>> a surprise return to profit as trading jumps and costs drop. bonds grew largely profit jumped 35% on fixed income trading revenues and a post referendum reading third quarter g.d.p. comes at 9:30 here. will the numbers be enough to stay another cut? just expecting a decision. and as expected its kept its key rate unchange.

widely forecast by 28 out of 29 analysts by bloomberg policy makers back in september scrapping plans for further rate cuts amid signs the nation was withstanding the slump in oil prices and inflation remaining above target. 2.9% sweden earlier keeping rates unchanged leaving the door open for further stimulus in 2017. that is the big headline. norway central bank maintaining the key rate. let's look at what's happening across the assets. the stocks were earlier. it suffered earlier. down. worst stretch from september well over a month. ahead of the all-important g.d.p. data in roughly 29 minutes time. it bottomed at 120, 123. thast the lowest since may

1985. the ten-year yield is little change. yesterday it rose to the highest since june 23. up from 51 bases points on august 8. the lowest boosting expectations and moving to expectations of inflation. what a good time to look at the break-even. the almost highest level in three years. risen 2.3% pre-referendum. this is one of my favorite charts of the day. 4, 5, 6, . basically what it's showing you is developed nation exchange rates holding steady against the fed dollar index is the blue line. this is a very uncommon trading pattern showing the rally in the green back in the last couple of years. the merging markets currency

index little changed over the laves months. the feds reserved the dollar versus several major curnsies. we love charts but they're uncommon. that's our favorite. >> thank you so much. volkswagen has said it expects 2016 profit to be at the upper end. the company forecast is offering return on still before special items to be at the high end in the range of 5-6%. growth in china helped the auto maker weather the fallout from scandal.ions holders of sam sung, the heir apparent of the group controlling family that came tazz electronics division reported a 70% slump in third

quarter product after the demise of its note into disarray. global banks will probably lose their current legal rights after brexit. in the most detailed outline yet of the government's thinking, mark garn yea told bloomberg they're trying to create a new model for single market access. donald trump used the official opening of his new hotel in washington, d.c. to insist he will win the election. . in an interview with bloomberg the canned dated said he was winning or gaining ground in key battleground states. >> i think we're winning iowa, ohio. i think we're winning florida. i think we're winning florida actually by much more than your poll says. you have us 2.7.

i think we're going to do fantastically in north carolina. i think we're soon winning new hampshire. >> new poll says you're closer. >> when i go there, people say look it's jobs. it's fix our military. it's take care of our vets. it's don't let the world take advantage of us. i don't know if i'm a great messenger but the message is absolutely the right message. >> you're going to get 270-something electoral votes? >> i think we're going to win. >> news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. >> thanks. deutsche bank shares are up following a surprise return to profit after weeks of bad news around negotiations over u.s. department of justice settlement. good morning. what drove the beat today? >> there seems to be a pickup

like we saw the u.s. competitors in debt training. we saw revenue rise, profit rather than a loss. ore capital ratio improving. again. better than had been expected. but i think the cloud in the midst of this silver lining is the issues that litigation costs and restructuring costs was reduce. that's what so many are saying has been helping these numbers today. they could run past this. we see once again litigation cost with the all-important department of justice find yet to come. interesting they set more money aside for that. but there's key take aways. remember, 49% increase in revenue in the stumplet just 10% increase in deutsche. still not performing as well as the competitors mark. >> the elephant in the room. what was the news on that

front? >> frustration. he said the chief executive, i'm not in control of the timetable. he says he wants these issues tied up by the end of the year. notably they set aside more in terms of litigation costs. many feeling if there's anything more than 6 billion euro fine coming from the united states, that would call capital strength into question. that potentially would be more capital raising to come. not a question of if, it's a question of when. remember, that has not gone into effect yet. they haven't yet settled with the department of justice. some really interesting lines coming out of the ceo. infuriating, he says it is, the leak and journalist reports as to the negotiations. sorry, we're just doing our job. but they are really talking about the timetable not being in their control.

and the negative issues, the negative perception have hit volumes. in particular 5 billion euros can add up. the cause of the turbulence that surrounded deutsche bank. only three analyst sace buy this stock at the moment out of 36. >> thanks for joining us. more good news on the banking process. bar clay's reporting a 35% jump in profit. chief executeive daley spoke -- impact pact of of brexit. >> we'll do what we need to stay engaged. we're looking at those alternatives. we're in the very beginning of a long road to negotiate the impact between the united kingdom and the european union. we'll look at whatever alternative wes need to pursue.

our intent and desire is to stay fully invested in london and the u.k. we are a british bank. there's a lot of cap dal in u.k. which is put to work in the european union. we would hope, as the brexit negotiations go forth, that the politicians and the regulators keep up the free flow of capital and continue to allow participants in europe to have access to -- participants in the u.k. to have access in europe, to help europe grow. >> he helps oversee 344 billion pounds. thanks for joining us. has the negativity, the bearish sentiment towards the european banking industry hit its lows, do you think? >> that's a difficult question to answer. possibly but maybe not.

i would say clearly deutsche bank and a number of the european banks need more capital and it really is a function and question how they get that capital and what they do with it in terms of repairing their balance sheets and putting their businesses back on an even keel. it's a fragile business and confidence business. banks right now, especially deutsche bank, is a pretty wounded animal. . we had the big plunge we've recouped losses thanks in part to the return to the share price. we're still down 16% for the year. the second worst performing industry group. which led me to that question, have we seen the lows, the 2011 low ors could we go back to those sorts of lows we saw post brexit? >> the really challenging job

comes in two ways. first many of the banks need more capital, secondly the interest rate environment is not one to cl deucive to them making the profits. could we have seen the worst? possibly. does the future look rosy? i don't think so. the interest rate will be with us for a while. >> the negative rate has seen its day. do you see the sense that central banks won't push negative rates any lower? >> i think there's a sense that the current cure for the world's travails is doing as much damage as the illness. certainly the low interest rate environment in terms of what it means in confidence, fention fund liblets, company profits, there's a lot of -- you could argue it's now doing as much damage as good. for that reason there's a lot

of vested interest in thinking about what fiscal measures might be introduced. the problem is the world is very much indebted. maybe in japan we will see this. japan is a little under itself and in many respects is pretty self-determining. but i think in many places the level of net debt to g.d.p. that we see is going to be a hindrance in terms of fiscal expansion. stay with us.s, including our interview with the ifm. brexit boom or bust. we break down those u.k. g.d.p. figures. plus deutsche bank, bar klays. e'll break down the figures. this is bloomberg.

>> mark, thank you. deutsche bank has reported an unexpected third quarter profit on lower than estimated restructuring costs. 256 million euros compared to 394 million loss. the ceo has cut jobs suspended dividend and sold assets to shore up profitability and capital,. bloomberg customers can cover all the deutsche bank news. barclays has said profit rose 35% in the third quarter.

pretax profit climbed to 837 million pounds as revenue from fixed income trading surged to the highest in more than two years. that may help ceo convince investors keeping an investment bank. an unexpected loss amid lower energy prices. the first of the major oil companies to report thirt-quarter earnings said the adjusted loss which excludes financial and other items was $261 million. that missed estimates of a 136 million profit. >> thanks. christine said a move by the federal reserve is a positive for the global economy. and there was such a hike

presumably very gradual, phased in and well communicated as chairman yellen has indicated, it would mean that the u.s. economy is faring better. it would mean that employment is higher, inflation is picking up a little bit. and those are strong positives for the global economy. reaching the limits of central bank monetary policy effectiveness? >> it kind of feels like it. absolutely. i think that the problem we ave is that in terms of g.d.p. growth to pick up, if the central bank is signaling that things are looking quite gloomy, in terms of confidence and activity, i think a gentle rise in interest particularly in the u.s. is going to be a helpful thing. >> can the world withstand it?

>> we've known about it for quite some time. unemployment is relatively low. growth is modest. and inflation is modest. but the financial system is in good shape. it has been well signaled. yes, i think we can withstand a gentle -- and i emphasize the rise.entle -- >> the talk has been put to bed you're crying out for fiscal measures though. are governments listening? >> i think they're calling out for fiscal measures. the problem is it's getting a political consensus amongst 27 different nations. if you took germany out of the equation it would be a more straightforward set of decisions but there is significant opposition in germany to ending the austerity program. and absent that, they've got to have an extensive set of interventions in the market to keep the system going forward. >> how long does it continue

for? is tapering even on the cards in the latter part of 2017? >> well, possibly. but i think ecb is going to be very involved in financial market force a very long time. the financial system in europe is much more fragile than in north america. unemployment is still relatively high in many parts of the europe. growth is pretty flat. so i think the requirement for them to keep the system moving forward is much greater. >> the idea of the ecb targeting the yields curve, is that something that should be considered? >> i think that would be a positive development. the conflict that we have in terms of wanting the economy to grow but having an interest rate environment that is not conducive at all is something they're very, very cognizant of. and a steep yield curve would be one of the ways to get around that. but it's not easy to engineer

but i think it would be a positive thing. > back to that in a bit. up next investing in a world of low growth, low inflation, and low rates. we've got mark burgess' take. this is bloomberg.

>> low growth, low inflation, low rates. mark is still here. global head of equities at columbia. thread the needle investment.

low growth, low rates, low inflation. what does that mean for investing? >> i think it means investors continuing to need to seek out a yield. i think global markets are going to continue to not do the job they've done traditionally in providing a return. so it means a relatively conducive environment for credit and equities probably trade higher than you think they would. >> where's the surge for yield taking you to places that maybe five ten years ago you wouldn't have dreamed you would go? >> interestingly, maybe right now in the short term one of the things that we think of quite attractive again is is is u.k. commercial property. you saw a lot of suspension post brexit. but if ten-year yield and property yields you more. even if there's less international demand for u.k.

property that's still a relatively attractive rurp. > how is it going to play out? for all asset classes here. >> difficult to tell. certainly the move in sterling has made the u.k. a relatively place to come on holiday and go shopping. certainly some of the companies exposed to that have announced that they've seen an uptick in tourism related trading recently. it really does depend on the nature of the relationship with europe that we have and that unattractive ly place but it is a possibility. for financial services and for many international businesses that have headquartered in the u.k. took sess the single market we could potentially become quite an unattractive place to do business. >> the plan a.

>> clearly they've got a big incentive to negotiate hard for that not to be the outcome. and we're an important export market for europe and consume a lot of goods and services manufactured in europe. so there is an incentive for both parties to negotiate the right outcome. but the difficulty the europeans have is clearly not encouraging other european countries to do what we've done because the european system is relatively fragile. and were we to get a lead vote from a constituency of the e.u. that would be bad for them. >> u.k. g.d.p. next.

>> let's take a look at sterling. e akate numbers. -- await the numbers. little change against the

dollar. off the 1985 lows of earlier this month which is just about 120. this is the biggest piece of economic data since brexit. since the day after. a bit of a surprise to the upside. the economy grew by 0.5% in the third quarter. that is a surprise. less. ectations were third quarter production fell 0.4%. little signs so says the office for national statistics of a pronounced brexit effect. there you go. the economy continues to surprise, growing by 0.5% driven by continued resilience in the services industry.

offsetting declines to construction and production. let's talk more about this. chief economist at the cbi here. marge burgess of columbia thread the needle is still with us. >> it is higher than we were expecting but on one hand i'm not that surprised because when we've been talking to our members we've seen quite a lot of resilience in the economy. certainly in terms of the british consumer. they're carrying on regardless. we've seen strong retail sales. also in consumer services. so i think that does underpin the services. even in manufacturing our surveys have been suggesting stronger growth related to how the pound is helping exposhts than the official data suggests. but i think it's too early to read in what is the impact of brexit. it's far too early to make any

sort of judgments. >> too early to make an assessment? it's stronger and the 15th straight quarter of growth. >> we've got the best of both worlds. that's not going to pertain in the medium term because we're going to leave the e.u. right now interest rates are low. we've seen cuts. consumers are in good shape. anything made in the u.k. has become more competitive. we've become a cheaper place to come shopping. but we still have all the benefits of being part of the single market. that's not going to last. >> 0.7 was the previous quarter. the economy is slowing. where do we go from here? i know your official forecasts are coming out soon. give us a sense of where the economy is heading in coming quarters. >> i think this picture of resilience will continue. but what we're concerned about is growth next year and particularly in the second half

of next year. and it's investment where we have real concerns. businesses are still operating in a fog of uncertainty. so while they're meeting current high demand and capacity they're not really investing for the future as they would do normally. and i think in particular that's where there's a real role for the chancellor when he stands up at the opening statement to do measures to kick-start investment, to look at raising the allowance for a couple of years. and more generally investing across our infrastructure to drive growth across the regions. >> and you would like him to move forward with 425 billion pounds of proposed infrastructure projects. it's a massive statement. isn't it? >> so yes. it's a big moment for the chancellor. it really will be him setting out his economic vision. and we would like to see an extra 6 billion pounds of investment particularly in connecting our great cities across the north.

looking at improving congestion around the midland cities. and also having a plan on providing affordable homes for rent. we think there's a real effort he could put in to sort of kick-starting our investment infrastructure particularly with interest rates at rock bottom. that's a real opportunity. >> something you were calling out for earlier. >> absolutely. why wouldn't you be borrowing long-term money to invest nment economy? >> but a lot of these projects take a while to reap that fruit. what projects can reap the rewards quickly? >> i think -- one small measure is local growth. they could double the funding available for that. most of the bids have been over five times. that would be a simple measure the government could do now to get some more and targeted government spending around our great cities and at the

regional level. so we think there really are things the government could do now. obviously it's great we've had a decision on heath row but it would be good to have some start and completion dates for some of the infrastructure that is are already on the plans to improving down to lands end saying this is when we're going to start and when we're going to finish. that will give the confidence to businesses. >> how much room does the chancellor have? there's no splurge. there's not that much room. how much room for a mini splurge do we have? >> i think it's certainly sensible that the chancellor has moved away from osborne's surplus target. not in the current environment. so what we want to see is balancing the books over the cycle, a long-term commitment to sustainable public finances. ithin that there's growth to

step up and have more particularly spending on public sector investment. >> to today's 0.5% growth rate does it put to bed any notion they'll cut rates further next week? fore today 70% we surveyed said a cut. is that dead in the water? >> i think there is. there's a ground sweling of opinion certainly not least amongst the government that the interest environment we have is doing as much damage as it is doing good. it's ballooning pension fund deficits. putting pressure on corporate profits. and snding a signal to the economy that we're in trouble. and that's not a signal they want to be sending. >> this is a chart. white is services. blue is construction. g.d.p. is the red line that goes across. and household consumption is the purple line.

it shows how reliant this economy is on services and household consumption with the weak sterling boosting inflation, boosting expectation. does real pay being squeezed, is that going to hurt consumption? is that going to hurt the services sector going forward? >> so i think we do have some concerns about how the great british consumer will react in the spring, particularly when we do start to see a pickup in overall inflation. we know that's coming down the track. we know from our manufacturers that while they're feeling competitive in their exports around the world, what they are starting to see is rising imports costs. so i think when we see rising inflation, while job creation is still strong that could really put pressure on some of the household side of it. >> the businesses that you represent, how much are they willing to take on the price hikes themselves and how much do you think they're going to

pass it on to the consumers? >> i think one of the real issues is in the retail sectors. margins are really thin. that's big volume but thin margin business. it's very competitive. it's very hard for some of these businesses to just absorb the cost on their margins. so i think we will see more inflation passing through the retail sector. >> for the time being. >> i think we could see another move in interest rates. and while i think we need to see fiscal policy stepping up to the mark, i think the lower interest rates still has a big impact on lower costs of borrowing for working capital, for businesses, and also households. it means lower mortgage costs. that will help to support the economy. so while it creates real challenges and we would like to see the pension regulator look at some of the issues around

how we value pension deaf sits and the discount rates we use i still think more action by the banks of england will help support the economy overall. >> sterling down. back in 58 we went to 105. buzz sterling go as low as 105? >> i don't think so. >> how much lower do we go? >> i think it's possible it could dip below but what matters more importantly is what we see happening from the government and we need more certainty around what will be our relationship with the e u. we really need to tackle the uncertainty out there and get businesses investing for the future. >> thanks for joining us. mark, global head of equities at columbia. thread needle investment. stay with surveillance. plenty coming up including the

banks this morning. all coming above east maggets. we discuss with christopher wheeler and bring you imf chief. her take. then earnings bonanza. all reports today. we bring in the corporate stories to watch. and the pound stronger against the dollar in the wake of that g.d.p. we discuss the post referendum economy. coming up in the next hour. this is bloomberg.

>> let's get to the news. >> volkswagen has said it expects 2016 profit to be at

the upper end of its target rate. the company forecast its operating rate on sales, to be at the high end of 5-6%. the growth in china helped the auto maker weather the fallout from the emissions cheating scandal which is sapping profitability. shareholders of samsung electronics have elected the 48-year-old heir apparent of the group controlling family that came as the division reported a 17% slump in third quarter profit after the demise f its fire-prone note 7. threw them into disarray. donald trump used the official opening of his new hotel in washington, d.c. to insist he will win the election in two weeks time despite sagging poll numbers. the republican presidential candidate said he was winning or gaining ground in key

battleground states. >> i think we're winning iowa, i think we're winning ohio. so do you. i think we're winning florida. i think we're winning florida actually by much more than your poll says. i think we're going to do fadgetsically in pennsylvania. i think we're winning north carolina. i think we will soon be winning new hampshire. we're going up there. >> new poll today says you're closer. >> when i go there people say, look, it's jobs, it's fix our military, take care of our vets. it's don't let the world take advantage of us. i don't know if i'm a great messenger but the message is absolutely the right message. you're going to get 270-something electoral votes? >> i think we're going to win. this is bloomberg. >> thanks. it was a week for banks today.

arclays coming in ahead. the imf leader christine la guard said she's optimistic saying supervision and increased capital positions are reassuring. >> the banking sector has gone through a lot of improvement in the last few years. and significantly strengthened its capital position as it indicated by most banks. as far as the systemic -- internationally systemic banks are concerned they are under much stronger and more systemic , if i may the -- use the analogy of words, supervision by the authorities. i think it's certainly a reassurance tot markets. are you as reasshured about

capital levels? >> i'm not totally convinced. clearly i spend a lot of time following the u.s. banks which are considerably stronger at the moment than the europeans. you can say they're at about 6% common tier 1. that's not too bad. the problem is for deutsche in particular what could come down the road that could damage that >> how big will it be? what's your worst case scenario? >> i have to assume it's 14 billion. but one also must assume that this will be negotiated down. they took another 500 million today. that just shows you the difficulties for the -- of what they feel they can give a thumbs up to. suggests they're a long way

from a settlement. >> when do we get the sementment? >> most people are saying we should get it over with. get the overhang away. the longer he plays it out the stronger his capital becomes and that enables him to take a hit without having to go back to shareholders. i'm sure they would not want to see. >> this chart is 4, 5, 1, 2. the litigation doesn't end here . does it? >> if we get a horrible number from the d.o.j. is fresh capital raising plan inevitable? >> once you go beyond the 5 or 6 billion additional, they provided 5.9 billion but that's not all against the d.o.j.'s mortgage-backed securities. but if it goes back an

additional 5 they'll run into difficulty. there's been a lot of talk about lining up middle eastern share holder investors. but preemption rights are in germany. so it's not easy to raise that from third parties. a lot of shareholders would say we would like a bit of that. >> what damage sentiment would the entire banking industry, would a high d.o.j. settlement figure be? let's say we're closer to 14 than we are 5 or 6. what damage does that do to sentiment within the european banking industries? >> the issue we face is a complete conflict of interest so we need credit formation in europe to help pay down the debt that we've got to reduce unemployment. but we keep getting these negative things thrown at the banks which is more capital required and more regulation and compliance, which just

reduces the equity. the interest rate environment again diminishing the environment. and fines and provisions they have to make. that upsets their ability to facilitate economic growth. there would be additional bad things. >> let's be positive because barclays was positive on the earnings front. we had a surprise profit. are they making good progress on restructuring? >> they made about 2.2% tangible return. barclay's made 3%. however, if they slip out ppi it's close to 10%. that's good news. the really good news is just look at their u.k. retail business. 21%. the car business 15. deutsche would love to have some of those really low bust businesses on which they could have their much more volatile investment banking platform. that's what investors would like. that's what they would like.

if i look at their retail bank it earned a few percentage points with an 85% cost ratio. i think barclay's is 49. >> has their fixed income trading surged the highest. >> the big debate i've had with some of your colleagues over the last couple of weeks is will we see really poor figures baw the u.s. banks have taken is if share my feeling you have a really big footprint you will share when market combs prove as they did. -- improve. look at the 600 gaveragee index. for 2016. a couple of weeks ago -- a month or so ago it was down by 36%. year down by 16%. some of these italian lenders have been absolutely -- have deutsche down by 40%. it's it's still up from its

post brement lows. have we seen the lows for deutsche bank? >> that depends on the settlement with the d.o.j. but if we can keep dragging that on people are sitting there saying -- they just talked about we had deposits 9 billion. their deposit base is almost 900 billion. their liquidity went down but it's got a big balance sheet and strong elements to its balance sheet. unfortunately capital isn't one of those. >> who are the attractive european lenders right now? >> it's become a difficult situation because the issue in the u.k. where we could have said lloyd's is a nice clean bank. but since brexit people are woried about what's going to happen. we look back at the chart here. the scandinavians are quite popular. the french banks are perhaps in bter shape.

it's still a bit of a lot. the u.s. banks which i look at closely look particularly strong. >> are there any that jump out at you? >> i think it's an industry you can afford to avoid. > well said from mark burgess. thank you as well kris fer. -- christopher. he will join guy and tom at the top of the hour as well. up next. has the setoff in the world's biggest bull market come to an end? we'll have that for you next. this is bloomberg.

>> mark burgess is here. final thoughts, mark? what's troubling you? >> i think the outlook for global growth is still one where we have a great deal of uncertainty. china continues to grow its net debt to g.d.p. the economy has been calmer and better behaved in the last few months but we're seeing a gentle depreciation of the currency which has the potential to upset markets. the growth outlook looks a bit

anemic. qe looks like its run its course. do we have to accept the fact that it's going to be a long grind that we find ourselves in? i suspect that's where we're at. >> thanks for joining us. thread the needle. investment. bloomberg surveillance continues in the next hour. guy takes over in london, tom in new york. they kick off today's conversation. black rock's global chief investment strategy. this is bloomberg.

with quietorning markets awaiting central-bank action, brexit is the gift that

keeps on giving. the united kingdom, their economic growth and surprises. john cryan delivers. self-doubt. it is out. mr. trump marches forward to the first tuesday of november. this is bloomberg "surveillance ," live from new york. anna edwards is better looking than guy johnson, and for francine, guy johnson. i would not get so excited just yet. the expectation, the u.k. economy is incredibly hard to predict and it seems that a portion of the population that brexit means nothing to them.

tom: it was the marginal bowtie purchase the tilted it stronger this quarter. no question about that viewed let's go with more on the united kingdom gdp report. economythe british overcame concerns about the brexit vote and grew faster in the third quarter than forecast. gdp rose one half of 1%. services offset declines in construction and production. the european union still has not been able to break the internal deadlock over a trade deal with canada. justin trudeau canceled today's planned trip to brussels. more talks are scheduled today. belgium's french-speaking region continues to oppose the accord and lawmakers are concerned about the impact on jobs and consumer standards.

islamic state forces are using drones in the battle for iraq's second-largest city. in iraqiants surveyed and u.s. positions and dropped explosive devices. they asked congress for $30 million to fight enemy drones. the democratic party has taken republicans to the court for voter intimidation. the democrats say they are intended to discourage minorities from voting. republicans call the lawsuit meritless. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: let's get through this quickly. we want to get to deutsche bank and then i surprise there. turn to the market, euro stronger and oil under $50 a barrel in the united states,

yields elevated. the vix, two year yield migrates higher. sterling surged a bit ago. guy: let's take a look at some of those assets in a little bit more detail. fascinating,e is 1.2224, pretty much round-trip over the last few minutes. overarkets are rolling trading down 3/10 of 1% over the last 20 minutes. they faded back. deutsche bank negative. barclays, a really choppy session. it has been up nicely and faded a bit and now it is bouncing back up, but those code -- those two banks are front and center. ,om: let me go to the bloomberg gdp number for the united states tomorrow. this is a great chart back a the 10nk of years, 1997,

year average of real gdp is the green line. the recent lethargy wrapped so much in the election and the next statistic, the survey 2.5%. there is a huge divide of whether that green circle is sustainable into the future. donehave the swedish enough in terms of pushing up inflation? what me take you what is happening. earlier on ahead news from the riksbank that it hit the inflation target. inflation has been rising and we heard from the riksbank saying, we stand by to do more stimulus and believe we are not going to be raising rates until early 20 18th. an answer to the question set by this chart, yes, it is working but potentially there is more to come. let's talk about the banks. barclays and deutsche bank those coming in above estimates.

we are back with christopher atlantic equities and richard turn hell -- turn on -- turnill. was this actually just legal provisions and nothing else that provided us beat? >> people were thinking it could be as high as 1.6 but they made a small profit. the second thing is fixed income , this is important for john cryan because i have been on here saying the most important thing for him is to make sure he does not lose his revenue streams. these numbers show he is holding on. the most disappointing thing was when he talked about clients potentially getting nervous. go, very hardhey

to get back and this is the bedrock on which businesses are built. how nervous are they? there were quotes from german clients saying, we value deutsche bank. it is still in massively important institution but you are right. getting them back is always really tough. tom: i want to bring back this chart. it is a point of discussion. let me start with you, christopher wheeler. and fromhe u.s. banks the beginning of the crisis, boy, have they done better than the european banks. is this outperformance by the american banks or just massive underperformance by the european banks? christopher: i think it is a combination of both because clearly the u.s. banks are not still particularly highly

valued, but undoubtedly the european banks have suffered because their capital position, their leverage position and liquidity positions have all been weaker and took longer to recover. the u.s. banks are turning a lot of capital to shareholders, whereas -- i should say despite ' capitalgoldman sachs has gone up from $21 billion to $75 billion. it just shows how much more strongly the u.s. banks are. tom: richard, help me here. i do not want to get you in trouble with general counsel at black rock, but what does european banking need to do to narrow that gap on that chart? richard: when you look at that widening gap, those jaws that have been opening up, the driving forces behind those remain in place and they are long-term. let's start with the economic

environment, much lower growth, real and nominal in europe than the united states, and much lower interest rates, and negative interest rate environment is crippling for the models of many of the banks in europe. we have low interest rates but not as low in the u.s. further, actions taken as far as cost-cutting where european banks are lagging. we are seeing some encouraging signs that ballot sheets are being repaired, but is a huge way to go. and you compare europe to the u.s., there are long-term headwinds. guy: let's talk about what is happening with barclays, the ceo speaking earlier to manus cranny about the impact of brexit on his business. >> we will do what is necessary to stay engaged in europe. we are looking at what those alternatives are. i think we are in the very beginning of a long road to between thee impact

united kingdom and european union on the back of brexit. barclays is going to look at whatever alternatives we need to pursue. our intent and desire is to stay fully invested in london and in the u.k. we are a british bank. benefiting quite nicely from some of the trends in the united states with that x lehman business. jes staley has got a bank that is functioning and there are many that say he should ditch it and do something else, but q3 delivered. is it a blitz or is it ortainable -- is it a blip is it sustainable? christopher: all of that has benefited them in terms of their activity. what we're hearing is that october was as good as the third quarter, that is what the ceos

of the u.s. banks have been saying. that is quite encouraging and hopefully we have a situation where most of these fixed income businesses have been right sized. we have lost the fluff from before the crisis and now it is where the wetter industry is -- whether industry is engaged. we start to see the equity capital markets pick up in terms of new issuance because that has been very slow for five quarters. out, is sterling depreciation the drug of last resort for the united kingdom? the way we are going to go is to migrate trade weighted sterling down to that red circle? richard: part of the reason the u.k. economy has held up better than most people expected is you have seen a reaction both from the central bank and in the currency market, which is hugely beneficial to the broader u.k. economy but also in particular

to the stock market. earningsto 80% of the of the u.k. come from overseas and they still have a huge account deficit. sterling is likely to remain under pressure and at low levels for some time, but that is good news and that will help keep the u.k. economy growing but it will still be a very slow pace. tom: it is wonderful to have both of you with us this morning , the news flow interesting even though the markets are quiet. we will drive forward the discussion on austerity. david blanche flour from dartmouth -- from dartmouth college joins us. this is bloomberg. ♪

guy: i am guy johnson in london,

tom keene in new york. here is the bloomberg business flash. taylor: deutsche bank has posted a surprise profit for the third quarter. fixed income trading revenue was 14% higher than expected. litigation and restructuring costs were lower than forecast. is negotiating to lower the u.s. justice department's request to pay $14 billion to settle a mortgage bond investigation. south facing a credit downgrade facing tax revenue and demand by students to get rid of university fees. the finance ministers says his first priority is growth. he spoke with bloomberg. >> we have done the homework. we have told the country frankly if we do not do anything, you could end up in a lower growth scenario with worse consequences

for expenditure and so on. taylor: south africa has cut its growth forecast for the past three years due to soft commodity prices, sluggish demand, and a severe drought. nill,with us, richard tur and we are thrilled to bring you mr. wheeler of atlantic equities. linkages filter in the of the united kingdom and deutsche bank with the big london platform. all of that runs around flow of currency. let's go back to first principles. bring us a chart we brought the morning of brexit. the purple line is goods and services deficit in the united kingdom and down we go, that money flow is quite extraordinary to see this movement down. the real issue is not so much where the current account deficit is, but the length of

time that we are going to see a chronic deficit. what is your estimate of that? richard: we think we are going to see continued downward pressure on sterling for years, not just because that deficit is likely to persist but foreign capital flows into the u.k. is likely to be slower for some time as a result of the prolonged process of negotiating brexit. we would not view that fall in sterling as a short-term correction. we view it as very fundamentally driven, really reflecting the the u.k. economy and that large current account deficit. tom: what it really comes down is the idea that if london get sterling depreciation, his london this cheapest city on the planet for bankers? is it the place to be? christopher: i think the problem with that as we go back to the problem of passporting. james gorman of morgan stanley

was saying the problems of brexit and maybe having to move his headquarters. jes staley was saying we will have to do whatever to serve clients, and that is what jamie dimon is saying as well. that is the big question. are certainly big benefits to what is happening with sterling but then there is passporting. tom: it is a different world with deutsche bank's call of a 1.15 pound sterling. it is a different london. guy: the question is, is it sustainable? has the pound gone as far as it will go or is it going to go to those 1.15 levels? there are certain people in the market, and i was talking to an investor this morning saying the current account is going to be something that closes quite quickly probably because if you look at foreign investments and flows you could see this spinning around. playing the doom

story when it comes to the current account deficit? richard: i do not think it is a doom story. the current a doubt -- account deficit is large. the question is how do you find it? if you are seeing a reduction in capital flows that will force a closing of that account deficit over time. it does not fit the doom scenarios that it is forced to withdrawnapital being by a very hard landing in the u.k. economy. that is not happening. that is the opposite. , what youe positive hope for the gradual closing in an environment where sterling remains relatively stable at these levels. you do not get a broad level of -- loss of confidence and i do not view 1.22 as a loss of confidence but a move to a reasonable valuation. tom: christopher wheeler, thank

you so much for your time. i want you to explain the moves that john cryan has to make to the end of the year. certainly he has good news this morning, no question about that. has, whatgh road he is the immediate to do list for him? christopher: i think two or three things. the first one he has touched on in his letter to employees and comments, to make sure his people stay close to the clients and make sure they do not see a lot of clients leaving the bank. that is really important. the second thing is the continued restructuring. horizon.losses on the he is going to have to keep thi nning down there incredibly high cost ratio, and he has to decide about the department of justice. he might drag his feet so he can

afford a bigger fine. tom: thank you, christopher wheeler. coming up at 7:00 a.m. on daybreak, mark fields will join from ford motor company. from london and new york, this is bloomberg. ♪

guy: i am guy johnson in london, tom keene in new york. christine lagarde speaking in riyadh a little bit earlier on

about u.s. rates. andf there was such a hike presumably, very gradual phased in and well communicated as chair yellen has indicated, it would mean that the u.s. economy is faring better. employment isthat higher and inflation is gradually picking up. those are strong positives for the global economy. guy: christine lagarde speaking earlier. l still with us. the bloomberg is telling me a 72% chance of a rate hike in december. shouldn't it be higher? richard: i think it is probable you will get a rate hike in december and the reason rates are likely to go up is you are seeing for the first time in the cycle, reflation very pressures taking hold in the u.s. economy in terms of wage growth picking

up. you see this in terms of what is happening in energy prices with opec potentially starting to constrain supply. the main components of the cpi where the lower volatility and more stable components have been picking up. i think what is an encouraging trend, i would agree with your comments that we are starting to see this reflation very dynamic take hold and the probability of a rate hike is very high. tom: you have sweden suggesting a lot of delay until 2018. is it going to be one and done? richard: i think you have a radically different outlook between the united states and europe. we would expect it to be gradual . the pace of economic growth is still low so this is a low growth environment, but with some evidence that pricing is starting to return. that suggests a cautious fed raising rates gradually and europe is a different picture.

even lower growth environment going forward, though we are starting to see some pickup in inflation. uplation is starting to pick , but in almost all cases inflation remains well below target. or those reasons i think you are going to see very cautious european --s notes most european central banks going forward. tom: divergence is larger than 12 months ago. twitter in plans, the morning. twitter will announce later and on -- but, ken senna ever core. ♪

tom: good morning, everyone. ." we are "surveillance going to do u.k. gdp and a surprise, but what will we see in the coming quarters?

first to the bloomberg first word news. taylor: donald trump made a detour from his campaign to open his latest hotel at washington's old post office building. he told mark halperin how the hotel ties into his campaign. >> i was just trying to say that we built a great building. doldrums, out of the one of the great structures in the country and built it under budget and ahead of schedule, and to me that was very important because we cannot build a highway or a bridge or fix a tunnel. we are in such trouble. i am very happy with the way this all worked out. taylor: trump says that makes him the choice to revive what he called the broken federal government. defense secretary ash carter has defended -- suspended efforts to bonuses.recruitment

in spain, mariano rajoy is promising to make job creation the focus of his term although he is likely to lose a confidence vote in parliament today but is likely to take office on saturday. the socialists have agreed to sustain -- abstain, giving him the majority he needs. london-based banks will probably lose their so-called passporting rights once the u.k. leaves the european union according to the british trade minister. -- passporting allows them to sell their services anywhere in the single market, and one proposal would allow them to have equivalent rights if they accept e.u. regulations. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. guy: the u.k. government, bond

yields are higher since the brexit vote. investors are reassessing after third-quarter growth exceeded economists' estimates. wood andined by robert richard turnill still with us. website ande omf the statement is very clear, this is a continuation of the trends. why is there no brexit number? robert: it is a little odd given the roller coaster ride we have seen, given the elevated level of uncertainty, and given what we have seen in surveys from businesses which we know fell sharply and are running at depressed levels. it is something of a puzzle that growth held up. before today's release it was obvious it was going to be decent. i do not think it is a massive

surprise, at least for me, between today and yesterday, but it is a bit of a surprise given what we are hearing from businesses. i think what it does not tell us is where the u.k. is heading. from here on in we a whole load of bad news to come. trickling article 50, we have seen what speculation about that does. we know that sterling's fall will push up inflation sharply and that will hurt real incomes and squeeze inflation. guy: do i revise my number up or down on the basis of this quarter? robert: i do not think it has any meaningful effect. what will be important is what we learn about business investment from within this third-quarter gdp. is there any evidence at all that businesses retrench? we know from surveys that business investment and tension slowed so it is important to see whether that is in the hard data are just sentiment. want toert, i

congratulate you on your research note. the basic idea, and you take from "game of thrones" there is a whole pervasive idea that winter is coming. you are leading the night watch and the basic idea of winter is coming, and it is a consumption slowdown. if i get a furtherance of ,terling weakness, down we go and the extrapolation is out to the middle of november. we get to a 1.20. if i break below that, what does that do to u.k. consumption? give me a statistic. robert: what we know about u.k. consumers is clear, they spend the money they have and if inflation goes up they are buying fewer goods. if sterling goes below 1.20 inflation will be north of 3% next year. so reale growing 2%

average earnings falling 1% year on year, a different backdrop for the retail sector and consumers as a whole. it will mean a big slowdown. tom: i would like to get both of your opinions on this. is night landing protected from this? is london protected from this u.k. slowdown you predict where are they in it with the rest of the island? robert: i think london faces some specific challenges with passporting which we heard just before this. that is one specific issue and another is that london has a large number of immigrants working in the u.k., and they may also feel concerned about developments. they are in any way shielded from this. what tends to happen is when inflation picks up it hurts those the most who spend their

money on food and petrol. tom: is there going to be such an inflow of money into london that they are immune? london facesink the same headlines as the rest of the u.k., and i think london faces even larger headwinds given the challenges with the financial sector which is perhaps the most exposed to the potential consequences of bracket -- brexit. the u.k. data we have seen is consistent with the path is essentially global growth has held up much better than a consensus had expected over the last few months. it has been particularly evident in the u.k.. growth has come through reasonably robust so far. at the u.k., it is a similar path to the united states. growth has continued to grind along and some of the data has

been surprising positively. suggesting and improving level of corporate confidence. growth in japan holding up better than expected. the global economy is proving more resilient than many people anticipated for some time. the u.k. is another example of that. going forward with the exception of the u.k. for the reasons you have highlighted, we see some potential for positive growth surprises not because growth is particularly strong but because consensus expectations are too low. expectations are important in the mix. guy: i am curious about the sequencing. the service sector is very important in the united kingdom and we talk a lot about passporting. is it possible that other areas of the economy will get hit first?

as customs union strikes me one of those areas we do not spend a great deal talking about but could be important for those businesses that are part of global supply chains. if you are having to make decisions on supply chains you have to make those 18 to 24 months out and if you do not believe the u.k. will be part of the passporting you may start to think, british manufacturers are cheap into sterling but i cannot guarantee they will be part of my supply chain. wonder those decisions start to be made and could that be one of the first of evidence that we will see the global businesses take a different view? we have moved from the first phase of brexit worries to a big rise in uncertainty potentially leaving people to delay a lot of decisions. we are moving into the second forward, start to look what might change in a couple years time and how to i adjust my business and spending? have to face rising inflation.

when will it happen? it probably takes 12 to 24 months to start making changes. you might put investments on hold. one thing we know about finance is a can take a long time to set , where as other supply chains it might not be so long. i think over the next year to 18 months you increasingly start to feel this drag on investment. the deputy governor of the bank of england has spoken about this persistent drag of uncertainty and the likely future changes to the u.k. that will have. ,om: thank you so much, robert from bank of america merrill lynch. euro against sterling and euro against dollar. coming up, an interview with dan a blanche flower about his blanchfloweranny

about the urgency of jumpstarting so many of our economic systems. this is bloomberg. ♪

tom: good morning, everyone. guy johnson in for francine in london. i am tom keene in new york. she is in abu dhabi. tracy alloway joins us. my book of the year is kenneth rogoff, curse of cash. when he talks about early in the book is the coming euro swiss dollarsnd particularly

shortage. the stake is not coming and it is here and now. discuss. tracy: we basically had his colleague colin reinhardt picking it official. thats making it official the dollars shortage is here and we can see it in places like europe, egypt, venezuela. commodity prices have plunged since 2012 and that has created a foreign fx crunch in a lot of these economies. if you remember the high oil prices we did have, a lot of countries took advantage of those two big build war chests of u.s. dollars and dollar denominated assets. some went as far as to peg their currency to the u.s. dollar as in the uae and saudi arabia. when we have that foreign fx longer coming into the same extent that creates pressure on the peg.

in cases where we have a free floating exchange rate it creates start -- currency crashes. the dollar shortage is officially here. tom: saudi arabia is pegged to the u.s. dollar, right? how fragile is that? it is a huge deal when they break it. tracy: saudi arabia still has a huge buffer of u.s. dollar denominated assets so we cannot over dramatize the pressure on the peg just yet, but if you look at the derivatives market you can certainly see some speculation against that peg. the places where the dollar important, yout have to be looking at places like egypt where the gray market or parallel exchange rate has completely diverged from the official exchange rate, which is pegged to the u.s. dollar. reinhardt points out to egypt today and we also saw christine lagarde talking about egypt and

how the parallel currency rate has completely diverged from the official one. certainly we are seeing those pressures play out in the market. guy: tracy, one thing we have seen over the last months is a rise in the u.s. libor partly due to the u.s. money market. is this exacerbating the story, is this a different part of the story? how do they correlate? tracy: i am so glad you asked that question. reinhardt is talking about a dollar shortage in emerging market countries because of the lower commodity prices. the rise in libor that we have seen or the squeeze and cross currency basis swaps, that is helping -- happening in developed markets and that is a money reform that you have been talking about for a long time. money market funds that used to buy short-term dollar denominated paper issued by corporate or banks are no longer

is able to do so because of those reform efforts, and that is creating scarcity of dollars are institutions such as japanese banks who still have large operations in the u.s. it is really interesting, basically have a dollar shortage happening in a parallel shortage happening in emerging markets. guy: what does this say about -- does this say anything about the alternative currencies? we have seen the chinese but the euro as well, its credibility. does this speed to concern surrounding those? reinhardt points out that the last time we had a really pervasive dollar crunch was post-world war ii, and back then we solved it by instituting the marshall plan and basically donating dollars to war-torn countries. that is not going to happen in the best we can hope for is bilateral programs from

institutions like the imf. when it comes to alternative return currencies, you could make an argument that to have a stronger financial system, a less fragile financial system, the world could benefit for him having an alternative to the u.s. dollar. we have seen it play out in u.s. markets as well. people tend to get spooked about putsate hike because it pressure on emerging market currencies. alloway.y richard, what is the black rock call on the u.s. dollar? is it modest or could it be a brutal 2017? richard: it is a modest strengthening and many key reports were made in that last report. there is huge demand for dollars over time and we are increasingly seeing investors looking to buy u.s. assets unhedged because of the rising

costs have talked about. what has been really interesting in the past couple of months as many people saw concerns about fed rate hikes and concerns about rising dollar would be bad for emerging markets. they have done really well when the dollar has been strengthening and what it tells you is emerging markets can perform well as long as the dollar strength is associated with stronger economic growth associated with reflation globally. what you are seeing broadly is as interest rates are rising around the world, cyclical assets including emergence -- emerging markets are starting to perform. guy: the way that the dollar feeds into the story, does it feed back into the fed? richard: i think it is a modest tightening but it plays into a story that we are seeing unfolding around the world which is essentially that monetary policy has done as much as it can do to reflate the global

economy, and going forward if we are going to see further inflation that needs to come from the fiscal side. we are seeing evidence of that in the rhetoric from the united states. and the u.k. we are expecting an anti-austerity budget. it is starting to get that shift, that i think there is a high degree of skepticism on how much further policy nation's -- politicians can go to support fiscal policy. jon bon joviday, of new jersey, this will be difficult. he moves from runaway to living on a prayer. he faces the bad medicine of an interview with scarlet fu. ♪

tom: bloomberg "surveillance." up, a greater view on linking economics and finance. i am tom keene in new york, guy johnson in london. express has raised

$1.4 billion in the biggest ipo of the u.s. this year. the company gets most of its business from chinese e-commerce giant alibaba. they begin trading today on the new york stock exchange. surprising news from tesla. company reported an unexpected profit for the first time in two years. they also said they expected to get through the rest of the year without having to raise cash. they took in $139 million by selling zero emission credits to other automakers. that is your bloomberg business flash. guy: let's talk about, ratios of big banks. jes staley stove to manus cranny earlier this morning. getting ready for when profit returns. >> we are going to stay consistent with our current compensation policy.

we obviously want to pay for performance. need to be competitive but the bank has to generate the level of profitability that we are thinking. our ratio target is 60% for the group for the core business including the investment bank, we had 56%. we have got the right cost income ratio and as revenues do well that will give us the ability to invest in the business. guy: jes staley talking earlier on to manus cranny. you have got to get the cost income ratio right and get the business ready for when top line starts to come back. the big question is, when this top line start to come back? you are talking about a pickup in global growth, and improvement. richard: what we are seeing is ongoing very low global growth but a pickup in inflation so a shift from real growth to nominal growth, that is certainly good news for the banks.

as nominal growth picks up that typically allows interest rates to rise and it is a better environment for banks to make money. it is a more encouraging market for the u.s. banks and the have done more to cut costs. it is very important to bear in mind, we are still in an environment of very low growth by historic standards and very low interest rates, and a lot more to be done to cut costs to adjust to that environment which we think is long-lasting. tom: do we see a pickup in inflation or can it filter down to a lift in real gdp? richard: we are very clearly seeing a pickup in inflation in certain countries, particularly in the u.s. from a low base. we are seeing it in areas like in a or they have been deflationary environment for the last five years and we see producer prices moving back into positive territory.

that is starting to broaden amongst other areas. where we are not seeing signs of inflation is in europe. some evidence it is moving up modestly in some countries, but in all cases remains far below target. that is a big headwind matches for the banks that a big headwind in terms of corporate confidence, investment spending. there is real concern that central banks have run out of tools to reflate the economy. tom: richard, thank you so much. hour, seth masters will join us and professor blanche flower of dartmouth college. stay with us. this is bloomberg. ♪

brexit is arning,

gift, at least for now, that keeps on giving. u.k. growth that is stronger. deutsche bank surprises with profiteering and self-doubt. -- march forward to the first tuesday of november. -- marches forward to the first tuesday of november. guy johnson is in for francine lacqua. in the last hour, some real gloom forward on what will be economic growth in the u.k. question that a lot of people are asking themselves as the data comes in, does that mean that the pain is going to be greater than we first thought. they were predictions of armageddon, but are we still heading for a big bang in the u.k., and could it be more painful as a result of the fact

that it is being the word? thiswe will cover that in hour. here is taylor riggs. taylor: the british economy with concerns over the brexit vote. gross domestic product rose one half of 1%. -- 15 straight quarter of growth. the european union still has not been able to break the internal deadlock over a trade deal with canada. canada's prime minister canceled today's planned trip to brussels to sign an agreement. more talks are scheduled, today. region's french-speaking -- french-speaking region continues to oppose the accord. islamic state forces are using drones in the battle for iraq's second-largest city. the pentagon says the militants

use drones to survey iraqi and u.s. positions and drop explosive devices. for $20s asked congress million to fight enemy drones. in the u.s., the democrats have taken the republicans to court over voter intimidation, asking to block efforts by republicans to put so-called watchers at polling places, intended to discourage minorities from voting. , this news 24 hours a day is bloomberg. tom: let's get right through it and get on to our guest. barrel, a bit of a modest pullback in the last two days. sterling after a surge in the gdp. guy: i'm coming home for the

election, and i am looking forward to it. change, bank banking on european equities down by 2/10 of 1%. and over to the bloomberg we have gdp first look in the u.s., let's look at it right now. the green circle is the bloomberg survey, and there is what is and what was. the recent 10 year moving average is pretty moldy, going to mr. trump's talk of a 1% economy. guy: we were talking about inflation or the last -- in the last hour. blemishing what is happening with inflation in sweden. rates have come down, inflation has come up, but not enough to get us back to target. inflation is coming back in the riksbank signaling it may be

willing to do more on the stimulus front. say they will not raise rates until early 2018. we are thrilled to bring you david blanche flower, but seth masters is one of the true great holistic guys we have talked to, summing in everything and one of the psalms is the surprise of deutsche bank. our michael moore with bloomberg news. was this a surprise? of ael: it was a bit surprise and it was about what was not there, which was a major increase in the -- litigation reserves. some people thought they could be some news on that front, but it was a relatively quiet quarter. trading was better and they have continued to do some work on the

cost-cutting. all in all, a pretty -- pretty good news for the bank. tom: with the recovery from 11 euros a share, it is clearly a too big to fail bank. how will be german government massage the story forward? what will they do to assist a constructive work out? michael: there is nothing they can do at this point. it all comes down to that doj number is, what that and what that means for the capital position of the bank. deutsche bank investors got some good news in that the capital ratio continues to climb, up a ball up -- up above 11%. aat will help calm the nerves little bit, but they have to get that settlement done. tom: seth masters with us as well. european banking is a victim of not clearing their work like u.s. banking did.

--h a global soul down slowdown, will it be harder to do, or is it an excuse to get it done? seth: it is both. the question is how much of that is in the price? we have been pretty constructive on the financials in the u.s. were not as interested in financials in europe, partly because of the slow growth. at some point, they may become more interesting, that we have been careful for exactly this reason. it is not clear that they are completely out of the woods. guy: this is what christina had to say about the strength of europe's banks. >> they have gone through a lot of improvement in the last few years and have significantly strengthened its capital positions, as indicated by most banks. the systemic banks are under

much stronger and more systemic supervision by the authorities. i think it is a reassurance for the market. michael moore, if european banks are as stable as she makes them sound, why is the regulatory authority in the u.k. sending out notes to u.k. banks asking about their exposure to some of these international names? michael: that would be a consistent thing that they do to keep an eye on things. there have -- has certainly been some turbulence in the european banks and while they have built up their capital ratios, in the last year or so, they have done that largely through cutting back on dividends and doing things that shareholders are not big fans of.

in the u.s., we have gotten to a stable capital position and are able to. pay out higher dividends. european banks are still working toward that, and that leads to some volatility. guy: let me ask you a question from london, seth. john cryan set out a note with a couple of quotes from clients of deutsche bank. reiterating that those clients have a positive view of the institution. he was asked about client stickiness on the call. if you were a client of deutsche bank, how nervous would you be? every major financial institution has to maintain the confidence of its clients. he is saying the right kinds of things and i think every client has to assess who they are dealing with. itthe case of deutsche bank, is an organization that is viewed as too big to fail.

most of its clients are probably thinking about the fact that if there is a problem, it is not the next essential one, it is do you want to have an exposure which will raise other potential concerns. i think most clients are engaged in that kind of a risk management exercise. it does not mean they will necessarily cut all of their business off. tom: mr. masters, you addressed this in your note. the idea of gratuity paper. 50 year bonds, 60 year bonds, 70 year paper in austria. what does it signal, this desperation for maturity? seth: that is a great question. tom: my only good one, this week. seth: it says a couple of things. people have been monomaniacal he focused on deflation as the risk, and the idea of extending duration makes sense, if that is what you think. are much moreisks

symmetric or even tilted toward inflation. tom: and critically, you see price decline with an ever so slight janet yellen increasing yield. seth: that is going to be the big story of the next many years , as the balance of fear shifts from being afraid of deflation to being afraid of inflation. not only are these bonds basically pricing in a long-term trend that price stability or even deflation is the problem, think about this, italy just floated a 50 year bond and in december, so two months from now, they will have a constitutional referendum that may lead to some major changes in the structure of the italian faith. i don't understand how those things could possibly both be happening at the same time. it says something about the fact that the market is not necessarily believing that the problems exist.

tom: we heard this yesterday of deutsche bank. withg up, a conversation david blanche flower of dartmouth college. we talk about dartmouth football, hockey, maybe even the dartmouth bubble. ♪

a -- peopleet caught up on what they need to know. centralin norway, the bank has decided to keep the benchmark interest rate unchanged. the bank dropped its plans for more stimulus. oil prices are recovering and norway's market is heating up.

the central bank spoke to bloomberg. >> so far, the development in the economy, and the environment affecting -- has been more or with the picture we had in september and that was the backdrop for keeping the rate unchanged. taylor: norway has been able to avoid negative rates in the unconventional measures seen elsewhere. barclays reported third-quarter profits that rose 35%, beating estimates. the ceo has rejected calls to spin up the investment bank even after it posted lower returns. that is your bloomberg business flash. tom: megan murphy is dashing to the first tuesday of november,

trying to keep up with secretary clinton, trying to keep up with mr. trump. which state are you most focused on? floridae are looking at with a very tight race. florida is a must win state for mr. trump. he has so many must win states like north carolina and ohio and pennsylvania, new hampshire and nevada. tom: you look fantastically put together, this morning. let's go to a fantastic discussion. here is mr. trump. ohio, ie winning iowa, think we are winning florida by much more than your phone says. i then we are going to do fantastically in pennsylvania. i think we are winning north carolina. i think we will soon be winning new hampshire. >> a new poll shows you are close. >> very close.

jobs, etc.it is military, take care of our vets, don't let the world take advantage of us. i don't know if i am a great messenger, but the message is the right message. tom: mr. trump. help me out here, megan with the idea of a fantastically necessary turnout. what is the indication of turnout for the two candidates? megan: we have seen registration staying up and people being enthusiastic about voting early and they have the opportunity. what is interesting is it donald trump is talking about what he needs to get away with a victory. he needs unprecedented turnout, particularly from the voters who are behind him. if he can get those numbers up to 80%, or the high 70's, then we will have a race. in the way weout historically see turnout, the

race will not be that close. the race is getting closer in some of these swing states, but not close enough to really make this competitive on a national scale. guy: picking up on that point, and turnout is important, is there a danger that the democrats start to get to a thisacent place, you see with football teams were they get ahead in the first half, then lose it in the second half. i'm not talking about my football team were that never happens, but what democrats have been looking at his -- that is why they are using michelle obama and president obama and joe biden who have this power among people they need to turn out. they are mobilizing that base and what they have been trying to show is don't get complacent, there is democracy on the ballot and the only way this election will be rate is if you don't come out. -- conservative wing of the

gop. i thought his morning must-read was really interesting. we will look at what we've got from bloomberg view. assumed that mr. trump will negotiation better trade deals so that the current $500 billion trade deficit drops to zero. they assume further that this change in our trade balance is accomplished without reducing consumption or investment. this is a great essay on the naivety of pseudo-economics. does economics have anything to do with the next 10 days? megan: i think it has everything to do. it donald trump a smart, he will play on the one thing that has worked for him, talking about jobs and trade.

most americans will not look at the trade deficit, what they wanted an easy narrative and an easy narrative is that globalization has reduced manufacturing and jobs in america. toyou can sell that case workers in western pennsylvania and eastern ohio, and bring home the case, that he is the better growth president, that he will restore manufacturing security, wage growth to america, that may swing him in some of these crucial states. this is the case that he has made, that is actually bringing voters to his side. he needs to stay away from some of the stuff he says about women and the wall and immigrants. tom: thank you for the briefing. getting more than interesting as we go to a later election, november 8. john heilemann this afternoon and mark halperin in with all due respect.

they are driving forward to the nation's election. this is bloomberg. ♪

guy: guy johnson in london, tom keene in new york. banks the big focus on this side of the pond. let's hear what the ceo of barclays had to say, earlier on for my british banks are important in europe. >> there is a lot of capital in

u.k. which is to work in the european union. we would hope as a brexit negotiation goes forth, that the politicians and the regulators keep up the free flow of capital , and continue to allow participants in europe to have to europe to make investments in europe to help europe grow. guy: let's bring seth back into the conversation and get a look at what is happening. aboutorning, talk to me how the story is going to develop in europe. if we do see a hard brexit, if the british banks and the tight -- how capital flow and will that impact european growth? seth: it will not be good for the u.k. or europe, either. the impetus for brexit was a political decision, not an economic decision, and the biggest problem for the europeans is the u.k. is a big

market for them, and also, it is the center of global capital markets for many products. if there is uncertainty about how either of those uncertainties will persist, that will affect investment and all -- ultimately affect the ability to get deals done. , if the key money question we assume u.s. corporations can be removed on the u.s. political economic debate, can we make the , thatistinction in europe nestle or others can be removed from this crazy political economics of europe and the u.k.? was at one point a vision that the world was going that way where nationstates would become somewhat irrelevant and global corporations would not really care where they were, and what we are seeing in the u.k. and europe, now is the beginning of a trend in the opposite direction, a risk of

the globalization. frexit, if impact of it really ends up going the hard route is that it may result in a fear of an ultimate reality of unraveling of many of the, let's call it europe-wide arrangements. us, this masters with morning. mr.nheimer funds on radio, jersey at oppenheimer funds on the many choices that janet yellen faces at the debt meeting debt meeting of november, the very live meeting of december. ♪

,uy: d.c. looking resplendent all lies increasingly turning to washington as we count down to the u.s. election.

there is the first word news. taylor: france's president is learning that not all publicity is good publicity. his popularity has fallen to a record low after publication of a book in which he made candid comments on a wide variety of subjects. 15% have a positive view of him. only 11% want him to run for reelection, next year. -- promising to make job creation the priority of his second term. the caretaker prime minister is likely to lose a confidence vote in parliament. he is set to take office after the second vote on saturday because the socialists have agreed to abstain, giving him the majority he needs. spain has been at a political impasse for 10 months. carter has suspended enlistmentcall back bonuses from national guard

members who served in iraq and afghanistan. recruiters under pressure offered bonuses to thousands of soldiers. will probablyanks lose their passporting rights once the u.k. leaves the european union according to the british trade minister. passporting allows lenders and insurance companies in the u.k. to sell their services anywhere in the single market. one proposal would let british banks have equivalent lights -- equivalent rights as long as the accepted eu regulations. global news 24 hours a day, this is bloomberg. tom: breaking news right now. derby this is the m&a that seems to be going on right now. it really has to do with october and november and trying to wrap 11/15 or 12/one.

of the netherlands with 44,000 employees and down they go. there is qualcomm. i want to go to bonds and the idea of yield and seth was talking with us about the idea of the massive trap we are in with a price to perfection bottom market. seth: people are concerned about risk in today's environment and all you have to do is open the newspaper to see that there are lots of risks that could erect, and no one will forecast them accurately. the to that is to seek safety and the result has been this paradoxical safety bubble were things people think are safe are so expensive that they are actually risky, now. yield is really low, by any normal stretch and as a result, many issuers have issued longer and longer term bonds.

italy for example issuing fifty-year bonds. this makes indices even more interesting. everything in the bond market is priced to perfection. tom: i don't want to go with what is on my radar. we look at pension money and investment money, they have a mandate to meet those obligations, which means the mandate is to go out in duration. they are exposed, aren't they? seth: they are, and the theory -- it is ok if the assets and bonds shrink, too. it is not as easy as people think to match reliabilities, but there are some institutions that think of themselves as not having risk if they take on that duration exposure. we would say most investors are trying to get safety in duration, and that is not likely

to work out well. it is also spreading to the stock market because more of the stock market is populated with the stocks that have bond like characteristics. that is another second order affect. the safe stocks are the ones that have more yield, and they have gotten very expensive. they are at about an 18% premium to the market as a whole. tom: that would include at&t with a 5% dividend. even without dividend growth, that is a perfect example of what set this talking about. guy: a lot of corporate spark issuing longer duration bonds. does that provide a degree of safety? seth: i think it is the opposite. incorporates, and this is rational, you would want to do this. they are locking in these lower interest rates for longer. corporate bond indices have become longer duration, more sensitive to changes in interest rates. the duration of the typical

broad global bond indices is about seven and a half years. a 1% rise in interest rates would cause a seven and a half percent decline in bond interest rates. no one is worried right now, but we are very finely tuned, and we would say it is a good time not to take on more duration risk. if anything, you want to take on less. you don't want to follow where the index is driving you in the bond world. the same thing is happening with the stock world, because the kind of stocks that have done well our bonds that have more -- stocks that have more bond like characteristics. we think the same risks are there, too. guy: i want to talk about some of the news that is happening across the screens. the belgian parliament according to officials in belgium now saying that they are likely to approve the canada trade deal. that signature is likely to happen by friday. we now have an agreement being

reached between the eu and canada on the trade deal. at the moment, we are starting to get david the canadian prime minister is jumping in a cap and to europe because it looks like we are probably going to get a deal done. it shows a staggering view. they have to figure out how to get a unified europe, and they are not there, and that is what we have seen, this week. seth: or even a unified belgium. i want to go back to qualcomm. goldman sachs, evercore and other partners take a trophy. seth masters, it is a $47 billion enterprise. immediate synergies buried in the paragraph.

half $1 billion, immediately. this is janet yellen helping us chief m&a advisor over at evercore. seth: we are seeing a lot of big deals being done, and i think that you are right, the one thing you see is at one point in the cycle, people start worrying that may be low interest rates will not be around forever and it creates a group of artificial stimulus to get the deal done before the curtain comes down. seth: it is easy to make deals when interest rates look like they are at the moment. back to this bond question and the proxies. one thing i hear from -- a lot from u.s. investors is why aren't european companies giving up their balance sheets -- gearing up their balance sheets. i think you have this -- distinguish between companies that have great businesses that are not as sensitive to the week

this in the domestic european economies, from those that actually do have economic risk embedded in their business model. where you can find great european companies that just happen to be headquartered in europe and not as economically sensitive, then it might make sense as you say, for them to be gearing up and some of those companies are doing a little bit of that, but an aggregate, given the weakness of the european economy, and the uncertainty about some basic issues that are getting highlighted by the brexit discussions, i can understand why people should be nervous about that. tom: seth masters with us. later, jeffrey smith, starboard value chief executive officer, and conversation with mr. shatzer. look for that as the capitalized for kids conference in our 2:00 hour. ♪

guy: let's get caught up on what you need to know. googles self driving car unit may be on the road to becoming an independent company. according to the financial times, the head says it will be a stand-alone business of haired company alphabet -- paired company alphabet. there is a big acquisition in the semiconductor business. mxp.omm has agreed to buy it represents an 11% premium to yesterday's closing price. they are the biggest supplier of chips to the auto industry. biggest maker of

mobile phone chips. tom: there is a trade deal coming, the european union will decide to do business with canada. beingench part of belgium strong-armed, maybe in the last couple of days and weeks. college, danny blanchflower. of europeanr symbol federalism and all of its clumsy glory. danny: i think what it signals voters on the brexit side said it would be easier to get a deal and they were seriously mistaken. the brexit deals going to have to be renegotiated with all of the member countries and it looks like it will be a very difficult time consuming process. i think we learned from that

that this negotiation between belgium and the canadians -- it shows how difficult this process is going to be, and it will take forever and the market is thinking the fact that it will take so long will minimize any impact of that brexit, it will just take a long time. tom: this is european exports to canada. you say so what and i don't know much about european exports to canada, other than good hockey players. the green line is what it was in the red line is what is. , given about trade flows the subdued gdp we have had. you have been dead on, on austerity. danny: i think there is some evidence that trade has slowed, somewhat. we saw all of this news over the last year or so. the data will take a wild to come through.

the analogy i think to what is going on in brexit is i am a golfer. i made a par on the first hole and everyone says it will be the next 17will par and i suspect, probably not. i think christina was right in saying the big issue is huge uncertainty, particularly about investment and the impact of that is going to be felt down the road. processa long, drawnout and we have just seen the early start of it. glance, it was fine but if you look deep down, agriculture in decline, a decline in construction, manufacturing gone negative and the suspicion is there will be more slowing to come. we are in a fairly benign world with her haps acer not a coming. mewith perhaps a sunol

coming -- a tsunami coming. once all of the procedures are finished, i will contact the prime minister of canada, this is on twitter. is this the high water mark for global trade? danny: it probably is. uncertaintyhe huge that is going on, this brexit is going to spread, it is certainly going to come to the u.k.. output looks to be slowing, but my suspicion is this is probably as good as it is going to get, and we will see slowing coming. what is that going to do here? 2% maydence we look at, be as good as it gets for a while. guy: if you are looking at a

world where it is going to become more protectionist, you want to be a small country with little access other than the wtf -- w riccio, would you want to be part of a big regional power? this is the question the u.k. needs to figure out. we hear a lot of chat talking about the fact that we can compete on a global stage. is that global stage becoming tougher? danny: i think it is. it is amazing to think that you are going to be doing fine outside the european area. the economists of brexit have said that will be absolutely fine, what you can wipe out manufacturing and agriculture because they will be able to survive, but everybody else will benefit. that has very big implications. to sit veryctually close to a huge trading area and the basis of a single market with free trade inside and

external barrier and external barrier in your trade is mostly with that area. the dislocation from leaving and how much uncertainty it creates probably means this is going to be a big lowering for the short-term and the medium-term in living standards and output. the question is in the long-term, are there benefits? the medium costs are so large that you should stick there and with where you are. i am very anti-brexit. i think the process of negotiations or bad and the fact that the government does not have a plan makes things much worse. guy: when the pain comes, is a greater than it would've been it became more slowly because we predicted armageddon, but that is not happening. danny: i don't think anyone expected output to shift hugely. the data came out today, going into a process of years of revision. i remember back to 2009.

the big thing we saw was a fallen confidence in the bank of england. this is just very early days. we don't really know what the effects of this shock are, especially as article 50 has not been triggered. we do not know what the deal is, thate have little idea these trade deals are going to be impossible, so the good news is not terribly good. tom: thank you so much, this morning. dow chemical off the lehman lows, it is a whole new company through the merger. taylor: earnings-per-share coming in higher, about $.91 or share, beating expectations. topline revenue growth coming in higher as well with $12.5 billion. one thing finally, that merger had been possibly

delayed until february, so look for guidance and the update on the merger. i see a volume breakup at tao with price doing ok, that volume pickups much better than what was expected. 6% volume growth is pretty good. let's look at the data as we move to break. futures flat with a vix 13.93. dow futures up. modestly elevated. this is bloomberg. ♪

tom: sterling straight up, straight down, good gdp numbers, the tone we have heard is a lesser gdp per 12258 on sterling -- $122.58 on sterling. i see you is kind of a mustang kind of a man. >> my father worked for ford,

although i have a 1960's corvette. we will talk to mark fields, the president and ceo of ford. spending a lot of our program talking about a tale of two european banks, deutsche bank and barclays. we will have some great bank analysts. we will talk about european financials in brexit, all coming up on bloomberg at 7:00. ,om: paul sweeney wonders by not even on the $47 billion transaction of qualcomm. paul sweeney on twitter. outsizedms to get an source of attention, but i think there is a speculation of where you have a company with over 300 million users, i cannot really seem to find a home with users and with advertisers, so the question is, should somebody else buy it?

i think they would tell twitter to find a buyer. they need a bigger platform to hold their 300 million users on to see if they can grow the user base, and see if this company can really be -- tom: do you want to buy twitter, this morning? seth: they have to figure out a way to monetize their offering and do it in a way that does not turn off users. it is a really hard problem. guy: what is the rate across and what is happening with twitter? this kind of the other side of the equation, snapchat is still growing, putting up some strong growth numbers. as a result, they are attracting advertisers and i would argue that snapchat and facebook and google of the world are really taking the lion's share of the ad dollars going on to digital space, particularly in the social space. that valuations, getting ready to go public at significant

valuations. bloomberg reported a valuation doublebillion, almost the last round that they raised money at. that is the gross story. that is where twitter was, several years ago. guy: a quick question on snapchat and twitter. flying.cks are you get left behind, don't you? seth: it is very much a bifurcating market. of acomes at the expense lot of losers, but there is some interesting growth in tech, and there will be growth made if you choose wisely. mr. masters suggests rates may rise, what is the immediacy to get a deal done after telephone, after time warner and after this deal, this morning? paul: one of the many drivers we

are seeing in this huge merger, has been low rates and expectation that rates will go up. that one lever you could pull to drive value may be kind of sliding away a little bit. what we have seen on the meeting is a lot of strategic driven deals. a strategic call on media by going after time warner, but they are using 50% of the deal as cash, so they are going up and just raised from banks, a bridge of orting million dollars. -- of $40 million. coming up, on twitter, evercore will join us in the 9:00 hour. this is bloomberg. ♪

>> from new york city, good morning, and welcome to bloomberg daybreak on this

hursday, october 27. futures up 20 points. switch up the board very quickly. the f.x. market, an upside surprise for u.k. g.d.p. the pound is trading at 122.60. bonds softer globally. 1.83 is the yield on the u.s. 10-year. david: ford motor company is announcing their third quarter earnings. their earnings per share were 24 cents, as opposed to an estimate of 20 cents. revenue of just under $36 billion as opposed to $34 billion estimate. so they beat estimates, but they are well off of a year ago for various reasons. we'll get into it with mark fields when we talk to him later in the program. alix: the real concern is are we at peak cars? you had the cycle that kicked in. how much more new demand