what we also saw early this year

, the dollar down for most of 2016. i think we might get something similar, a little bit of correction in the early part of big year, but the difference is that i don't believe the federal reserve will go on hiatus. i think we will see a couple of rate hikes next year. david: the dollar has a value only as coared to another currency. as you look around the world, where do you see the biggest volatility against the dollar? in terms of the biggest volatility, certainly the canadian dollar is a currency. but policies on hold their. to 1.40.nk that you go i think we also look at selling the euro and the yen that they have their own monetary policy maneuvers going on.

the bank of japan not moving so swiftly in terms of monetary policy and the ecb thinking about it. there is some discussion about them winding down. alix: making the case for a stronger dollar, even if we go in december it will still be lower for longer. the way i would make the case is if you look at the maybes, i think we have one rate hike priced in by april or may. a second rate hike is not priced in currently. and i know the contracts get liquid here. they are priced in until something like september 2018. we could be lower for longer. ago,han: a couple of years it was easy to come on a show like this and say divergent monetary policy. but things have gotten very, located. the cable rate is an easy one to call. when you see the u.k. turning with the final brexit vote and

those kinds of things, have things gotten murkier? over the world. brazil is an interesting case. there is some hope that there house getting in order. butever is a straight line i think it is important to think about the back and forth. historically, you have always --n by the room and sell the so it is an overall medium-term while being aware that you get times of volatility. and historically, you have been able to determine the value of the currency. but now, you have the british pound and doesn't that make your life much more complicated? nick: it does, in terms of the political dynamics. tend to stay focused on

the fundamentals of economics. this has had a relatively short impact. this time around, it looks like it won't be quite a short. this yesterday from hsbc, the idea that there is a political currency and the idea with the pound has now become a structural and political currency. let's talk about the structural story in the united kingdom. you have a trade deficit and you need to see an adjustment in the fx channel to see the adjustment in the trade channel. erathis is not a victorian trade supply story. these are sophisticated supply chains. this is a value added goods. anyone expect to see the trade channel adjust to a cable rate that goes down to

1.20. nick: the u.s. had a time of extended dollar weakness from from 2003-2000 seven. it didn't cause an adjustment. i think there may be a slight narrowing but not a whole lot. it is demand that really influences the trade balance. as opposed to the exchange rate. the other thing i would say is that a weaker pound is definitely good. but that is part of the brexit scenario. , it will side of that affect the overall currency. david: thank you. that was nick bennenbroek. and newp, a new day accusations. donald trump gets aggressive with hillary clinton e-mails. this is bloomberg. ♪

david: this is bloomberg. we are one day away from the next and last presidential --ate and both candidates the fbi may have made an effort to reduce the clinton classification. croniesinton and her have sacrificed your security, your family's safety and your country safety as though it meant nothing to her at all. which, it didn't. this magnitude is worse, in my opinion, and in the opinion of many people, it is worse than watergate. joined by -- now as i understand is going on is that their documents coming out of the fbi in drips and grabs. the latest round indicates that

the fbi concluded that there was severe pressure not to have documents classified as part of this investigation. that's right. and while the clinton campaign spin this as a normal back-and-forth between state department on issues of confidentiality, it really doesn't feel that way. wasn't for the other parts of this campaign, you might see this as a bigger part of the story. and these are confidential notes, taken by the fbi. word that there was an attempted quid pro quo deal going on. and that would be like watergate? >> it would.

but ultimately, they did not succeed in getting that material unclassified. so the end result was the same. mrs. trump on tv last night, it does take away the narrative. and it creates the issue with what will happen after the election when people start to focus on these leaks. david: and as you say, but for the other side of this, it would have been a huge story. but she was on cnn. let's take a listen to what you had to say. >> it is very dishonest and a lot of lies. also about me and my husband. defend your to self. i will fight till the end because i don't want to damage my reputation and my name. david: you have to respect her for standing up for her husband. what does this indicate with how

anxious the donald trump campaign is about this issue at this point? marty: i think they are extraordinarily anxious. putting her on cnn was pretty effective last night. but i do not think you will see her on the campaign trail, it is generally knowledge she does not do well there. and the family members that were considered to be a real benefit to trump have been in the background, as this whole woman's issue has come to the forefront. david: if you put aside the woman's issue, what is the strategy now of the trump campaign to win key states? marty: they are still in there and donald trump said yesterday he thinks he will win in ohio and there is a report that he is back, going into virginia, which, the last poll i saw had hillary clinton almost double digits ahead. so they are not giving up. and the strategy is to hammer

hillary clinton every chance they get. david: thank you so much to marty schenker. tune in tomorrow for the special coverage of the third presidential debate. jonathan: coming up. mean for theht rates, the fed and the markets, next. the futures are positive. positive 13 on the s&p 500. the ftse is up by over one full percentage point. the cable rate is stronger. an upside surprise on u.k. inflation. inflation climbing towards a two-year high. this is bloomberg. ♪

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the market globally with a decent bit. let's go to the fx market. a stronger pound story. yield unchanged on the u.s. 10-year. an upside surprise for inflation in the u.k. alix: not an upside surprise when it comes to inflation in the u.s. bpi coming in at 1.5%, bang in line with estimates. that is a rise from 1.1%. that is an increase in inflation, but not above estimates. the key number falling by 0.1% to 2.2%. a little lighter than the previous read. month on month, staying in line with estimates. not the upside surprise, not that huge move. marginal downside

surprise, if you look at it, of course. you see the market reacting to that just on the margin with two-year yields. no real drama here. two-year yields down to 81. alix: joining us is bloomberg's economics reporter. does this make the doves' job easier when it comes to the next fed hike? >> i don't think it necessarily does. what we see with these numbers is a continual solid performance. they are solid numbers. they are hovering right around that 2% mark. i think the fed will be heartened by these data. alix: do we see the hawks grabbing on to this? in terms of other inflation reads, that has been moving higher. cpi tends to lead pce.

>> pce is that fed's preferred gauge. we are seeing cpi leave bit -- leap it, i think that is going to be good news for the fed hawks. they are going to take that and argue that we should move before inflation gets away from us. alix: new zealand, inflation data not falling as much as we thought. u.k. inflation data, surprising to the upside. make the argument that the inflation pressures are passed us? we are definitely seeing some of this inflation pickup at long last that we have waiting for desperate waiting for for a long while -- that we have been waiting for for a long while. i do think that central banks will be looking at inflation mandates and saying, we are finally getting closer.

jonathan: is this about base fx orders this about timing with labor market, diminishing spare capacity? costs dropping out of it in the u.k. which one is it? -based effects or a type of labor market? it certainly is to some degree base effects. at the same time, if you look at core numbers, we are seeing , and that istoo less from base effects. low inflation, higher wages, higher inflation relationship. i think central banks will take some positives from this. david: how important is it to the fed where the inflation is coming from? we have seen it in rent expense, but not so much in services.

>> it is an interesting thing. often talk about that what we want to see is inflation in services, inflation in rent is somehow less valuable. we hear a lot less about that from our fed officials. that is not something they are talking about on a regular basis. they are really just concerned about hitting that target. all else equal, they would prefer to see it come from services. alix: great to have your perspective. david? david: we turn to saudi arabia. is world's largest producer hoping to raise 10 billion dollars this week in its first international bond sale. when they have been asked by investors about oil or middle east conflicts, they have pushed back. matthew martin joins us from

dubai. tell us about these presentations. how have they gone? you with think oil prices might be relevant. exactly, as you say, whenever you think of saudi arabia, you think of the oil story. it is a hugely important part of the saudi arabia an economy. what we have seen from the prospectus document is that oil revenues have fallen by $.70 over the last five years. , the pushbackeen that you mentioned from saudi officials, they don't want this to be an oil story anymore. they want this to be as an investment in the economic reform program, the , and ination planned the transformation being organized under the deputy crown prince. david: what do we know about the

reaction from investors? argentina got a lot of interest on the market. is there a lot of interest in this? matthew: absolutely. it is the debut issuance out of saudi arabia. there has been a huge amount of international publicity that has been generated from the reform plan that is being prepared. the novelty factor, as well. investors have not had much paper -- access to saudi in the past. there is a huge amount of appetite, i think there is a huge amount of demand. the investor roadshows have been very well received. i think the key question is going to be how much do they look to raise? what sort of pricing are they going to be looking at? they could probably get away with doing one large deal at quite tough pricing, but the government is going to be needing to come out several times again over the next few

years as a looks to fund the reform programs, the deficit created by for an oil prices. there are a lot of considerations the saudis are on theo have to weigh last day of the roadshow and into building the books. jonathan: what is the issue? pricing, theind of kind of borders we need to look at? matthew: i think that is definitely the benchmark that people in the market are looking at. i think the saudis will be keen to get as close as possible. they are looking at healthy competition between saudi arabia and qatar when they have been side.ing on the loan saudi arabia is now a different story. saudi arabia has a slightly lower rating than qatar.

it has much more domestic problems to try to deal with in terms of the larger population and the efforts that need to be the economy to wean off oil. david: what comes next? saudi arabia and the other gulf economies need to raise over half $1 trillion in the next the years to make up for lost oil revenue. matthew: that is a great point. what we have seen already is that abu dhabi has come out and issued, qatar has issued, bob has has issued -- bahrain issued. the kuwaitis will probably be a next year's. all of these governments are in a situation where there will have to beat fiscal

consolidation and external fundraising to fill budget gaps. the plan is to move from having 5% to gdp ratio from around 30% by 2020. the bahrainis are in a very similar situation. we will see a lot more issuance over the next few years out of the region. jonathan: saudi arabia is set to begin the sale of 30-year bonds. a person familiar with the matter not authorized to speak said it was five years at 100 basis points. once we have that confirmed, we will bring that to you. the saudi's are pricing that deal at the moment. not official just yet, but when

we do get the numbers, we will bring them to you. david: the question is how much will they sell? they may sell more than the $10 billion set out there. , when they sold, the saudi's are having to pay a little more. let's see what key banks are looking at. look at what the saudis are doing within opec freeze or cut, is it all about today and issuing the long-term bonds? is one moreis factor that seems to mirror what we saw in the 1980's. as you were discussing, remember, saudi came into this gdpturn with a net debt to of -50%. it shows they have capacity to manage through this situation. it does suggest there is a longer-term objective.

i think the freeze you are mentioning is much more about trying to lift the near-term price up trying to create a little bit more money for the government. alix: at the end of the day, if you are buying a saudi bond for 30 years, you have to be investing in some way in the price of oil. how can they get away with not talking about the oil price on the roadshow? >> i think there is a lot of talk about reforms that are needed. fiscal consolidation and all those sorts of things. there was a period of excess were companies to advantage of $100 oil for probably too long. there was a report recently that they said that was a mistake. i think the challenge you have stimulatedt you have new technology that is very disruptive. probably not coming back without a geopolitical issue. opec is not the controller of the price. like the the control

texas railroad commission did in the 1970's. alix: you make a great point that brings us to my chart on the terminal. forercial short contracts oil producers in the u.s. be abley, that should to illustrate what hedging has been going on as the oil price has risen. what do you see on how hedged oil prices have become over the last six weeks? >> generally, companies are still under-hedged for 2017 and 2018. we have seen them hedging far more than we have all year. you can see some of this in the positioning data that suggests companies are taking advantage of a higher price to shore up finances, but you are seeing activity come back. aat people miss is that it is lagging indicator. you hedge before you add rates.

alix: in taking a look at the oil price, what happens in the next year when saudis cannot control the oil price and u.s. production comes back. what is the downside? >> there is excitement and most of the price action comes on the announcement of a deal, historically. but this is mostly just a freeze, as you articulated. the u.s. may get stimulated. rebalance through 2017 even though opec does not at the top end of that range. i do worry we will tread water for now. the only thing to drive us our headlines, positioning, the dollar. 2017, you later into may see some disappointment with how quickly the u.s. is coming back. alix: thank you so much for joining us.

jonathan: saudi arabia is set to begin sales of their 5, 10, and 30-year bonds. this is bloomberg. ♪

alix: this is "bloomberg daybreak." taylor: coming up in the next hour, the morgan stanley head of investment and portfolio strategy. jonathan: from new york city, i'm jonathan ferro. the saudis set to begin the sale of 5, 10, and 30-year bonds.

, 150 basis points. 10-years, 185. , 250.rs that is similar to the qatar sale, but a little bit of a premium here. saudi arabia potentially paying a little bit more than qatar had to take. alix: this really digs into why the saudis are doing this anyway. this takes a look at saudi government debt. post a budget to deficit of about 13.5% of economic output, the highest since 1992. they've got to get money and they've got to get it fast. the other story is that the bank -interbank lending rate. how banks lend to each other.

that has been rising. this blue line is the rate. bahrain is the red line. united arab emirates is the white line. qatar is the purple line. gained in 15 consecutive months. liquidity is the worst it has been since 2008. the idea is to get more money into the system that is not reliant on oil to help the banking system. jon was talking about the price saudi has to pay to get in. price.ows the qatar the demand was huge, they had to pay about benchmark to get that. the saudis having to pay a little bit more to get that cash . investment grade rating is a, then some of the other gulf nations.

david: what broke just a few moments ago is that saudi arabia is said to have begun the sale. how much of a reaction will be from investors? joining us from new york is a strategy -- strategist. oil is going up today. me, if youough for would, the price of oil and the price of these bonds, who is ing whom,home -- zoom to quote aretha franklin? >> on a day-to-day basis, people are looking forward 5, 10, 30 years forward. will these reforms get in place to build the yield curve? they are not looking at is saudi the next yearble or the year after? i think they understand that a few years, they are fine.

jonathan: would you want to buy 30 year paper and hold to maturity? >> i'm very bullish on oil, so i would say, yes. jonathan: what do you make of the difference between what the saudis could pay to get this away and what qatar did? did the saudis miss the boat to some extent and not go early enough? >> they probably should go earlier. they do not have a developed yield curve again. saudi arabia raised $30 billion per year if they are going to hit the gdp target. what this will do is it will set a benchmark and we will see how the bonds trade. the market had to take the qatari price and then factor one notch lower. going forward, you will see saudi corporate pricing off the new sovereign debt. alix: talk to us about demand. qatar went up to $9 billion.

issue $10 looking to billion. what is the number going to be? >> i would not be surprised to see $15 billion. if saudi arabia reduces half a million barrels per day of oil, at $50 of oil, that is $9 billion in lost revenue. it actually matches the current issuance quite well. they are effectively borrowing to fund production cuts. alix: that is a great way of looking at it. what does that mean for issuance going forward? , they arelook at it looking at about $30 billion through 2020. i think they will keenly watch how the bond moves, especially in the wake of where oil prices go the next year. clearly, with the deficit where it is, they need to have additional liquidity within the system.

ultimately, they've still got $80 billion of short-term treasuries in the u.s. they have the cash, they just want to get sustainable systems in place in case they really need them. david: who is next up? is saudi coming back? is it jordan, kuwait? .> i would say probably jordan jordan is in far more need of a bond issuance. look at kuwait, they will return to a current account surplus next year. jordan, the economy looks very shaky. that is a different story in terms of economic structure. david: it is very different. they don't have the oil, so the pricing is going to be very different. >> yes, again, i think that if you look at jordan, it does not have oil, the price is going to be a different story, but the debt capital markets in the middle east have been very thin in the middle east for years,

apart from dubai. the more the market can figure out how to trade and price these appropriately. qatar should not be pricing so wide in my opinion. if you look at the cash versus obligations, they are about as secure as you can get. i would not be surprised to see some of these spreads tighten as you get more information. alix: what happens to the banks and saudi arabia? >> saudi arabia has recently done a $5.8 billion liquidity injection into the banks. you are seeing capital flight out of the banking sector right now. arabia needs to put in the procedures and the processes to have a stable, fully functioning, independent economy. this involves independent yield curves. this involves tapping every single source of capital possible. then you get to the difficult part of the form. to putwill be encouraged

money back into saudi arabia. david: thank you so much. jonathan: final pricing expected tomorrow. up next, and historic meeting at the white house it to begin at the top of the hour. this is bloomberg. ♪

jonathan: let's get you caught upn key events happening today. president obama and italian prime minister matteo renzi will hold a joint news conference in the rose garden. we will hear earnings reports from yahoo! and intel. we are counting you down to the cash opening. futures are firmer. this is bloomberg. ♪

jonathan: good morning a

welcome to "bloomberg daybreak." i'm jonathan ferro alongside david westin and alix steel. markets look like this counting you down to the open. in the fx market, cable with a bid, eight -- a stronger story. alix: here is what you need to know at this hour. goldman sachs out with third-quarter earnings to a 47% rise in profit helped by bond trading. inflation picks up in the u.s. and the u.k. consumer prices rising at their fastest pace in the u.s. in five months. the u.k. accelerated to its fastest pace in two years. we have heard from fed chair janet yellen and vice chair stanley fischer about running the economy hot. fischer emphasized it could go too far. are they gently disagreeing or putting different emphasis on

the same policies? david: turning back to our big story of the morning, goldman sachs. 47% increase in their profit in the third quarter. the stock is now up in premarket. a banking analyst from bloomberg intelligence joins us. head ofan stanley strategy also joins us. let's start with goldman sachs. first impressions are different from second. what are your second? >> my second depression is not much changed. they basically came in line with what i would say was a higher bar to exceed expectations. equities did a little better. most of the companies missed. a lot of the upside came from their investment. investors tend to value that less, they tend to be more volatile, less recurring. is cost.tant thing the cost ratio year to date coming in around 41%.

that is about what we had last year. similar cost ratio. what we like to see from the banks is a higher cost ratio. the banks have more flexibility in the fourth quarter. analysts have been expecting them to report a 38% ratio for the year. that is what we have seen in years past. goldman did institute a cost program earlier this year. that was going to add several hundred million dollars. cushions on cost. that is really the important thing investors will be focusing on. david: what about investment banking? >> doing well. we basically saw what we would expect in terms of some better debt and equity fees. m&a you are looking at a tough coarison to last year. they did talk about the pipeline a little better than last quarter. weaker than a year ago.

last year was a record year of m&a. we will want to hear more about that on the call, more about what their clients are saying. one of the other things that investors look at our capital return. goldman basically said they got approval for their plan. they did not give us their plan, but we did see share purchases about in line with what they have been running. q2, but theyf from had a backend loaded plan. if we look at the last five before that, share purchase right in line. i think that is a question for the call. is this indicative of your plan? is this the payout ratio that we should be thinking up for the next year? alix: your wheelhouse, even goldman sachs said i don't think the fixed trading revenue the last two quarters can actually continue -- they highlighted weakness in m&a.

said, what is the growth driver for financials? >> look, i think they have been trying to grow the consumer side of their books. they have been trying to sustain acid-based fee revenue. -- asset-based fee revenue. they have been trying to capture the shrinking trading market. jonathan: we saw that they are getting more assets, but that is becoming a very competitive business. a whole lot more competitive in the last couple months. do you expect that to continue? >> absolutely. there is an interesting dynamic between active management, passive management, and the distortions that creates. if there is more money going into indexing, you have more companies being similarly valued irrespective of their financial performance or the fundamental performance. for a lot of these guys, they've got to figure out, how do we capture aum in a world where

everyone wants to go passive? alix: the weakness and equity in part -- trading was due to passive management, the money moving into a different area, they could not capture that market share. >> we are hearing a lot of that today from blackrock. what has helped them overtime is their diversity. , thew continued strength acceleration of the trend of the past couple of quarters. , theve lows into etf's ishares products. since the quarter has closed, they have actually brought in a tremendous amount of money in those products, even since cutting those fees. jonathan: within black rock, the suggestion we are getting is not coming from active into passive. i wonder if what we are beginning to see is a very competitive passive environment at the moment and what we are seeing emerge in the last month

or so is a bit of a price war. bloomberg intelligence has written about this called "the great cost migration." the trend from higher-priced product into lower-priced product. some of the work that we have done on hedge funds has shown that there is continued pressure within hedge funds. blackrock shows there is continued pressure within etf's. that is something that you are going to see, a trend that you are going to see continue. david: i'm pleased to see that we arranged for eric to be with us this hour. i want to come back to you, lisa. banks' stocks have gotten hammered over the last year or two and now they are trying to -- starting to show some real results, partially based on fixed, which is showing improvement. >> i think we are seeing a bifurcation. i think the banks have been cheap, the financials have been

cheap, they are beaten up, huge headwinds from a flattening yield curve, huge headwinds from regulatory pressure. i think we are seeing that some of the larger banks are actually really starting to show an unbelievable amount of resilience. they are continuing to cut costs. what it says to me is that if we do get a steeper yield curve, if we do get higher rate, if we do get better growth, this is a factor -- sector that is going to explode. they have been in the penalty box for a decade and we are getting close. alix: do we need a higher yield curve for investors to want to invest in banks? >> i think that is part of the story. i think investors are going to need to see a topline piece of the story. right now, the top line has turned. different segments have been strong and others are weak. i do think they are going to need topline to really get the seller -- sector revalued. jonathan: lisa, you are sticking with us.

son, thank you your time this morning. the premarket right now. david: now, for an update on news outside the business world. taylor as the first word news. taylor: russia has announced a temporary suspension of the bombing of aleppo, calling for civilians and rebels to leave the besieged city. russian and syrian air forces 250,000ikes were civilians are trapped in rebel-help neighborhoods. the announcement comes a day before a meeting in berlin between vladimir putin and his counterparts in france and ukraine to resolve the conflict and ukraine. inlary clinton has arizona its sights. $2 million have been added to the advertising budget for the states. one of her most effective surrogates will visit the state on thursday. first lady michelle obama will

visit the state on thursday. polls show hillary clinton and donald trump virtually tied. julian assange has been holed up in ecuador's embassy under a grant of diplomatic immunity. he is trying to avoid extradition to sweden for an alleged sexual offense. the u.s. has accused russia of with data toileaks undermine the u.s. election. i'm taylor riggs. this is bloomberg. david: now, we are going to take you to the white house in washington dc. this is the south lawn on what looks like a beautiful, sunny day. they are waiting for the prime minister of italy, matteo renzi, who will be there for the last formal state occasion for the obama administration. according to reports, he is hoping this will help him on his referendum vote, that all-important referendum vote he has staked his career on.

we will see if he sticks with that promise. he will have a big state dinner. president obama will welcome him white house. we will bring you president obama and prime minister renzi's joint news conference from the white house. alix: taking a look at equity futures. the nasdaq up. s&p futures up 0.6%. let's dig a little deeper. what ise what is moving behind the market. focusing on drug stocks. united help -- united health and j&j. johnson & johnson is facing competition on some of its biggest products. that is filtering through to the stock. united health is a different story, boosted for your, moving away from obamacare, focusing more on technology and consulting business, getting a boost from that. allison williams just talking

about blackrock. assets passing $5 trillion in the last quarter. netflix, the monster move up. 20%. this will be its first in fivenings of the day quarters. subscriber growth is what everyone was watching. 3.57 million subscribers. only $1.7 billion in cash. it will move program budget up by 20%. david: we want to go back to washington dc to the south lawn. president obama and michelle obama are waiting for the arrival of mr. matteo renzi of italy for this all-important toit, for matteo renzi, washington. italian stocks are up. we will be back shortly on bloomberg with much more. this is, after all, bloomberg. ♪

alix: this is "bloomberg daybreak," i'm alix steel. u.k. inflation at its fastest pace in two years. u.s. inflation rising at its fastest pace in five months. that latest data point causing a little bit of a move to the upside on 10-year yields. a little move higher off of that higher inflation in the u.s. lisa is still with us. do you know rotate into a reflation trade? >> i think if you are not there, you should be there. and morgan stanley, we have been there the last six months. part of the reason we have been there is really just looking at where we were a year ago. a lot of people seem surprised

that the inflation figures, the headline inflation figures, are moving up. but if you look at where energy was a year ago and where we are hovering around $50 with west texas per barrel. you see that there are going to be positive comparisons coming into the numbers. we have been anticipating this. you see what is going on with wages, you are starting to see wage growth of 2.5%, 2.6%, and you are starting to see pressure build. the only element of the inflation basket that had been strong was rent, which we had seen move up meaningfully, but now, you have two other elements, energy, as well as the wages. alix: pimco is expressing that dated inflation protected securities and they are selling long-term treasuries. i was the best way to express it

from your side? >> i think those are interesting and good trades. one of the ways we have been playing it is increasing exposure to master limited partnership, which really allows you to take advantage of the infrastructure play in energy. to push back on the inflation story a little bit. domestically, we are talking about base effects. internationally, we are talking about spare capacity. china, spare capacity is not going to be diminished anytime soon. why do we think that a global disinflation story is going to transform into an inflationary one and that somehow, the united states story can be coupled from there? >> i think we really have to unpack on -- unpack what is going on in china. if you unpack the data in china, it was positive in september for the first time since february 2012. a lot of the lending that is going on in china right now is actually going to the housing

sector and the consumer sector, which really does not flood into or transmit to global deflation. you cannot export your excess housing prices. folks who are paying attention to those trade data and paying attention to what is going on with the chinese currency also know that the chinese currency has been weakening. that weakening of the chinese currency is inherently inflationary. those two things, the ppi and that weaker renminbi are contributing to a pickup in global inflation. jonathan: just walk us through that. why is a weaker renminbi inflationary? >> so, if you think about how china's manufacturing supply chain works, they import intermediate or raw material goods and then they export manufactured or assembled goods. , they're purchasing index, is going up because

they're renminbi, what they are purchasing from other emerging market currencies as raw materials is more a. it's -- is actually more expensive for them. david: i'm not sure i understand the answer to jonathan's question in this sense. of china is not bringing capacity in line with demand, but is pumping more money into the other side, is that sustainable inflation? at some point, that turns around. >> again, i want to be really careful in how we think about where china is pumping the money. it is not entirely clear to us that they are pumping the money into the places where there was already excess capacity. quite to the contrary, we see them restructuring some of those industries weather has historically been excess capacity, areas like steel and iron ore, for example. alix: so, can you tie it all together for us from a bigger perspective? that showseat chart the equity risk premium versus

the bond term premium. the bond term premium is that blue line. the equity is that white line, it is high, but it is turning a little bit lower. the conversation about china and the stimulus and the reflation trade, what does that chart wind up looking like? ho fast do they converge? >> exactly, i think we are going to have convergence as the inflation rate comes up. you are going to see bonds reprice and you are going to see yields move up. alix: how quick is it? >> from our perspective, we think it is going to happen over the next nine months. it is going to really be driven by what happens in the currency markets and what happens with global growth, both of which we think are going to become more volatile. global growth probably a little bit better than what people think. currency volatility, a little bit higher than what we have experienced. david: so, inflation is one thing, growth is another. what is the risk we will have

inflation without real growth? >> this is a great point and one of the things we wrote about in one of our reports this week. we get into this situation where we have this stag-inflation -- gflation. we think the fed is trying to look closely at whether the debtor inflation numbers actually stimulate animal spirits, if you will, or on the partdesire of -- david: slashing 15 of its ats earlier this month. we will bring you on the numbers coming up. ♪

jonathan: from new york city,

this is bloomberg. blackrock reported earnings earlier. the firm cut expenses and attracted more money to the etf funds. the blackrock global head of ishares talked about the new lower management and the reasons behind the decision. >> we see a lot of money coming into motion over the next few years and we want to win, we want to be number one across the board, we are number one across the united states, and globally, over the last three years and we want to make sure we maintain that leadership position. we expect to see very rapid growth in the next five years. jonathan: that was mark wiedman speaking on october 5 on this program. that fees have pulled in $2.2 billion in cash. our bloomberg intelligence etf analyst joins us. good to have you with us. the price war, is this a market share issue? >> yes, look, everybody sees

etf's as the new investment vehicle of the future. everybody is jockeying for position. what i find interesting about blackrock is that vanguard is virtually an unstoppable force. they are cheap, everybody buys them, they have taken in 70% of the net cash, but ishares is now leading vanguard inflows. the $2.2 billion put them over the top. they have taken and $69 billion of etf assets. .anguard has taken in it is a two company race between these two firms every year. ishares has had the edge the last two years. vanguard is forcing the issue. in the end, if you have market share in the etf world, that is a good thing for the future. jonathan: just really nail this down for us. are we see they are seeing a continued rotation or are we beginning to see the passive funds take more away from the smaller guys who cannot compete right here on price? is that what we are seeing now?

>> yes, that's true. distribution matters, right? vanguard, state street, and blackrock account for 80% of the assets. if you talk to investors, a lot of advisors like the big brand names, they like the trusted names. that is why you tend to see them collect a lot of the assets. jonathan: what are we going to see elsewhere? we have seen henderson and janice get together and try to compete. is that what we need to see, more competition? >> that's right, there is going to be a whole change happening. the real reason you have not seen it happening is that the markets have covered up what would have been massive revenue losses in these big fund companies. if the market goes flat or down, look out, there is going to be a , where theye janus will have to find big partners and lower their fees to compete because it is an all-out fee

war. cost is king. jonathan: thanks a much for coming on the program. in the markets, this is how we look. the opening bell moments away on "bloomberg daybreak." 4 minutes, 10 seconds, to be precise. the ftse trading positive through much of the session. if you switch up the board very quickly, the stronger pound story aftethe upside surprise. t 1.23 reclaim it at handlehe. crude positive on the day. open just minutes away. this is bloomberg. ♪

jonathan: i am jonathan ferro

moments away from the opening bell. a really strong session putting every single industry group on the stoxx 600 gaining throughout. it is a stronger cable rate. u.k. inflation, the core rate climbing toward a two-year high. to basis points. you hear the opening bell in new york city. global commodities as well. $.51. 15 seconds in, let's cross over to alix. the s&p up .6%. netflix coming in huge, but double digits after a killer quarter after the closing bell. you mentioned the other part of the story, stronger oil, helping all major moving averages. exxon, chevron up by almost 1% and crude is up over $50 per

barrel. first gain in three days. energy stocks underperformed the 3%.price down by a little bit of catch-up when it comes to big energy names. keep your eye on banks after a good quarter. this is fixed income trading revenue. america, all of reporting better-than-expected numbers. higher, morgan stanley, the latest to come out, coming in just over 2.9. let me get the number on my sheet.

can fixed trading actually continue? even goldman seemed skeptical. another one of the big investment banks on wall street. michael moore joining us from the city of london. a take away from the quarter, the big question is whether it can continue. can it? >> a lot of factors went into the quarter being a good one. given allacro quarter of the moves, brexit, the central bank watch, and a strong given therter underwriting activity of the quarter. you might not have all of the factors in every quarter, but there is a sign may be the worst is over we saw a your two ago

when it looked -- a year or two ago. when it looked a lot weaker. >> you can do that on the bloomberg terminal. the fixed income trading story is very nuanced. you have seen the debt underwriting business. prematuree a little to expect the same thing because august was a massive month. is that something we can think about as well? >> right. in europe and we had raced staying lower. the outlook is improving. more people came to market to take advantage of that. that might not be something you get every quarter. very strong for the last 2-3 years. maybe not something you can rely

on forever. >> thank you so much here at michael moore is bloomberg's reporter on banks. we returned to the broader markets. global strategy -- global market strategist joins us. is what i want you to help me with. we hear every day on the one hand about the uncertainty of the election-year. if you look at volatility across markets, jonathan pointed out yesterday it is about 16. , with thechange exception of the pound. how do you square those things? >> i view that as complacency in the market. the tricky part has been for a lot of investors, if you are not in the market, you are losing out on the positive carry and stocks and high yields. if not in them, you are not compounding that return.

that sucked a lot of people back into markets despite the event risk. people will probably lean too heavily. it will be a little bit of a rush and that is where we will take an manage of the opportunity. >> take the equity markets. is it sideways? >> probably not the next three or four quarters but in the next three months, i could see it sideways. will be a positive catalyst and we think earnings will grow year after year as earnings stabilize. it should drive markets higher. said, you have a lot of event risk and i can see the markets trading between 2100 and 2200. particular, i love this one, it is your short-term

moving average, medium to long-term average. it tends to be a bullish signal. do you see confirmation of that? >> if i was just looking at technically, just by itself it would be bullish. it has been a company by higher rate counts. you tend to skew in the prices go up, a lot more production goes on the market. positive and as i bring in other things, i get a little more cautious we may have seen the highest prices we have seen or a few months. >> let me sum up what i think i hear you saying. markets will be sideways, you are saying by the dip. it will not be a long-term trend. >> exactly are later in the cycle, strong uptrends, we have

seen asset classes, they are becoming a little less steep. you have to be a lot more nimble and active and pullbacks would be a great way. >> what about the dollar? a big run up around the seven-month high. much is left? >> we do not think a whole lot. you hear the fed talking about raising rates. some of the members want to another's do not until you get conviction around rate increases, it is hard to see what the catalyst for the dollar as the bankcially of japan gets more murky on what they are trying to accomplish. i've heard this a million times, low in complacency. i will sit on the sideline in cash. what happens if that is what everyone is doing? not really look like that is what a lot of people are doing. people are fairly long. you look at etf shares out dan

in, those are at multiyear highs. it could be that might be the consensus view but you look at positioning, i would ask them a little further about how they are positioned. jonathan: the cash allocation is still ready high. what is the story there? >> a lot of mixed sentiment out there. has beend exposure creeping up a bit to the one year high. across the markets, people are still fairly long and that is why we see prices in stocks and bonds close to all-time highs. jonathan: coming up on the program, netflix challenges a rough patch, google and facebook. stock is up 18% after numbers

out in the last 24 hours. this is bloomberg. ♪

> tomorrow, an exclusive interview> at 1:00 p.m. eastern. jonathan: equities marching higher throughout much of the

day. 12 minutes into the session, it looks like this. once -- one full percentage point. abigail: we're looking at a nice rally. best day in about a month. let's look at two of the big winners. intel shares are higher. third-quarter report after the close. 73% pers are looking at share. we have barclays up -- upgrading the shares. now, the company's new price rise tof $45, it could current levels. now, netflix. shares are at levels last seen in early january, best day since july 2015.

netflixafter third-quarter subscriber numbers e well above estimates as are the guidance or the current quarter. this ends a string of messy quarters for netflix and may leave fears around growth. a near to date loss as netflix is up modestly. >> thank you. abigail. can it be sustained? classic can be. we are talking about international growth. subscriber growth in the is aess, the u.s. market highly penetrated market. room to grow but i think it is really about international opportunities. the international growth has been disappointing and some of it had to do with newer markets .ike france and germany netflix had local competitors in

the markets and local romney -- local programming, as opposed to traditional programming. there were stumbles. they have come to find their footing again. >> it was better than estimated but growth has been coming down. >> and that is one of the issues here. profitable.ket is a free cash flow positive market and allows the company to deficit fund international growth. have seen international business continue to lose money. a lot of the markets are cash flow positive today and profitable today. mature andrkets become more profitable, that is the longer-term trend. most of the international markets should be profitable and that should be the beginning of a turnaround for the company. that is the thinking given that they have fully to put up us the globe with a notable exception

of china. >> what about cash flow? by far the largest ever, really down sharply. how long can they do that? >> you are right. almost half $1 billion here. moreare funny more and original programming which requires a bigger front investment. saw in kenosha -- in conjunction with the cash flow was going to the debt markets once again to raise capital. they are under levered. some capital to bridge them to and they ultimately become free cash flow positive and self reporting. cares,ould think, who where does that stand? what is happening is it is definitely between the lawyers. the lawyers have not yet agreed, is there an adverse -- have that

occurred and if so, what are the verizon?or do they want to walk a way or renegotiate terms of the deal? we are waiting to see how that plays out. some are still committed to the action. a lot of our analyses could be changed ruling here. it is still up in the air. still in the value of yahoo! and alibaba and the stock continues to make all-time highs. >> he says what he would be doing is looking at the alibaba stake. coming up will be bloomberg markets. what are we looking forward to? mark: erik schatzker is kicking things off at the top of the hour. bill is the vanguard chief executive.

he is talking about active versus passive. looking forward to that one of the top of the hour. we talking inflation, the quickest in five months. in the u.k.. what does it mean for policymakers going forward. just at the end of the 10:00 and 11:00 hour, 4:00 p.m. hour, here in london, where the italian prime minister will join the u.s. president for a joint news conference in the rose garden. a big state dinner. brussels and is in andrea felt said, hm patch show. will behanks to we watching. >> coming up later, goldman sachs watching a profit in the third quarter. following an investor call.

bottom out and going higher later. much more details on the other side of the break. this is bloomberg. ♪

>> at the white house, president for the finalting state dinner tonight. the two have a lot in common including their belief in the importance of an integrated europe. fears of a humanitarian crisis, thousands of iraqi troops are dancing on the city. to 700,000to up residents fleeing. iraqi officials say staying put maybe more favorable.

than 100 20ore sister allison allison more than 120 countries. this is bloomberg. david: thanks. sachs earnings call going on right now. close to 47% profit. laura keller is on that. what are you hearing? question, harvey schwartz was asked when exactly -- is it a bottom, obviously it is really good. it was not so much about tailwinds as it was about not having so many headwinds. maybe itd it and said is not the bottom we were looking for. they are talking about markets, the new online menu product.

david: you cover this bank what is going on with the stock? up 1.721.8. 1.7, 1.8. do not know when we have bank of america earnings yesterday. the stock bounced up and down off of nothing. sometimes, people want to see certain things. maybe they do not hear them right away. out of the gate first question, it may be will not continue rising. have been looking for something there and had been hoping maybe would say a little more. sure the fixed income rise and rally is actually a rally. , the ceo and cfo

of the organization, they did not provide a lot their user or provide them ensure -- assurance this is a going forward trend. >> very telling when it comes to describing this. 15 minutes into the call, the next question is about retail side. what does that say? >> a good point. it is very institutional, we deal with the best of the best clients. securities. you now see them diversify. really strong in giving advice and now we see them become a lending club and go hunt out

to a consumers similarly regional banks like bank of america and citigroup and jpmorgan. start toeen goldman diversify and act more like a bank. the first question on markets was about reputational risk. start to diversify and act more like a bank. how they might suffer similarly to lending club. >> a great point. going forward, what do you expect to be the most pressing point. >> one of the biggest questions will probably of it -- probably be about expenses. noticing some things there. 14%man usually puts around for comp related things. you get a certain amount of the pie of pockets.

analysts will ask about expenses. with a lot of revenue coming in, that is great but it means you have to pay people more in terms of bonuses. how much you can keep them down. >> one of the top trending stories at the moment, saudi arabia proposed rates according to people familiar with the matter. let's take the 10 year rate as an example. 185 basis points over treasuries. it was 150 over treasuries. a lower treasury rating but the me aboutions, tell crude, we do not want to talk about crude. maybe it is in the price. issuecohen is it a credit

or were they just a little late? if they came earlier, would it be better? >> maybe they should have come earlier. >> not to mention, overall issuance for those as well. $50 billion per year? >> up almost 12 points on the s&p 500. the handle very briefly. that is it from us. bloomberg markets is up next from new york. this is bloomberg. ♪

matt: i am matt miller in for vonnie quinn. mark: i am mark barton.

welcome to bloomberg markets. ♪ matt: we will take it from new york to london and cover stories out of washington and dubai in the next hour. goldman sachs joins the party banks,ll street fourth-quarter profit. we will bring you updates. >> we will talk about the rise of low fee index investing. a trend the company started 40 years ago. they manage more than $3.8 trillion in assets. matt: the price guidance for the debut of international bonds. we will examine the demand as the kingdom looks to bridge a budget deficit