and seven days until clinton versus jump. china markets rally after an unexpected take up in manufacturing. on, the boe governor will extend his time in office until 2019 to address brexit. "surveillance." i am francine lacqua in london, tom keene in new york. seven interesting days until the u.s. election in the ft endorsing a presidential candidate. i have not seen that before. tom: that was something to see, certainly the busiest week of the year. francine: we have to look at stocks, the economy, and finance. taylor: the u.s. justice department tells congress at work as quickly as possible with the fbi on the new investigation into hillary clinton's e-mails. the campaign has accused the fbi of crossing the line because it comes so close to election day.

the republicans have said fbi has not provided enough details about the probe. cnn cut ties with donna thezeale, who is currently interim chair of the democratic committee. she apparently only -- allegedly gave clinton answers for questions. u.k.'s ambassador to the called his company -- country a major stakeholder in the u.k. and the company -- country must put -- improve communication. the british spy chief warns that russia is an increasing threat to the u.k. the director general andrew carter said that russia has active agents in the u.k. and is pushing foreign policy through cyber attacks and subversion.

it is the first time a chief has given a newspaper interview. in china there are new questions about the next generation of leaders. a senior communist party official says there is no set retirement age, calling into question who will step down when the president reshuffles his leadership next year. usually the communist party has retired officials age 60 and over. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. taylor riggs. this is bloomberg. started,s get the week tuesday to tuesday, a quiet data board. futures up five, euro a little bit of strength, oil weaker. on to the next screen. equities churning. trump-mexico has been big , a little bit bigger clinton in the last 48 hours.

two year yield as we go into the meeting, 0.85%. francine: this is my data check. i wanted to show you a little bit what copper is doing because a lot of the metal pricing on the back of better than expected manufacturing data from china. kuroda saying he will not meet his expectations as soon as thought and the have an aussie dollar check as the australian central bank kept things unchanged. tom: we are going to see pmi today. there is pmi's everywhere. this is the beginning of it. this is the u.s. manufacturing pmi. down here is the recession level, this yellow line. we are nowhere near that, nowhere near recession, and a little bit of a downslope year and maybe recently a greater downslope. the idea, like asia this morning

to see this breakout would be a constructive tone. firstis a snapshot of the data point for the month of november in the u.s. francine: i wanted to do something a little bit different. this is a great chart that hillary found. this is a way of looking at china. there has been discrepancy between china manufacturing and the -- this is a cool chart. the china satellite manufacturing index is in white and the chinese pmi is in blue. the white one is basically 600 industrial facilities being monitored from space. it was quite a discrepancy in the past and now they seem to meet. maybe we can believe china data a little more. joining us now for the hour is philip shaw, chief economist at info second bank.

we have a couple of central banks, boj and tomorrow the fomc , jobs data, politics. what is driving the market? philip: to a certain extent you have in decision in the markets particularly in the u.s. with the polls between hillary clinton and donald trump closing. a bit of uncertainty there. we will see what the presidential and congressional results are. that is one concern. francine: do you trust the polls? philip: i never trust polls or not in the last couple of years, but to be fair in terms of the presidential elections, they have all said it is much more difficult to track who is going to win electoral college votes. they tended to get it right more than other countries. , is the critical thing is whether donald trump carries on

his recent momentum against hillary or whether the e-mail scandal is a flash in the pan and we go back to where we were. francine: what do you make of boj? governor kuroda has had to push back is inflation target as expected. he intimated in washington. the markets are quite cool. philip: the boj lowering its inflation forecast, i have got to say, is nothing new given the action we have seen with the yen over the past three months. expiring --an inspiring set of data. we have had a pretty modest shift downwards in inflation protections. tom: what is your gdp number for the world right now? i cannot get a handle where we are around 3% for global gdp. we?e our way? -- where are philip: around 3%.

we see 3.1% this year, 3.6% next year. as we get a little bit more momentum in the u.s. economy, perhaps the eurozone and u.k. economies if you're looking at things from a developed market point of view. we have had commentary frequently this year saying this is subpar growth. but actually if you look at the long-term average from 1980 on global economic growth, and you are looking at somewhere between three and a quarter to three and a half percent. it is about average. tom: with that stated, it is not enough to calm down janet yellen about a december rate hike. it is not going to adjust or adapt the u.s. does? philip: not entirely, no. arguably the u.s. economy is more driven by domestic demand than most other major economies. i guess that would be one point.

if you look through the recent soft patch gdp, partly because of investment in the energy sector but also the inventory cycle. we have seen strengthening and final demand as well for the past couple of months. it does look very much that we are going to get an increase in the fed funds target before the end of the year, and our guest is at tomorrow's meeting, they will tighten up some of the language and point to a december hike. tom: where will we be in january? there is such a focus on getting to december, where will we stagger toward the beginning of the year? what will frame the first quarter? philip: i hope it is slightly different from the first quarter of this year where it was a bit like being hit by an oncoming train the chinese market volatility.

it is always difficult to say for sure, but we hoped we would see a calm, considered outlook for 2017. the u.s. economy not being hit by bad weather, the outlook being much as we had expected in the final few months this year with nothing special coming from china either in terms of the fundamentals in the economy. but also on financial imbalances. that is what we would hope for. francine: does boj really come into your thinking? if boj and abenomics is dead in the water, does it change any of your forecast? this chart looking at the 10 year jgb and white, the yellow is the two-year. the first red circle is when governor kuroda went to negative rates and this is when he is trying to cap at zero. he said he was happy for to go a little into negative territory. does this need to work for you

to feel better? in a space boj is where a number of central banks are around the world. there is too much hope and burden placed on monetary policy to elicit an economic recovery. fiscal policy should play its part as well and we know we have quite a few supplementary budgets in japan from year-to-year. also what you need is a second economic reform which might not do much for activity in the short-term, but in the long-term that is what you want to do to get your trend rate for growth up. abenomics, certainly in terms of quantitative easing, i would not say that is going to be the steel bullet. francine: thank you so much. up next we are joined by the u.s. -- the former u.s. secretary of agriculture, dan glickman to discuss what we can expect before the election.

this is bloomberg. ♪

francine: this is bloomberg "surveillance," francine lacqua in london. tom keene in new york. taylor: third quarter profit rose 17% at royal dutch shell. its acquisition of bg group boylston oil production and helped offset a slump in prices. shell has renegotiated contracts and eliminated nearly 12,000 jobs and started an asset program. bps third-quarter earnings plunged 5% but still beat estimates. bps earnings have fallen for nine consecutive quarters. that is putting pressure on bob

dudley to sell assets without jeopardizing future growth. that is your bloomberg business flash. francine: the white house has pushed back against accusations from some democrats that the fbi chief is interfering with the presidential election. president obama's spokesman said he would neither defend nor criticize james comey. u.s.lickman is the former secretary of agriculture under bill clinton and he joins us now. 2006, 2016 is different to any other year. what exactly is going on? daniel: i think it is unpredictable. in most cases you have had leaders of both political parties who kind of reflect the mainstream of their parties. i think that is true with respect to hillary clinton but not donald trump. we have never seen a candidate like him in my lifetime who is

so unpredictable and so much not a part of the establishment. francine: do you think the reopening of the investigation by the fbi will cost hillary clinton the election? daniel: it may reduce some turnout. it may affect down ballot races but unless there is something there that is catastrophic that i'm not aware of, something that really goes to the heart of u.s. national security i cannot imagine this impacting the election and costing her the election. ,om: as a democrat from kansas a rare and endangered species you had to deal with the senator from iowa, mr. grassley. he minced no words. let's look at the quote. your disclosure to mr. comey did not go far enough. unfortunately your letter failed to give congress and the american people enough context to evaluate the significance or full meaning of this development.

without additional context, your disclosure is not fair to congress, the american people, or secretary clinton. you have dealt with the executive branch and administrative before. is this an fbi out of control? daniel: i do not know, but i agree with senator grassley. you should at least give some rationale or reason about why you are doing it. if this has something to do with a serious national security breach he should have said that. otherwise it is made language, creates uncertainty, and gives donald trump reason to go after hillary clinton without any specifics, and i think that is wrong. tom: as a congressman and democrat, i believe there are four left in kansas, maybe five. what is the matter with kansas in this sense, what is the matter with this nation in getting us back to a more even distribution across our politics? how do we do that for years out,

eight years out, 12 years out? daniel: i got elected as a democrat in the most republican states in the country. we are the longest running state without one. part of it is how we redistrict the house. that is done in a closed session so if you are democrat or republican and are gerrymandered, it makes it difficult to be a middle of the rotor. good policy takes place in the middle of the road and unfortunately our american politics encourages to go to the edges rather than senate -- center. francine: unlike brexit. tom: the washington post this weekend and a fabulous breakdown of the mathematical process of gerrymandering. do you have any optimism we can get to some rational distribution state to state? daniel: some states have done

it. california and i will have done it. the public has to demand it, that is the situation. the politicians are developing their district for themselves and the people have to get into this act. if that happens i think you will see some changes but if not the status quo will prevail. francine: do you believe the polls, how many undecided voters are there? daniel: i believe there are still some but less than 30 or 40 years ago. the nature of elections, money and politics in america and the media has caused everybody to go to their corners. situation, noibal longer does the central government. francine: great insight seven days before the election, what a treat to have you. philip shaw also stays with us. next hour, david herro.

he has quite a big chunk of glencore and credit suisse, and we will be asking about banks and commodities. ♪

francine: this is "bloomberg surveillance." i am francine lacqua in london, tom keene in new york. the bloomberg editorial board writes after we had the signing of the trade deal between canada government., a

should press forward with a lot of these transportation -- pacific partnerships but they cannot expect to succeed unless they meet anti-globalist opinion had on. so far that something they've conspicuously failed to do. dan glickman, former secretary of agriculture still with us as well as philip shaw. how do you turn around this wave of anti-globalization and convince the people it is a good thing? daniel: i think it requires much better politics on the part of the pro-trade people than we have seen in the past. the general argument is this is the right thing to do and you should believe that free trade is the best way to go, which i personally believe. i have been involved in three industries, agriculture, the film industry, and aviation. trade butequire open average people do not see it impacting their lives. in the u.s. politically we need something else like a huge infrastructure program building

grid, bridges, electric so people can see there are things out there that directly impact on job. francine: why has that not happened? daniel: people are not very good politicians i guess. trade is important but the loss of jobs, anxiety from globalization and technology trumps free trade -- i hate to use that word because i do not support him. in terms of how to get average people to believe that it is important to them, they must understand it does impact their jobs and the political class needs to address that much more directly than we have done in the past. francine: maybe something economists can weigh in and show if you just look at the numbers, if you do a good trade deal smartly is advantageous for all sides. philip: i think one of the problems in the post crisis

environment, what we have got is a lot of populist politics. if the electorate is in that mindframe it is easier to play on people's fears about loss of jobs rather than saying free trade is good for exports. if you do not have free trade the cost of your goods that you buy is going to go up. it is a rational argument but a difficult one. tom: let's look at the world trade chart. ran theretary glickman movie business it was right at the middle of that chart. the 10 year moving average of world trade, this is all movies exported from the united states because of secretary glickman. christopher dodd has slacked off, mr. secretary. daniel: i did it all. tom: what are we going to do about world trade? how do we jumpstart it? philip: difficult to say.

one of the issues is the fact it you have a mix in the composition of growth. the slowdown and rebalancing of china has been a key ingredient. for example, if the world is being set up by manufacturing or investment, when you see a reversal of that process the natural thing is that world trade is going to go down. i suspect that within those numbers what you have also is a degree of a slowdown in liberalization of trade, but also the number of protectionist measures as well. tom: philip shaw, thank you so much. secretary glickman, thank you so much for being with us. tomorrow our special coverage of the fed. ♪

,l world, they are getting attention to one week from today, the presidential election in america.

the plague, i hope to be over it by election day. good chinese data today. excuse me, francine, for giving you the plague. iraqi troops had entered the eastern outskirts of the embattled city of most all -- mosul. the offensive to drive islamic state out of the city is in its third week. a pipeline explosion and fire in alabama has caused the price of gasoline to surge. the operator of the biggest pipe line has been the first to shut its output. a spill in september forced a shutdown. donald trump is said to have used a legally dubious way to avoid paying taxes according to the new york times. in the 1990's he reported --

failed to report hundreds of millions of dollars using a method he was warned against. news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. pmicine: just getting some data out of the u.k. for the month of october, two month after brexit and this is what investors want to know whether it means we will see a recession or not. october manufacturing pmi falling to 54.3, just a touch below forecast at 54.5. pound dollar, 1.2252. let's turn to china, strong data , official pmi has jumped to a two-year high.

pleased to be joined jin and still with us is philip shaw. always great to have you here to give unique and fun -- site. dewey believed the numbers, is the data right? we also have this china satellite tracker tracking movement in some of the factories. china is definitely stabilizing. keyu: china is stabilizing and a lot of it has to do with the fact there was quite a strong stimulus in the beginning of the year. i would still keep some reservation as to the fact there are a lot of challenges for the manufacturing companies, one being the global trade is still weak. we see growing protectionism when economies are not doing well so i see that as a trend. private companies are having a

huge, hard time right now getting credit so credit is very tight in china. francine: do you still worry about outflows? this was the big story six months ago and the markets have largely ignored it. keyu: this story seems to be stabilizing for now. i think the challenge for the exchange rate, it is one of the key priorities for the governor. we want to think about them as having three objectives. one is growth being above a certain baseline. second is preventing asset and housing markets from overheating, and third is critical exchange rate management. the danger is really about expectations. otherwise it is likely to stabilize. the second determination will be the u.s. fed policy. tom: i want to go back to your academics at harvard and the great engine and friedman, -- benjamin friedman. help me with the moral

consequences of china, the moral consequences of china's desire to grow. how bad does beijing want to finally get consumption and finally get a freer capitalism? keyu: that is a very loaded question but relevant because i think we talk about morality and social decay is one of china's biggest problems, and it is tightly linked to growth, inequality, and what the government is thinking right now. i think the government is finally kind of adjusting its growth rate. as i mentioned previously, as long as it is above a baseline growth rate that kind of in chores employment, they are going to start shifting -- kind of insurers employment, they are going to start shifting priorities elsewhere. the entrepreneurial dynamism, this is a good thing. one of the reason china's growth will still continue. tom: i look at the basic idea

that we are reverting back to a mao china. i do not agree with that but that is what have heard in various reports. give us some depth on the new leadership and how they are like or starkly unlike what we remember in the revolution. keyu: the background we have to remember is that china went through a huge period of decentralization, giving a lot of power to local governments. that is actually what fed vast corruption. thes in pain's attempt -- presidents attempt is to call back power so the corruption cannot continue. we have seen that corruption is actually in check. ist eraare it to the mao is not the right analogy but political centralization is

important. francine: what do the markets get wrong? philip: i think markets are probably looking too much at short-term growth numbers and often economists do that as well . i think it is easy enough for the chinese authorities to achieve a certain baseline of growth and help social stability in that respect. what is difficult and not just a comment about china but about policy, where you have a conflict between growth and financial stability. trying to achieve those when you have risk to each is a very difficult line to try and tried upon. i think that is probably the main challenge facing the chinese central bank and the government, not simply trying to get six and a half percent growth. francine: thank you very much. tom: in our next hour -- that was wonderful -- in our next hour mike darda will join us.

you would be shocked at the animal spirit we need to go to a december rate rise. mike darda on what we need to see that lift in december. from london and new york, a beautiful new york, a little bit frigid after trick-or-treating. this is bloomberg. ♪

tom: good morning, what a week it is going to be. francine lacqua in london, tom keene in new york. francine will migrate to new york for the election when week from today. we have the fed meeting, neck of england, jobs report on friday -- bank of england, jobs report on friday, and tracy alloway.

minister finance designing five, is it? -- resigning or fired, which is it? tracy: there are some people performancezed his in a talk show that aired in saudi arabia last month where he was talking through the austerity measures that are going to be imposed. this is not a surprise. we know that king salmon has been replacing the old guard of ministers with new ministers. he has gone through a slew of them already and is generally replacing them with people who are seen as younger, more energetic, and closer to the deputy crown prince. tom: we talk about the reform direction. the finance minister was in for two decades, a longtime. we have a new treasury

secretary. tell us how we reform from the royal family. how do you do spores -- dispersed reform across saudi arabia? tracy: you know that there has been a long-running social pact between the ruling family, the religious leaders, and the general population or the spoils of the oil wealth has been shared and in return democracy at somewhat limited. there is a big? bank hovering over them -- question mark hovering over them. the idea of getting the new minister from the capital markets in and having him out rich -- outreach to the rest of the financial markets, we saw saudi arabia announced the 17 and a half million dollar regular bond. tom: we have a technical

difficulty with our satellite to abu dhabi. that happened sometimes. i look at this and i look at the reform in saudi arabia, and it goes back to the idea of a terminal value of oil. what i would say is over the last two to three months, the terminal value has come down. francine: politically you have a new person in charge. they want to overhaul the cabinet and want their guys in. it makes sense. let's talk about another line of thought, this is brexit. mark carney says he will stay as governor of bank of england until mid-2019 to facilitate an orderly transition through brexit, ending months of future.ion about his this is significant because the markets were freaking out that the person called the adult in the room could step down 2018. simon: that was the original

plan when he moved from canada, that he would stay five years. he cited personal issues, his young family and again he cited them yesterday. he has agreed to stay so something is obviously changed. 2019, hentil june should clear that split of brexit negotiations and have a successor. and an interesting economy. francine: i love that, that is qualifying. we know he has four daughters but at the end of the day, what would he do? there is no real job he could go to right now. this is a challenge that probably he likes. simon: mark carney was at goldman sachs for a long time and moved into politics, a junior position in the canadian treasury. delivering speeches on things like climate change and

financial regulations and the economy. he likes to deep dive into these things. he is a man for a challenge and when he took a job he said he was leaving canada and going to wear the challenges were greatest. it is hard to look at the economies and say where is a bigger challenge? certainly here is someone in the past who has been linked to canadian politics since the rise of justin trudeau, which perhaps cuts off that avenue. staying a little longer in the u.k. potentially means the imf will come up. the stain lagarde has another term as managing director. -- christine lagarde has another term as managing director. francine: what have you learned about brexit so far? the economy is holding steady at the pound is the worst performer in two to three months. simon: one of the important

things is the short term ramifications of the brexit have not been as bad as we thought. partly due to temporary factors. that would be one point. if you follow on from that thread, you say why did growth hold up? you look at the july confidence numbers, they fell off a cliff and there were a number of things which maintained and helped us to recover, one of which was mark carney standing up and making statements. the easing of monetary policy probably helped as well, and the swift resolution of the conservative party leadership was another factor. what that at least partly says is that mark carney has helped stabilize the economy. in that respect he has done a pretty good job. as to the rest of brexit, the way that unfolds, it remains a

major uncertainty, and having mark carney at the helm is certainly helpful. tom: our alex morales has a smart article. if you want to get up to speed terminal,have a brexit go is a good way to get to simon kennedy's world. and alex morales has a great ,rticle out on japan, nissan and the beginnings of behavior about how you do with brexit. what is the government learned about how they are going to deal with the rest of the world if they go through brexit, and the last couple of days from japan and nissan? simon: i think they are learning a lot on almost a daily basis. nissan, the business secretary who sealed the deal to keep nissan clark, is this letter out there that clerk wrote to nissan promising a commitment to seek freer free trade with europe.

party wants to see this letter. to release iting on the basis he does not want to be talking to companies on a complex and proprietary information and then produce the letter subsequently. he is sitting on the letter. at the same time last night the japanese ambassador to london warned the u.k. must maintain links to the japanese and keep them abreast of negotiations. japan a big critic of brexit in the recent months. tom: simon kennedy, thank you so much. philip shaw, thank you so much for coming in this morning. greatly appreciate that. tomorrow across all of our bloomberg media platforms we begin three days of incredible economics. the jobs report, bank of england and 2:00 p.m. wall street time, the fed decides.

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francine: "bloomberg surveillance," tom and francine in london and new york. taylor: u.s. prosecutors are

building the fraud case against valeant pharmaceuticals that could result in charges in weeks. the probe is focusing on the former ceo and cfo. they are looking into their hidden ties to a specially pharmacy that the company secretly controlled. goldman sachs predict it is unlikely opec will agree to cut output. toailure would lead oil trade slightly above $40 a barrel. opec is trying to implement the first supply cut in eight years and trying to get non-opec countries to join in. a move by barclays is underscoring the threat of a glut in london's financial system. they are trying to sublease offices to the british government, highlighting a risk that tenants will be in short supply for developers of buildings being constructed now.

they are cutting 25% of their london office space. francine: thank you so much. it is lme week. all the ceos of the commodity stocks, the traders here and david herro is here in london. he is cio of international equities, and we have to start with glencore. first of all, thank you so much for joining us on surveillance. i'm happy to be here in the heart of london. francine: how much do you go about -- glencore -- own of glencore? david: about 5%. as the stock has doubled and our method of operation is to position the stock compared to what we measure as it upside, it's intrinsic value. as the price gets closer we trim

a little bit and as it drops, we add. we have been very active in adding and trimming and it has been a crazy stock. francine: the stock is in such a june orosition than july of last year. what should the next move be? can they think of doing deals? david: i think job one is to continue to make sure the balance sheet is strong and can withstand any kind of aggressive falls in commodity prices. two, selectively look at opportunities on how to use that free cash. if there is something that could be bought at a discount at a good price, look at it. if not, there is dividends, share buybacks, and all other things. francine: do you think the stock will be valued? despite the fact that it

is three to four times bottom, that is over three times from the bottom, it is still if you look at where the price should be -- francine: blue is glencore. do you see it going to four pounds? david: one of the things that will determine that is the price of copper. copper unlike coal and nickel and other commodities, has not rallied at all. it is up maybe 10% from the bottom, and we think that is a good metal. that is one of the things that attracted us to glencore, it was involved in what we thought were better metals and some of the other minors invested in iron ore in particular. mining is a really tough as. francine: it sure is. tom: let's look at glencore, this is kind of like the chicago cubs in their recovery against the cleveland indians.

down we go to the bottom and we recover very nice. you heard david talk about how he is in and out of the stock depending on the price. is glencore a trading company in the mining business or a mining business that happens to trade? david: is actually both. , it'sore, rich trading very strong trading operations in a lot of the key commodities, they are the global trader, the biggest local trader and many important metals and economies, even energy. the problem is that the market does not really give them credit for their trading operation. that is one of the things we saw in the business when we started investing a little over a year ago was yes, we do not like mining companies all else being equal. it is a very tough business. tom: what does the management want? very quickly, what does the

management want, to be a trading company? david: i think they want to be a company that generates a good cash stream overtime. one of the unique aspects of glencore management versus other mining management is i think they are really looking at returns and adding value over the medium and long-term. many of these mining companies just produce irrespective of what their actions due to price. i think the glencore management team is stronger in understanding that. tom: i have to go bet on the indians. david haro will join us -- will continue. ♪

in fomc meetings, a bank of england meeting. jobs day, and then on to a

presidential election. call these seven days of november the busiest week of the year. --kets this morning sure markets this morning churn. all eyes are still on the u.s. and the mexican peso, call it a clinton-trump barometer. speaking of which, clinton, trump, kaine, pence. i am tom keene in new york. francine lacqua is in london. ey thing moves forward. francine: we have not figured out if the investigation has an impact. if you are undecided, that maybe she is doing something really wrong and i am voting for donald trump, so it is a game changer -- and that you have this, endorsing hillary clinton. they are getting quite a lot of

flak for that, "the new york financial." he the francine, al hunt, in "bloomberg view," has a great on north carolina. i cannot get it done, i'm sorry. we will go like this. francine: you have the election there. tom: there we go. let's save that moment and go to taylor riggs with "first word news. the u.s. justice department told congress it will work as quickly as possible with the fbi on the new investigation into hillary clinton's emails. the clinton campaign has accused fbi of crossing the line because it comes so close to election day. some republicans have said the fbi has provided enough details. cnn has cut ties with donna brazil. she is currently the interim

chair of the democratic national committee. wikileaks revealed she had given the clinton campaign questions that were going to be asked during the cnn sponsored debate during the primaries. japan is demanding regular meetings with the british government over its strategy for leaving the european union. japan's ambassador to the u.k. called the country a major stakeholder in the u.k. company must put japanese investment sara at risk -- global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. tom: thanks so much. how about some data right now. it is going to be interesting over the next quach of days. oil, cannotnce, find a bit. tracy alloway mentioning the saudi arabia change of power in finance from abu dhabi. equity markets churning. the dow like a rock.

we are looking at the mexican peso churning. francine? hour,ne: in the last half government bonds, that resumed after a pickup in manufacturing in china. that was some optimism for the global economy. japan has had to put out their inflation target, but that was pretty much expected. and the 10-year note is sliding before the fed. david herro is here. tom: that is a good idea, to put copper there. let me go to the bloomberg. this is the first data point for the u.s. is recession statistically down like what we saw. we are nowhere near that, but we will talk with michael darda about the lethargy that is out there and the lack of animal

spirit. michael darda our expert on nominal gdp. francine: this is what i want to show you. i am pushing back against the questions of chinese data. we look at the pmi, this is something that is a little bit different. this is a satellite, a chinese satellite that tracks 6000 industrial facilities across china. some imagery on what is coming and going. it shows a discrepancy in the past, but you can see there seems to be a line. because of that massive stimulus from china the last couple of weeks, it may be easier to trust the numbers. tom: let's get started. we have david herro with us. he is in london with francine. and michael darda joins us with m, their chiefmk

economist. michael darda, you are talking about the animal spirit. i was thunderstruck in how liminal -- i was struck at how little nominal gdp we need. i was thinking 4% or more is needed, and you say absolutely not. anthony, if chart, you would, quickly. michael darda says we only need to get to that blue box on a run rate. why do we need only 3% nominal gdp? michael: it is about the supply side of the economy. productivity growth is not what it once was. working age population is our only growing at about the same pace. growth potential is only around 1% per annum, then a 3% nominal nominal gdp figure overtime will get you to -- tom: are we becoming like europe , like japan? michael: yes, but it is not as severe.

we have bigger headwinds particularly on the demographic side. so maybe a low intensity version of what is going on in parts of asia and europe? david herro, does your actuarial assumption come down, your expected rate of return? david: we look at all kinds of factors, and we are bottom-up value investors, so we look at where the businesses can grow at. there are so many factors that go into earnings growth, that is just one of them -- the big overlay, the gdp growth figure is just one of them. some companies could do far better. some need a little bit of a tailwind. some cannot survive or cannot do well or thrive in a low-growth environment. that is what our job as analysts has to be.

to determine the impact of the macro environment on the bottom line. are they not investing enough? or are they investing too much? david: when we look at what ceo's do -- this is one of the key questions -- what they do with the free cash that they generate. if they can get good returns on an additional investment, by all means invest it. if they cannot and we pay off -- if we cannot -- if they cannot and we get debt, we pay off debt. if gay, b, or c do not work, give it back to the owners of the business. work,a, b, or c do not give it back to the owners of the business. what we have seen is that they have been given more back. what we want is for them to do that arithmetic. francine: why have they not done so in the past? what happens when all of this cheap money, when we start normalizing?

a 25%t talking about hike, but something bigger. david: you have to normalize interest rates. you cannot assume that in perpetuity we will have low or no interest rates. when we value businesses, we use a normal discount rate. the price of equity is 10% for a big cap company. that might be conservative, but this is what we believe a company should be generating here in and year out through the long haul. economicsynthesize into the equity markets. frame your enthusiasm for equities to the end of the year. -- you: you years to used the word "stabilization" before. there is certainly economic weakness. if topline growth is going to be around 3% and does not fall -- tom: they worked on the income statement and generate free cash

flow, given what we are seeing in the merger space alone. michael: think about it this way. if topline growth is growing at 3% or 4%, wages are almost at 3% year over year. they have been moving up. they tend to lag the cycle. the nominal growth slowing down over the last two years, we are just below 3 year over year in nominal, with wage growth running at the same rate. very difficult to see margins moving up. we should curb our enthusiasm. equities will probably not do much more without a correction downward. tom: we will talk the election in a little bit. michael darda is here at the 3% level nominal gdp. topline animal spirit. donald trump says he can do 4% gdp. that would put the nominal up here somewhere. there is no way we can get back to the old nominal gdp. discuss that. it is not going to

happen. it is a complete pipe dream. especially if it will have distorting or retarding effect on productivity. with trump, trade protectionism and distortions to the labor force with his immigration proposals heard with clinton, higher marginal tax rates, and additional label that additional labor market distortions. tom: david herro, we are going to talk about this later. you are a republican, you have supported midwest republican economics. you even rooted for the chicago cubs, which is a remarkable thing for a lifelong brewers fan. can paul ryan sustain in the next year? david: i think he will. he is a very good statesman. he has a good head on his shoulders. prescriptions that come from him are very solid, very strong. i think he has a difficult job

because if mr. trump wins, he will not so -- he appear to get along with his president. then there is part of this caucus. he will be between a rock and a hard place, but i think he can manage. tom: david herro is with us, and michael darda as well. we will talk politics. we will also talk a little bit of economics. that goes to the fed decision tomorrow. p.m. treet, 2:00 rumor has it, i will be there with some good, smart guests. we will have a live conversation. look for that tomorrow. this is bloomberg. ♪

i am francine lacquaine:

in london. we are talking baseball, tom. no we are not. let's go to taylor riggs. taylor: fourth-quarter profit rose 17% at royal dutch shell. boosted toion was help offset a slump in prices. shell has renegotiated contracts, eliminated 12,000 jobs, and started a $30 billion asset sales program. bp's third-quarter earnings , still beating estimates. bp was hurt by falling oil prices and shrinking refining margins. that is putting pressure on ceo bob dudley to cut costs without jeopardizing future growth. standard chartered posted third-quarter profit that missed estimates. in a fell at all four british bank divisions. that he ists to show stemming losses and posting dividends.

that is your "bloomberg business flash." francine: we are sticking with banks. with david herro, still with us, and michael darda is in new york as well. thank you both for sticking around. credit suisse has a story, with a new ceo in charge for about 15 months. of credit suisse is in red. european stock banks are in blue. there is something that caught my attention. credit suisse is looking at cost sharing with other banks. how much could they saved from that? things that would make sense? david: back-office processing. so many of the banks are doing the exact same thing, competing against each other. it is kind of like the car companies, with the same topics

and subjects. theakes sense with some of heavily labor-intensive fixed costs. if you can create a "utility," and share that utility, there is a lot to be saved for how much remains to be seen. but at least what we see, with credit suisse, they are being proactive on re-examining the business model. what are we doing right, what are we doing wrong, what is cost intensive, what is labor intensive, and can we find a way in the 21st century to make things more efficient? concerned withe -- i am a day ahead of myself. are you concerned that because they have cut too much cost and fixed income that they will not have taken advantage fully of this? thed: their aim is to ride cycle more muted.

so the highs will not be as high, the lows will not be as low. they will create an income stream based on fixed income trading, equity trading, and their investment bank global markets business. it would not surprise me if they were not as reactive as some of their investment banks. but on the downside, we should also feel that benefit. we as shareholders prefer that. we like a more stable, predictable earnings stream. francine: are you adding to credit suisse? david: given our discipline, we value discipline, we ivanka low. the chart has had a -- we buy low. the chart shows we are up almost 40%. as it was going down, you can imagine what we are doing. as it went up, it spiked a little bit. we think this company which traits at below 70% of book value -- if they get this transition right, it should be closer to 1.25%, 1.75%.

chart,ing up the anthony. francine was showing european banking. credit suisse in white, jpmorgan in blue, normalized back to the crash. i want to know about the gnomes of new york. around -- do you rate of -- do you wait around, or do you -- david: you look at the price you are thing for the book value expected growth that you are forecasting. to me, when you are looking at a bank, being simplistic here, you determine what its true book value is, determine what you think they can get as a normalized return on that book, and then you price it, give it a price-to-book multiple based on those factors. thatwhat is the catalyst

will jump start european banking valuation? david: going into this year, all we heard was that low and negative rates will restrain profits. we heard about the lending to the energy and the shipping sectors, that bank earnings were going to collapse. we are seeing the opposite. we have seen stable growth, lending growth, 2%, 3%, 4%. you have seen crosscut, lower levels of bad loan provisions. earnings are very resilient, and i believe as the market begins to realize that this resilience is not just an accident, that these low valuations -- francine: how vulnerable is deutsche bank? the fines, the regulatory framework are a potential headwind. a lot of this is known.

rbs is the one that is still out there. regulators are finally starting to realize, the degree to which they have been productive. if the object is to get banks to do their role to extend credit ,hrough the system, these fines $250 billion worth of fines, could have strangled lending. this is terrible. this is becoming counterproductive. for what reason? tom: let's do some data right now, and we will come back with david herro and michael darda as well on the american economy. looking at the data today -- you know, the mexican peso moves, 18 point 84. a little bit there. i noticed the dow like a rock. ♪

tom: from london, from new york, "bloomberg surveillance." i believe there is an election on tuesday. there is nothing going on. let's go to jobs day. michael darda is with us from m km. dean maki was the first one to bring this up, but i am hearing it more and more. plain and simple, is 4% unemployment a good idea? bring up the chart, if you would. it is unimaginable that we would go back to the so rare recurrence of 4% unemployment. is it good or bad? michael: i think you have to ask that question in the context in an array of different labor

market indicators. this is the so-called you three rate. the unemployment rate. it has fall into a normal level. rate, workers who want full-time jobs, discouraged workers, has also fallen but it is lagging behind. my favorite comedy prime age employment to population ratio, 25 -- my favorite, the prime age employment to population ratio. i would not obsess about the unemployment rate being too low, especially with these weak nominal growth rates and still low inflation rates, and still low inflation expectations. tom: how do you respond to people with a great analysis of labor and janet yellen talking about slack, slack, slack? how do you respond to your colleagues to say do not raise rates in december? michael: favorably, because i think the fed will, barring some

catastrophic set of data points. but the reality is if they are going to take the action to move rates up in december versus not doing it, not doing it would mean nominal growth in inflation would be higher than would otherwise be the case. the 3% figure unknown nominal growth would be the minimum that we need. it politically acceptable, 3% nominal growth? can anybody in the white house live with that? michael: probably with these weak productivity statistics, but i would love the fed to err on -- tom: we will come back with michael herro and david darda. i got that wrong. ♪

i've spent my life planting a size-six, non-slip shoe into that door. on this side, i want my customers to relax and enjoy themselves. but these days it's phones before forks. they want wifi out here. but behind that door, i need a private connection for my business. wifi pro from comcast business. public wifi for your customers. private wifi for your business. strong and secure. good for a door. and a network. comcast business. built for security. built for business. francine: what is going on next tuesday, tom? very easy week. this is the picture across capitol hill in d.c., where we will have a new president

elected next tuesday. this is what investors and markets want to know about, the political ramifications. we are looking at the dollar ahead of the u.s. jobs report on friday. and then we have this endorsement, the first one i have seen in all these years, actually saying that hillary clinton offers the best hope for u.s. leadership. thes get straight to "bloomberg first word news" with taylor riggs. hasor: saudi arabia's king replaced the country was finance minister, who had the job for two decades. saudi arabia's key positions are under the control of a new generation of bureaucrats. havek -- iraqi troops captured the last city on the edge of mosul without suffering any serious casualties. the offensive to drive islamic state out of the city is now in its third week.

hillary clinton and donald trump are prepared for the election to go into overtime. thousands of lawyers have agreed to volunteer in battleground states. the republican national lawyers foundation has lawyers monitoring polls and challenging election results possibly across the country. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. tom? tom: thanks so much. michael darda is with us. and in london, not in chicago, sitting as far away, we have david herro with us. a republican from the midwest. and also a modest international investor as well. david herro, let me go to the senator from ohio. this is chuck grassley's comments yesterday. your disclosure did not go far enough, mr. comey.

tom: that his fiery talk from the ancient republican of iowa. david, where is your republican party going to be in december, or for that matter, after the inauguration in january? david: that is a good question, tom. one of the favorable outcomes would be, similar to the series " untying the electoral college and maybe we could pick someone else, maybe none of the above. everyone wants to pick on the fbi director now. i think his biggest mistake was not following through the first death the first time, -- the first time, and then dropping this. know, there are a lot of

unknowns. the american people are very resilient. business people, people who work their jobs, people who do what they do every day, whatever happens, i believe we will get over it and learn to deal with it. this is i think the secret of america. bryan wasam jennings out of illinois, then over to nebraska as well. david herro, in the midwest, do you see a severing of the where theyparty, would be almost a third party of populism and anger, and then there will be a more traditional republican party? or does the republican party lose people like david herro? david: people like david herro want to see free market economics and kind of more of a libertarian and with a strong -- a libertarian bent with a strong foreign policy, almost in the form of reaganism, the ronald reagan party. this is still the majority.

i think this is still the majority. by the way, i do not think the republicans are the only ones with issues. the democrats have this very un-restive lot that wants to see a more socialistic, more communistic society. they will have their problems, too, except the clintons were very clever in that they controlled the process before it started. republicans let the mayhem see where it would take it. tom: a young economist came out of academics and cut his teeth with jude when in ski. that economist would be michael darda. how do you frame this republican moment, michael darda? michael: i think you have a problem with the rise of populism in the republican party, and also you have an issue with the democratic base that, for various reasons, have

embraced anti-growth policies, or at least policies that would hold back. we talked about productivity in the u.s. as a major long-term headwind. we are looking to go in the wrong direction in enhancing that with some of the policies supported by parts of the base in both parties. it is unfortunate. francine: how do you fix the problem with populism? we had the former secretary of agriculture from the united states on earlier. he said the problem is that the rhetoric is so much easier when you are on the other side. you look at the last 15 years -- this could also be true for brexit -- we have never had anyone stand up and say i will not vote for you if you are not for free trade. michael: that is a great point. populism is easy because you are playing into people's fear, people's angst p review can run a campaign on hollow platitudes and slogans. candidates are

needed, to explain progrowth. francine: how do you get those candidates? where is the person that will revolutionize, like a justin trudeau type person? michael: i wish i knew. i would make a big bet if that is the case. we could hope for better choices the next time around. maybe the tragedy of this election cycle will lead us to better choices in the future. that is the best hope we have. francine: david, i want to bring you to a chart we made this morning, which tracks the dollar, two-week volatility, two-month volatility. this is another way of looking at market angst as we get into the election. the two-week volatility is higher than the two-month volatility. it is seven days until the election. how will markets trade in the

next couple of days? david: the markets are perpetual forecasting machines. i actually surprised there has not been more volatility in the last three or four days. it has gone on so long, it has been so exhausted, that the market is already absorbing what may happen. probably two less than positive choices. the market resolves itself to that. tom: let me bring up our mexican peso chart. here we are with the clinton rally off the three debates -- count them, 3 -- here is the trump followthrough. -- just asis ending here.ebbing away what is the message they need to bring right now? david: i think they need to bring that, yes, we do want "fair trade," but free trade.

trade is good. it goes back to david ricardo. some countries are better at other things than others. and that unbridled and releasing export markets is a good thing. so free trade is good. trade agreements must be reasonable, and they must be fair for all. but i think this is something that really is missed in our educational system. economics is missed. tom: did you see michael darda? i did not pile on and talk with david herro about the one-point by the green bay packers to the atlanta falcons. they have to get a message out. we are distracted by football, baseball, by our kids and getting on with life. what is the message you want to hear in these nine-battleground states? michael: i hate to sound depressing, but it is simply too late for these candidates.

we know the message is not progrowth, so we will have to wait until the next time around and just hope whoever is elected? -- and just hope whoever is elected -- tom: everybody in this show is for tpp, and yet it is dead. michael: it is not politically expedient now. you do not back away from nafta, free trade. you do not advance policies that historically the markets and that being a drag on efficiency. it is not popular, but it is reality. francine: are you sure it is dead? that whoever becomes president may not resurface some kind of a trade agreement that resembles tpp but it is not called that? michael: it looks very difficult considering the way the political wind is blowing. if it is hillary with a gridlocked congress, probably nothing gets done. if trump pulls out a shocker,

who knows what happens. ,om: could charles grassley from iowa, who started out as a metal bender after world war ii -- could he get elected today? david: absolutely. i think he has broad appeal. he has been there a long time. you would be surprised. on kind of a micro level, on the appeal, people like charles grassley. tom, i am not going to take on the packers and the cubs because you will be prince -- because you will be surprised on both. they do not have any players. they are all heard. tom: they are all on the sideline. david: i was looking at the running backs and i thought, who are these? you and chuckt todd commiserate on that as well. the sunday talk shows -- you can

get it five days a week, "with all due respect," 5:00 p.m. tonight. halperin and heilemann fired up. this is "bloomberg surveillance." ♪

francine: this is "bloomberg surveillance." i am francine lacqua in london. tom keene is in new york. here is taylor. taylor: u.s. prosecutors are building a fraud case against valeant pharmaceuticals that could result in charges within weeks. according to people familiar with the matter, the probe is ceo,ing on the former michael pearson, and former cfo howard shiller. predicted it is

unlikely they will cut oil output this month. goldman says a failure would lead to oil slightly above $40 a barrel. it is also trying to get non-opec countries to join in. that is your "bloomberg business flash." tom: how about "morning must-read"? ge bakernalysis of hughes, a killer job for gadfly. it suggests an enterprise value of 25 could jillion -- of quantity five -- tom: david herro, it is a frenzy

now. will it end? david: it always ends. these things come in cycles. they become almost fat-like. -like.ost fad as we spoke about, with the inability for corporate management to find internal projects to invest in, which is driven in this frenzy. tom: david herro, is janet yellin m&a's best friend right now? david: i think partially. the low-cost certainly helps things. i do think monetary policy has failed to do a lot of its stated goals, but as a result of the low cost of finance, you are seeing more m&a. francine: what is it like in europe at the moment? i do not know if you look at m&a, but we talk a little bit of banks -- we talked a little bit

about banks. david: we have seen a very bifurcated valuation scenario in europe where the industrials, financials, consumer ies are at low variables instability. pharmaceuticals are relatively rich. ork at the unilever -- 23 24. it does not grow all that much. it micro 4% or 5% if that. 7.5 or eight, times. i am not arguing that the pe should be at parity. we are seeing this huge discount on a lot of these industrials. we are starting to see a leveling out of this. as investors, you have to consider price. clearly today, in our view, investors are paying way too much for insurance. they are buying a $50,000 car and ensuring it for $500,000.

that does not make sense. that is where the perceived safety is. we would rather look for the value. francine: what about perceived chaos? what do you do with these banks? it almost looks like penny stock. at the same time, we just heard that the italian banker is now withdrawing its offer to help shore up assets. david: this has been a disaster. look at this chart. of course, this is what happens when you have lax regulation, too much easy money. this bank years ago went on a lending spree, lending to everyone and everything. and this is the world's oldest bank. storied, long history. this is a big problem, one of the two or three things that is really putting a cap and pressure on the italian banking system. this will be resolved, but with the unknowns in the long -- in

the loan book, nobody really wants to touch it. greatou are one of the voices of chicago, chicago philanthropy. in the headlines today, it is a tragedy of crime and murder in your chicago. what is your prescription for the mayor? for is your prescription the city to begin to diminish this horror think murder rate? david: this is a very interesting topic. i have been reading on this and trying to keep informed. by --is a book written from the manhattan institute about what has happened as a result of the ferguson effect. the police have basically dialed down policing. this is one of the problems. we know about the guns and these other things, but for the police to stop policing, being proactive, the pendulum has swung to the other extreme.

as a result, we have seen crime and shootings and murders -- by the way, most of this is gang related. the illicit drug trade. black market for something, this is what happens, similar to prohibition. when you mix into this the you know, policing, this is the end result. you just have to get the police to feel confident that they can stop by a parking lot when they see two people creating this year without being -- creating mischief, without being hauled in and having a badge is taken away and forced into early retirement. francine: david herro. this is earnings coming in full year for 2016. revenue 52 to 53. this is what they expect, a touch above the previous forecast. their earnings per share, a touch below, pretty much unchanged.

this is bloomberg. ♪

exchange.gn

up top, mexican peso. one week to the election, a proxy for clinton and trump. everything else churning. euro-dollar back to 1.10. coming up shortly, it is "bloomberg daybreak: americas," with alix steel and david westin. i know you have a packed show. alix: we will be talking with office in the uk central bank to virgins much stronger can the dollar get. he has a pretty strong call on sterling. oil. all things oil earnings, zinc, and opec will be hitting all of those. tom? tom: alix steel, thank you so much. michael darda closes out with us on the fed meeting tomorrow. none of your textbooks at wisconsin whitewater suggest the zero bound, particularly for this long.

bring up the chart. it is unprecedented, where we are here. none of us have seen this. what is the long-term ramifications to our monetary policy? michael: we need to look into the history books for this one. you have to go back to the 1930's. we had an extended until of near zero short rates that lasted from the early 1930's into the 1950's. unfortunately, this recent history does not capture that. the other point i would make, people tend to look at rouleau says -- at low rates and that is easy money. it actually is not. it is low rates relative to some equilibrium interest rate that is hard to measure. but we know the outcome, and it is exceptional nominal growth. -- the equilibrium interest rate is very low. the fed is getting more comfortable that they can move short rates up again, but in a very slow business cycle, both

on the supply and demand side, we will have a peek and short rate. tom: -- to senator response corker, janet yellen said we had no plans to go down that path mainly because of the pr it will not be a first resort, but i would not rule it out. , thank you soarda much. it was a pleasure to have you in with david herro. francine: i fly on sunday and it will take me two days to clear customs. tom: if you are going through , francine, this is absolutely a president is to have fed bank of england jobs day -- this is absolutely unprecedented to have fed bank

of england jobs day. francine: the jobs data will give us some indication of the and it will change everything will policy that we know. december's second jobs report, probably just as important as well. also on brexit, what am i watching on brexit, quickly, francine? francine: on brexit you are watching pound. we had better figures in terms of pmi, but pound is actually the worst performer against 150 currencies, tom. that is a concern for a lot. tom: stay with us, across all of bloomberg. tomorrow, willem buiter of citigroup. "bloomberg surveillance." ♪

♪ welcome to "bloomberg: daybreak."

i am david westin alongside alix steel. let's get you started with a market check. aboutnes, smp, all up 3/10 of a percent of one point. looking at other ethics, -- --king at other assets strength in commodities. the japanese yen is weakening. zinc is that a five year high. hats those numbers have strengthened in asia and the 10 year yield is up by three basis points. here is what else you need to know. divergence in oil. third-quarter profits that beat analyst estimates. bp profits sliding on weaker refining margins. and out of options? the bank of