♪ apple shines in the newest iphone demand. can automakers and politicians sharespact under control # are lower and we will hear from the ceo. the environment for banking in

europe. bloombergng, this is surveillance. these tech stocks are on the move. that is filtering through to what we are+++

i'm looking at suppliers over in asia. there are definitely gains on the index, but also here in europe. we do have an opec meeting on august 7 so that is your quick market check. >> donald trump was involved in crafting a meeting with a russian lawyer. it provides an account made by the president's own lawyer to exterior. u.s. senate has confirmed christopher wray as a new director of the fbi. theas vowed to defend organization's independence. bank shifting about 4000 jobs. the bank will transfer most of its possessions from paper to berlin. bank official

declines. -- thestors in venezuela riskiest bonds are the in the world. france annually have failed to find common ground. ,ccording to person familiar italy did not budge. negotiations -- >> i'm ready to come back to rome in september to try to achieve an agreement before the onting of the head of states

-- 27th of >> this is bloomberg. some are just getting breaking news. when the stand it is considering . radical break up --s is breaking news come familiar to the people familiar -- speaking to be apple shares are strict do hit a new record high after reporting

brazilian demand. cook, spoke about demand. >> of phone results -- iphone results were impressive. iphone 7 was our most popular iphone and sales were up genetically. the combined family was up strong double digits year over year. 1.2ave now surpassed atlion iphones sold parade them, it basically is better than analyst suspected. besome of the concerns will

about meeting these increasingly highest citations. my large, this is a quarter where you get little kernels of information. company.a gigantic even more of its profits are born out of people dying out of the iphone. >> is that really the business model? just doing survive i

that? >> they are trying. sold 41 million iphones in the quarter in this is a involved in the cycle. right now, this is a business model that works great for them and they're trying to build more service revenue for them. new speakerce this and so they are trying to do these very different than in the ipad had a better than expected quarter. >> mayor trying to develop these new technologies.

is it too soon to know what will work? >> may making a big bet on augmented reality which we will see more in the months ahead. that will be off the iphone and splits of ite online. there's a lot of opportunity there. things inthese other which there are opportunities, but it is still be -- should it -- to be determined. >> it is quite a significant chunk of cash. greg to give it back to investors and that is something

they have been doing over the past few years. one thing they don't do, but there has always been in a lot of rumors is whether they will be -- they will do a big acquisition. it remains to be seen. the have a lot invested in the u.s. tech space. a lot of this money is overseas. to bring some of that money back, apple would surely benefit. >> say with surveillance. we dive into bank earnings season after the french bank reported -- plus we speak to governor mussina.

this is rumored.

>> and radical breakup plan -- familiar,to people they would retain their european operations of the activities. the company routinely considers alternative scenarios. second-biggest is

7.7%. u.s. cinema units slump in trading. because will cut jobs of sales. that is the bloomberg business flash. the marketeck in on action. 6%.hares rising this is apple versus the s&p. .he bottom line is waiting

this is a great function looking at venezuela. risen to 64%. on tuesday, discharge shows they won your probability, also of information after 24 hours. yesterday, security forces the highest opposition figures from their home.

the victories that is inflation, fromideline coming down june last year. oil, which you. can see investors yanking a lot of money from the united states oil fund. >> thank you, so much. >> this book to the banks ceo following the earning. impact onf all, the the net profit. what we had to do in the second

quarter words to account and profit in the second quarter. we still have to put behind us -- and potentially the u.s. we tried to put that behind us. >> we saw investment banking difficult for some of your rivals. makes the banker decision more able to upset the market environment? activitiesple, less in the flow business.

we benefit from product activity. >> we are able to make progress and make progress in terms of productivity thanks to all the efforts. -- see when and if the if the will adjust its policies. strategistus now, fx at new york. thank you so much for coming in. it is a very simple chart.

>> you look at it, it is right .t the top what is the biggest risk? >> some of the biggest risk, a lot of people underestimating the move. impact.ll have a large one it comes to the sme, the line is going higher. japan, slow and steady. ecb is the main risk. favorites your pairing? you prefer euro-dollar,

you're a pound? it makes more sense to be talking euro-dollar. we did see was euro-dollar went higher, quite a disconnect. see think we're going to more of this product. over five days, we are now over 114. it is more for story now than it used to be. going to french elections, it was everyone's favorite shores. it was stronger and more difficult when we had a weakness because of dollar support.

>> i have another chart which is basically surprises compared to the u.s.. expectation or economic data of the rest, little week. is this the kind of chart you look forward? totypically, they start revise their forecast lower so the data feeds the estimates. we are making ff point with the u.s., but it seems like more of that to come. >> next, we count down to brexit. with a look at key battles ahead. this is bloomberg.

>> if you look at what we are survey i thank the bank of england should not hike rates. this is probably the main concern for the boe. what does that mean for how you think fit the of the should --

>> we think the bank of england will be raising interest rates for the first time in 10 years. it is a real risk. back to june, we had three of them for height. chart you just showed their, you have two years of cause of growth. the forecast real growth. >> will actually take the risk? . it is only a quarter of what august.ivered last

but chemists. -- would you really be on emergency rates? thank you so much. speak to the ceo of san pablo. >> it is an excessive conversation and it is up next. we check our phones 85 times a day.

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emerging markets and asia. as soon as those numbers cross the tile, i will bring you those. donald trump was involved in crafting a statement about a meeting he had with a russian lawyer. --ah huckabee sanders says it provides an account of the events that conflicts with the versions made by the president president'syer -- own lawyer. deutsche bank most likely brexit scenario shifting jobs to the continental europe according to people briefed on the planning great most of the positions will transfer to frankfurt and

berlin. no plans have been finalized. deutsche bank officials declined to comment. investors in venezuela are you losing -- are losing their resolve. the country's bonds, the world.t in the global news, 24 hours a day, powered by more than 20's 700 journalists and analysts. francine: this is what i am seeing for standard charger. -- the firstin , comingrating expected

in as expected. $7.2 billion. the interested in seeing dividend share. they are saying there is no in a room ordinary share declared. if you look at concerns going forward, they say they will consider dividends, but at the year end. the outlook looks uncertain. i will bring it this as we have more. for the moment, stock is down 2%. you anw, we will bring interview with the ceo at 4:00 p.m. u.k. time. stuck to itsnder commitment for the year, but rolled payout as lenders absorb two failed banks. they expect the assets to have a positive effect on earnings

starting next year. it is a great pleasure to host you in the studio. when you bought the banks, there youspeculation, this puts in a huge advantage. do you believe that is the case? of the banks is you have to avoid the systemic risk within the country. one that canly move the risk within the country. moveyou are ceo, you can on increasing net income or reducing cost of equity. in the case of the banks, we were able to use cost of equity for the banking system in italy.

teamworkan example of within a bank, european institution, and the government in italy. francine: what are the implications? it was a good deal for you. carlo: it allows us to have and --.neutral the point of the deal is a good deal. it is a deal that can allow us to change part of the story into structuring. now, we can reduce costs and

restructuring. in the end, this is a good deal for intesa sanpaolo and the customers for veneto bank. the risk in italy could be considered systemic in europe. france is it change your strategy? we knew you were going to buy something. change?s this carlo: you have the duty to evaluate the possibility.

we succeeded in having a deal that can create value. it is a good story. it is also related with the fundamental of our strategy in increasing our market share and work management sector. are you looking at acquisitions abroad? outside italy, the point of acquisition is a point of target, price, respecting capital neutral.

the results of this analysis is it is better to proceed with organic growth but concentrate on making acquisition of team of bankers. clients. this is a strategy we want to increase. in is not enough to be sure to have -- owned by the italian clients. francine: how and when will your

bank be better valued at its full value and what will trigger it? we were attracted by systemic risk in the country. there is no systematic risk through veneto. is an important part of the story related to cost of equity. on the other side, net income, the possibility to look at our asults, to look at it on fundamental basis, we are able to deliver results. we had the first interview in davos. there was the possibility of paying $10 billion euro dividends. now, we are delivering

significant reduction in nonperforming loans. part of the story is continued to grow and wealth management. we have potential in our wealth, do not forget, we are managing 920 billion euros of wealth, of italian families. there is a possibility to reduce cost that would the the next phase. francine: you are working on a new business plan. willoughby on wealth management? you seem to be talking about that a lot. a fundamental part of the story. we have a lot of room for conversion. 100 billion euros we can convert into asset under management in the next year. we can become one of the first, second, third player in the

insurance business in our country. we can become the first online bank through the acquisition of , that is a new initiative. the possibility of reducing branches and costs in a significant way, and the cost of risk. ofare delivering reduction loans. our provision are enough to continue the strategy of being a private equity fund in the way we deal with nonperforming loans. risk can come back to the two or threeel in years time. is that the backbone -- this is a guideline of your plan? revenues, management,

insurance, and online banking. reduction of branches, integration of companies within the bank. cost of risk reduction. in have something embedded the environment. increasing interest rates will bring us upside. we have 400 billion euros of deposits. increase, you can come back to 75 business points -- 75 basis points, or something like this. significant for our bank. bank, are there any other banks out there you are worried about that may need state aid? carlo: there are minor cases, not significant. -- ford be managed with

the banking sectors. the majority of the problem, italy is probably comparable to france and germany. notr cases, but significant. francine: they would be dealt with by the italian state? -- would be a solution within private investors. i am not sure there could be state intervention. do you believe dividends will increase every year? carlo: it is part of the story. clear, when we started saying we can paid 10 billion dividend, you cannot pay 10%. there was reaction you will pay

extra dividends or not. a percent.deal is 3.4 billion euros we will pay. can have asay you in the future.al there is a correlation between market -- for the company and income. we are working to create condition to increase net income. we will make -- in order to set --, but it is part of the story and we remain part of the story of a bank that has significant access capital and we want to maintain axis capital for the future. francine: is that why yesterday the share price was down a bit? was it the disappointment of this extra dividend people were hoping for? price increased a lot in the last two to three weeks.

-- closing yesterday was extra dividend could have been considered a possibility for some investors, but in my view, i need to look at dividends. today, we are best in class if you look at dividend deals. me 10 billion more market cap, i can make it. this is the one year share price performance for intesa sanpaolo. up almost 60%. what is your take on europe in general? when you look at said policy compared -- we look at fed policy compared to ecb policy, is there a danger europe is strong enough but italy is not? -- i agreey is not

on this point. is in a situation that is more comparable to japan. a notion of growth you can compare with china and germany. italy, and growth of 1% in the country in which you maintain the wealth, no systemic risk could be absolute. in europe. position the point of italy is the amount of public debt. there should be an effort from the government to reduce public debt through disposal of real estate. a lot of properties can be disposed. in europe and italy, they can grow. euro, and the sense of currency, , that willvaluation be a problem for possible growth , especially for germany and italy.

we will see what can happen in the usa and europe. there could be, in 2018, a , so my expectation and interest rates can increase starting from the end of 2018. we have to be ready. for the public debt and italy, it is not positive. francine: does it make a difference for you? -- carlo: brexit is not paolo.ant for san are not a significant player, but we can benefit from the best part of the brexit. francine: thank you.

the ceo of intesa sanpaolo. is there a future for diesel berlinrs? we are live in for the very latest. this is bloomberg. ♪

francine: this "bloomberg surveillance.". fromve some figures standard charters. but there estimates, may be disappointment when it comes to the dividend. for the moment, there will be no interim ordinary share dividend declared and they are saying there are political uncertainties that will -- -- tomorrow we will bring you an exclusive interview with standard chartered cfo. let's get to the bloomberg business flash. breakupdering a radical

plan to the combination of its steel operations. according to people familiar with the matter, sisi crook will retain -- thyssenkrupp will retain -- and considers alternative scenarios. revenue and germany's second-biggest listed bank fell. it struggled to make money out of new clients. -- push into digitalization is attracting more customers. dutch bank said underlying profit was $1.99 billion, beating estimates. gains came from resilient interest markets and a gain on the sale of a stake in its real

estate runoff or folio. on course toare open at record highs after jumping in after our trade that highlighted demands for the iphone. revenue will be $49 billion to $52 billion. consideringrman is tripling his u.s. investment budget, according to donald trump while outlining off record remarks. the main assembler of the iphone build a plant to in wisconsin. that is the bloomberg business flash. german auto executives at me to discuss measures for cleaning up diesel cars and avoiding bands and cities. the carmakers are closing in on a package of initiatives to tackle harmful diesel emissions.

chad tom us from berlin. thank you. how important is it for auto makers and the government to reach an agreement today? chad: both sides have a lot riding on reaching some sort of agreement. we are less than two weeks away from a federal election. the government has been under , saying they haven't done enough to maintain the d so crisis. automakers need to show they are taking action. that they are willing to recall vehicles. they are concerned about diesel bands -- diesel bans. the city of stuttgart may have

to introduce diesel bans. so -- a.d.- a.d. ban would be a problem for the german government, as well. on -- foromakers rely their sales. at the moment, they say they need diesel as a stopgap measure until they are able to continue developing their electric models. they are behind the likes of tesla. they need time until they are able to develop those cars. there is a concern about the possibility of them not being s that would diesel

be drivable and cities across germany. francine: what is the future? chad: everyone would acknowledge the decline.e on sales are falling. automakers say until they can get to that point where they are able to switch over, they need diesels. stricter emissions regulations will come into effect in 2020. they need diesel cars to meet those regulations. the pollution that creates smog, but they produce far less greenhouse gas. many years ago, we talked about being a clean alternative. at the moment automakers say they need it, but in the long run, we are likely to see the shift to electric that has begun. francine: thank you.

"bloomberg surveillance" continues in the next hour. tom keene joins me out of new york. we will talk about rate a little bit, about central banks, normalization, what it means for currency and commodities. this is your market check. a little bit of gain on euro. one of the biggest things we are watching this year, miners, oil stocks are up. are powering ahead after apple earnings. this is bloomberg. ♪ is this a phone?

or a little internet machine? [ phone ringing ] hi mom. it makes you wonder... shouldn't we get our phones and internet from the same company? that's why xfinity mobile comes with your internet. you get up to 5 lines of talk and text at no extra cost. [ laughing ] so all you pay for is data.

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shares are at a record high. attempt toast ditch save diesel. can politicians get it back under control? after the crisis, the bank's purchase was a good deal, and will further with cost cuts and restructuring. this is "bloomberg surveillance" and i'm francine lacqua in london. tom keene is in new york. we see quite a lot of movement when it comes to tech stocks. we are looking at these interest rate differentials and geopolitics, of course. tom: it is interesting to see what we will see out of the white house on china, which is percolating today. more than anything is the new chess of staff general kelly, to see how the day to day goes in washington. that's a mystery, francine. francine: let's constrict to the bloomberg first word news with taylor riggs. reporter: british prime minister

theresa may's government fights terrorism with a new bill. the measure would ensure the u.k. has the necessary powers to cut off funding for terrorists. the senate confirmed christopher wray to be the new head of the fbi. wray will have to study a law enforcement agency that has been buffeted by political pressure and heavily criticized by president trump. the white house acknowledges president trump was involved in made by the statement his son regarding his meeting with the russian lawyer. the meeting was about potentially damaging information on hillary clinton. venezuela is preparing a plant bif th if the u.s. bans oil imp.

this is according to people familiar with the matter. the u.s. is the single largest buyer of venezuelan crude. other sanctions are possible. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. this is bloomberg. tom: equities, bonds, currencies, commodities. .he stock market, higher higher does not matter which stock market we are referring to, we continue to see hi movements higher. a little bit of a euro field there with the dow. 1.1558. dollar, 37.eaker swiss franc, 1.14 francine: in the last two

minutes we had a decision from the rbi of india. they are cutting the repurchase rate from 6.25%. i was looking back at what economists were telling us. the verdict was split. the indian government bonds are little changed as we speak. however, the policy rate has the 25 basis points. this of 50 basis point cut in policy rates will step we are looking a -- policy rates. a little later we will cover apple. it is giving a little bit of a lift. tom: very good. a trade weighted index. this is taking any currency and putting it in the basket of trade weighted partners. up, up, we go with strong

euro. down we go with a very nice we getting euro trend -- nice weakening euro trend, starting with the financial crisis. we have migrated up to two standard deviations up. you wonder if this is a decisive breakout, or did we simply define the weaker trend of the trade weighted euro. i was going to call it trade weighted donovan, but that did not have the ring to it as the trade weighted draghi. francine: they are heartbroken, listening to you. the london desk is heartbroken today. you can see a little divergence when it comes to economic surprises. i looked back yesterday at it. it explains the currency moves in the u.s. versus europe. these are expectations of data in europe, where you can see they got a little bit better, on track. in the u.s., now on track.

that could explain some of that euro-dollar call. we see different economic outlook. joining us for the hour is paul donovan and kit juckes will be atlobal strategist societe generale. let me refer you to my chart, which mirrors tom's chart. is there something underlying we are not seeing? >> it is a bit more than economic expectations. we know that chart is wrong because data is wrong, and it is revised all the time. the surprise indexes do not pick up on this. we actually see the u.s. doing better than this chart indicates. where the u.s. has a problem, the start of this year the dollar was overvalued on any fundamental analysis. so, therefore, it's naturally

had some kind of slapback. and international investors could not read u.s. politics as well as u.s. investors do, and there is a lot of politics coming out from the trump twitter feed. the result is we get a lot of reaction from international investors, and that is reflected in the international currency. francine: are you telling me they react to what trump tweets? >> it is a function on bloomberg, for goodness sake. francine: kit? >> they definitely follow trump tweets. we started the year where all the political risk was in europe. europe had weak growth beginning to turn around. we are still progressing with massively accommodating monetary policies and we had huge uncertainty after the u.s. election about how european politics would pan out. wind the clock on, we are

talking about normalization of policy with ecb, the fed going even slower than people thought wey might be going, and are looking at trump tweets. the political risk has flipped. you have the perfect storm too hard people who are bearish on the euro and bullish on the dollar. tom: i am thrilled to have both of you together on our set, what "surveillance" is all about. let me go to both of you, kit juckes, first. the idea of a range bound euro. kit, do we have escape philosophy to a stronger euro, or are you home on the range? >> i think we will escape and come back and then escape again in the longer run. i asked this question to myself about the euro-dollar rate, but if you use the purchasing power at 1.33. both of those escape. how can europe have a cheap

currency if it has policy normalization and a massive current account surplus? tom: brilliant. paul donovan, what is the stronger euro. euro, what juckes does this mean for germany? >> we have to be very careful here. what we tend to find with a strengthening currency, is you don't see export volumes collapsing because companies these days don't react every time some teenage fx dealer in london press is the wrong button on their computer. tom: the teenage dealers are at socgen, not ubs. >> ubs has a higher average age. i contribute to tahthat in some way. companies maintain their foreign

pricing strategies. environmentger euro we have a squeeze on profit margins of european exporters, but you don't get the effect on the volume of exports. that is what i as an economist care about because we look up real gdp. we don't care about profits. that is something vulgar our equity strategists get involved with. francine: when you look at youth unemployment, it's still shocking. >> i think policymakers care about the an impact on inflation and moves in inflation. the euro level is not expensive. it's cheap. it's not going to damage growth. i agree with paul, 100%. but the european policy makers did not want to get into a process of normalization, by which i made another round of

tapering, slowing the rate of bond purchases. so, they feel squeezed. the europeaninpoint, countries are not doing that great, but the currency is performing well better. how do you expect to have a cheap currency and a big current account surplus if you are not running policies specifically to generate that? tom: let's come back, kit juckes and paul donovan. i love that we are doing this on august 2 to stagger into the end of the summer. we will come back. in conversation this morning lloyd.chael bloomberg is look for that at 8:30 this morning. this is bloomberg. ♪ reporter: this is "bloomberg

surveillance" and i'm taylor riggs. apple shares are rallying. the tech giant gave a forecast that highlighted resilient demand for the iphone. we spoke with tim cook, speaking about the iphone slowdown. it feels like the rumors are much more louder and frequent this year. so, we do believe that created a pause larger than previously. societe generale is still struggling with allegations were past misconduct. it has increased the legal provisions by $354 million for disputes it did not specify. bloomberg spoke with the ceo. >> what is to do is to add to ou r provisioning. we still have to put behind us

andwell-known litigations on the u.s. we have these litigations. we are fighting to put that behind us. reporter: the profit fell 28% in the second quarter. that matched estimates. itserzbank reported weakest revenue since 2014. the ceo wants commerzbank to focus on the retail and corporate business. that's your bloomberg business flash. francine: thank you, taylor. the amount of treasuries owned by foreign central banks and held in custody at the federal reserve bank in the ark for example dropped to $3 trillion last week. today fed watchers will be watching the refunding announcement and could provide

guidance on how the debt ceiling and balance sheet normalization could affect the yield curve. let's get back to paul donovan and kit juckes. kit, do you worry about the debt ceiling, or just about the fed? >> i worry about the debt ceiling if it gets in the way, if it becomes some kind of protracted, big, ugly fight that affects fiscal policy. there is a lot being invested in the idea of sfiscal policy from the united states. if the debt ceiling gets in the way of that, then the fed's the only game in town. that becomes more important. francine: so, the fed is watching this, paul. let me bring you over to my chart that hillary clark kindly added. hillary added the swiss national bank. does the fed look at the debt ceiling?

>> i think it has to. it does have a bearing on at least near-term economic performance and some inflation pressures. if you are getting a passport government shutdown, that could have economic applications and it can be disruptive. in the grand scheme of things, and perhaps with regards to quantitative policy, they could be somewhat less concerned. the fed has got three levels on the economy. what they seem to be trying to do is say, look, we already tightened quantitative policy a bit. we had this organic tightening whereby the balance sheet gdp ratio has come down a little bit. we are now going to passive tightening and we want to set that on a particular course over five years. if they do that, the noise around the debt ceiling is probably not such a big deal, but for the interest rate and monetary policies side of things, they could be more

important for the timing of the next hike. tom: how far we from normal rates? ulta accommodative to accommodative to normal? >> do you know what normal is? tom: you're the guest. i could barely find my coffee this morning. thirdcine is on her already. [laughter] >> i think we have to accept that the normal level of interest rates is lower than it has been historically because we are in a lower nominal world environment and therefore nominal interest rates should be lower. we also have to accept that the u.s. has become, to some degree, become a more cash-based society over the years since the crisis. that means the normal level of the fed's elegy in the long-term

will not be what it was historically. it will be higher because it is a more cash-based society. the problem is, as things evolve, as banking evolves, what we judge to be normal will change over time. so, i think it is a little different at this stage to be saying, this is the goal. tom: kit, help me with this chart. we like to do this on "surveillance." the red line is the average of the euro since inception. it's nicely above 1.20. that is the migration you were talking about earlier, kit. just to get back up to average is where we are heading. kit: i think to me, if you had said, we are getting back to average, the debt ceiling in the u.s. that becomes difficult. that increases the risk of a spike. the way the market has

permanently people looking for a dip. so, the positioning is going to drag us through. i think as i look forward to that and we look at the united states, the likelihood to me is theove above, worry european central bank, come back down, and settle in the longer run to a level closer to that 1.30 level. i don't think we can sustain the space of increase. and particularly, while we're having this debate about where normal policy is in the u.s. es people rethink that all th time. tom: we will continue this great briefing on this wednesday morning. here's the interview of the day, particularly if you are concerned about the future of the united states of america at 1600 pennsylvania avenue. nobody knows the general in the white house like the admiral

fletcher. dave cerritos will join us -- james stavridis will join us this morning. ♪ francine: welcome to "bloomberg

surveillance" and i'm francine lacqua in london. let's talk about the boe. thereloomberg editor's argue, basically -- basically this is what it says. the choice is not clear-cut and the policymakers seem to be

divided, but with the economy showing signs of slowing and inflation under control, they would be wise to wait a while longer before tightening. we are with paul donovan and kit juckes. paul, the concern is you can argue either way. wage growth is slower, but the boe expects wage growth to rise significantly. with inflation, maybe it is time to hike, but are they worried about brexit? >> you also have to bear in mind the starting point is an accommodative policy. he's of the inflation, which is -- you have got inflation, which is not a way off from normal. that is why this debate is coming up. you have members of the bank of england monetary policy saying, quite legitimately, we need to think about running an abnormal policy during normal-ish economic times. then there is the uncertainty

about the eixt, except for the most part, economists would say that is something that affects trend growth. that will not have a huge impact on the cycle. it is more about the trend growth story. francine: which way would you vote? >> i would vote dto do nothing for now. i just don't think that the uncertainty that is created by going once is worth it for young a step that way when can see the economy slowly losing momentum from here. francine: are you looking at the pound or brexit negotiations. where is the u.k. headed, paul? >> to be honest, i would not look at either of those things. the negotiations are -- boris johnson offering historic pronouncements. really, that tells us nothing about anything at all. where pound sterling is, we are

very complex with the revival of the euro and weakness of the dollar. there are too many moving parts to get a clean picture of the u.k. the labor market, that is where we need to focus our attention. francine: we will talk more about the labor market. paul donovan and kit juckes stay with us. coming up tomorrow, stay with bloomberg for the latest from the boe. that rate decision is due out 7:00 a.m. in new york and 12:00 p.m. in london. then we have a news conference from mark carney in london. this is bloomberg. ♪

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tom: good morning. tom keene and francine lacqua. the wall street journal with a nice article, lloyd blankfein and the challenges and wallman

-- at goldman sachs. they got the trump trade wrong. you really wonder quarter to quarter how a company can get things wrong in a trade that shows up in trading results. francine: if you are a bloomberg customer, you can look at us at bloomberg go. i did a poll and i have 2 guests, paul donovan and kit juckes. i asked what they would ask lloyd and they would ask if they read trump tweets. something to get you started. steel and the 8:00 hour. first word news, here is taylor riggs. taylor: rex tillerson said pressure is the best way to deal with north korea. to findn told reporters an excuse to invade north korea.

lindsey graham said there is a military option at that could destroy north korea. white house senior economic forefront tonew replace janet yellen. rolewould take over the from yellen. administration may strike a peculiar deal. according to persons familiar, the airport is in talks to buy 727's, boeing has had the planes in storage since 2015. in germany, the auto industry has made a last-ditch effort for diesel technology. to draw a line under the emissions scandal and convince officials that diesel has official -- has a future. global news 24 hours a day, powered by more than 2700 journalists and analysts in more

than 120 countries, i am taylor riggs. this is bloomberg. francine: thank you so much. litigation issues have weighed on france's third-largest bank and saw a drop of profits. more also discouraging news from commerzbank as it reports is weakest quarter since 2014 as it struggles to make money from new clients as rival deutsche bank is shifting about 400,000 jobs. joining us now is bloomberg intelligence bank analyst and paul donovan and kit juckes. we will not ask of them to talk about their own banks. what do we know about the healthy banking sector? it seems depending on what kind of bank you are, you are doing better than expected or much worse. --it is a very interested

interesting set of results, we have winners and losers. nothing really wrong with the results. buting positive on revenues there is still interest in the banking sector. nothing really wrong with the results and momentum is stalling , i think. francine: expectation that we are trying to go through the figures, is it just a dividend? do investors want dividend more? jonathan tyce: i think topline growth is what it is about. equities trading. you look at usb seat, not really a buyback but top line. i think banks delivering top line will relatively outperform. tom: you are great at the second

to derivative of what these people are doing. what is the urgency to accelerate the change in business plans? jonathan tyce: as far as brexit goes, any progress, these guys hsbc has costsnd in brexit and talking people moving to france. not a greatine, deal that people can do. ands hammering margins brexit uncertainty, regulatory concerns have not really gone away. tom: within the continental europe, are they strapped by regulations? are the paint -- are the bankers talking of patient game? jonathan tyce: there isn't as mightppetite as you

expect for french retail, it is still a disaster. cutting 20%. despite of the fact, one think we would've expected is more cost-cutting today but we have not seen it, even italy. you are not seeing it. francine: do you think, i had a lifting conversation -- i had a lengthy conversation and he was telling me italy turned a quarter and his bank will be at the top. paulo wasn't the only one of whom can remove within the country. when you can move on and increasing or reducing equity so cost of equity is related to systemic risk. we were able to use cost of equity for all of the banking

system in italy. francine: he was saying because they bought banks and now, it is a much better position, do you buy it? jonathan tyce: the good thing is they are increasing provision as they have had to cut expectations. it is great the coverage is rising and you have $200 billion in bad loans. francine: i do not know if it is a region, we had a ubs and credit suisse, is there any region or bank that looks like an outstanding performer? jonathan tyce: the french banks have been in a sweet spot. i think the appetite for the french as a core holding and hsbc as a core holding. investors are probably thinking do i want to invest? kennedy absence of rate

increases, revenue -- in that case of rate increases revenue goes nowhere. tell a bank when do we finally see him in a? -- tom: wind we finally see -- tom: when do we finally see m&a? jonathan tyce: i don't see big deals. looking to get away from domestic regulators, if you pay more this hefty 5% of the dividend. probably could be deals but it is a fragmented market, german elite, italy -- germany, italy where you have unlisted banks. personally, it would be very surprising. looking: jonathan tyce at the banks and we will get back to macroeconomics and to oil and inflation dynamics with kit juckes and paul donovan.

in the meantime if you want to know more about your samsung or bloomberg.com is where you needed to be to stay ahead of the competition. this is bloomberg. ♪

lacquae: i am francine and tom keene in new york. to sell 5% ofims saudi aramco and an initial public offering from the u.k. to japan are now flying positioned themselves for what me be the world's what may be the largest ipo.

they are picking london and new york against each other for the largest exporter. let's get to bloomberg markets. thank you for joining us. what kind of proposal can a lot of these if to saudi arabia? do we have any insight what saudi aramco what's? is $1of $2 trillion billion and you could look at one of the richest ipos. government officials have been listening to presentations on how the process is going to work out. they are aiming to lift in 2018 and not much time left. the one in saudi arabia and the andr is one is new york that is supported by a strong political relationship was the congress and president donald trump.

you remember the visit. the fundamental commercial relationships that aramco is the largest refinery in the u.s. and some pointed out that the fact that 9/11 victims can sue forward governments is a bit of a turnoff. ideaine: do we have a new of what to their inclination is -- any idea of what their inclination is? >> i'm sorry, in terms of what? francine: do they tend to want to go to new york? there are pros and cons. that new yorkea is all talk compared to london or singapore? from what we understand, it is a close call between new york and london. london is the other in contention and we understand that the proposal has been made to waive requirements to put this in the premium segment

which is a key waiver froman aramco perspective. brexit is thought to be a stumbling block in the conversation. saudi arabia ships two thirds to asia and that is another one important to watch out for. francine: thank you, aramco -- yousef gamal el-din, from dubai. is alls plan to aramco wrong according to some. let's turn to paul donovan and kit juckes. they are still with us. kit, i imagine how this translates into your world. you look at valuations from aramco to find in the appetite for oil stocks. have we reached peak oil or not? kit juckes: i think we are at the point where we are in a

slower environment and less volatility in oil prices and likely to have so. we have technology on the one side and slowly rising global demand on the other. gete get more efficient, we into this world were frankly i do not think we will see the volatility in the next 10 years that we have seen in the last. 10 the timeout -- in the last 10. the technology moves behind the demand and that sleep into -- saudi's feeds into problem. here is a country that needs money as they were like as high a valuation of aramco because of that would help. they are not running great, big healthy demand. paul donovan: one of the things that is interesting in terms

of raising the money, where is saudi looking for the money to come from? they need buddy from overseas. they have to attract former knick investors to fund the or persuading domestic investors to sell former and assets in order to buy -- foreign assets in order to buy. the issue for the saudi government is it is no good for somebody selling other saudi offset -- assets and that will not help, they have to pull money from outside to finance their deficit. tom: what i find fascinating in this debate and we have in a bloomberg news story is why go to london, why go to new york? china is the dominant player with saudi arabia and asia gets two thirds of their oil. for me, the no-brainer is to go to hong kong. paul donovan: part of the issue

is you want to be able to access capital and you do not necessarily want to go to where your customers are. that is not going to help you. you want to go where the money is and the pool of savings. that is not particularly the asian market at the moment. even in asia, you have to manager money through a swiss bank in europe. paul: kit juckes, which has the tilt, new york or london? i do not want to get you in trouble. has a more city global since then new york? kit juckes: paul is right, they need the biggest pool of money. be very, very simple about the final decision. where can i get the best money at the best price? deficite a big current and they clearly do not want to

go to the road of changing their currency now or raising domestic prices. tom: what is your call on oil, one year out, two years out? paul donovan: i think we're probably looking at a range of $55. tom: do better than that. kit juckes: i cannot. it is equally better. i will go in the middle. we are dull. but, we are right. [laughter] francine: kit juckes and paul donovan, what a pair. they are staying with us. if you have range bound questions for both all and kit and kit, look at tv and steal tom's chart and ask us. this is bloomberg. ♪

taylor: i am taylor riggs. deutsche bank may move about 4000 jobs from the u.k. after brexit according to people briefed on the planet. goy say deutsche bank will

to frankfurt and berlin. consideringmaker is a radical breakup plan according to people familiar with the matter that would bid alternative to the combination of the still operations with india's company. it would keep the steel business as spin off most units. jacob engineering is close to a deal to buy -- according to "the wall street journal" and the deal would be more than $2 billion. they have worked on expanding the panama canal and improving london's sewage system. that is bloomberg business flash. think of them francine wants to address with our -- a theme francine wants to address with our two guests. bring up the chart, if you will.

euro-yen that 25 years. here is abenomics, a stronger yen bank against the draghi strength of a recent stronger giving thatack -- well of abenomics of another period. charts and like your looking at some of the technical andl, euro against the yen some of the technicals and tells is a good story. we are back with kit juckes and paul donovan. kit, the kind of bent on japan is the prime minister and does government -- and what does governor kuroda say. kit juckes: the market is still betting on both of those. charge, they are not done with this policy of trying to really push through reflation to escape from

disinflation trap they have been in for as long as i can remember . they will continue to use a very undervalued currency accurate, douglas policy -- accommodative policy. as long as they are doing good while everybody else is thinking of normalizing, the contrast between the ecb and bank of japan is start for -- is start. tom: let's say it is going to be a currency war full job what kind -- war. what kind of currency war will there be? problemes: part of the is you get politicians -- paul of the problem is you get the politicians paradox that we must do something and we must do this. politicians who want to be seen it to be doing something even though there's no relevance significant economic

consequences. i think the concern columns in if we that politicians who are looking to distract from other parts of the domestic agenda or policy agenda for from scandals or what ever it is, you may get politicians making outlandish statements on the currency to be seen to be doing something. argue it wills not have a great deal of impact. , bank i have to make money in august -- tom bank i have to make money in august, what do i do? think you can alone the euro until labor day. love to see, i think i have a forecast of 140 on euro-yen. i would love to see it. i need a ton of help from accommodative boj policy. i would stick with those. francine: thank you.

kit juckes and paul donovan. let's have a look at something --were looking at you looking at. i feel like we should be on holiday. i do not know what is going on for the what is the biggest mistake you are worried about when looking at the growth? china? that there are 2 potential policy risks out of the united states, a near-term one and longer-term. that near-term policy mistake would be the fed selling to act. t, staying loose or for too long. this is not an environment where you staying loose for too long and that would be a danger, not particularly high but if a vote the trump starts running -- ivanka trump starts running the

fed next year, i would be concerned. and the tone emerging in america -- any could do anymore enormous amount of damage to long-term economic policy. this is potentially a more serious risk in the medium-term, potential damage to the openness. tom: we have to leave it there a barrel. and --novan kit juckes and kit juckes, just fabulous. joins us.antos we are looking at lloyd blankfein in the 8:00 hour. this is bloomberg. ♪

tom: the marines have landed. general kelly gives guidance to the president on the budget, on

tax reform and a seriously on the open you would epidemic -- president trump will not dictate any letters. the dow is 22,000. and we hope you are watching appleillance" on an ipad, killed it and cofound the critics. paul sweeney to stop by. this is "bloomberg surveillance" from new york. francine lacqua in london. what a great conversation with mr. kit juckes and mr. donovan. the euro lifting is a big theme for august. francine: he is and that ubs tapering sooner than it and the fed, maybe not. this underlying kind of undertone, politics and the trump administration and brexit.

tom: the wednesday morning briefing with first word, here is taylor riggs. prime minister theresa may's was sweeping power to fight terrorism to ensure they have the necessary power to cut off funding for terrorists. back in the u.s., christopher wray to be the new head of the fbi. the former prosecutor has a this -- a big task. office has been criticized by president trump. the white house has confirmed their president trump helped to draft the statement made by his son. that statement says donald trump jr. and a lawyer primarily discussed adoptions of russian children but email indicated it was about the -- about possibly damaging information on hillary clinton. venezuela is supposedly

constructing a plan b if they have sanctions against the united states. the u.s. is the single largest buyer of venezuelan crude. the trump administration will sanction the president of venezuela. other sanctions are possible. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. tom: bonds, commodities down. a look at the that. food sure's -- futures are still agreement. onto the next screen where we see the vix, 10.74 with elevator euro. -- elevated euro. francine? francine: tech stocks are powering and now less so. if you look at the benchmark

equity, crude is falling for a second day and industrial metals are trading lower and a surging euro and a bit of a headwind to the global stocks. that is my data board encapsulating everything were looking got. yen at 137. tom: i had an emails from david gura who will join me, the press release from the new chief of staff at the white house, general kelly, joining alongside blooms surveillance is our chief -- bloomberg surveillance is our chief washington correspondent, kevin cirilli. what will be the relationship of the new chief of staff of the family members of the private -- president? >> i think it is worth noting anthonyh the firing of scaramucci, they are trying to set a new tone and that's what

we have seen in the last 24 hours. tom: i see real body language. senator portman will talk about his leadership on heroin and opioid. what does the new day-to-day cadence of this president? kevin: i was speaking to senator portman yesterday and asked him about what else is coming down the pipeline, he is the leader on opioid addiction and a big player in the trade department. we are a couple of weeks away of . nafta negotiations heating up today, reports about what the administration will be doing and taking a look at china on the trying to get new trade, tougher trade stance on china. in regards to today, yesterday, big news with taking a new look at the volcker rule. talk to me about

russia. still getting more word on donald trump, the president getting involved with his son's kind of refuting of being at the meeting. and there is a lot, we're talking about jeff sessions, when do we have an update on russia? word yet on when these investigations will conclude. it is frustrating from the administration's point of view that there is no timeline for i can tell you it is not uncommon for the president to sign off on public statements from the white house. he said he has his own spokesperson. on him signing off on the statement, it shows he feels even with investigation into russian meddling and the contacts, he feels he can be the same kind of spokesperson he is from the administration's standpoint and investigation's standpoint.

francine: we had two heavyweights, paul donovan and kit juckes as they were worried about the debt is selling. kevin: yesterday, i was speaking with several republicans and later, mark meadows will be at the museum across town having a forum and i'm sure he will be asked about the debt ceiling. here is the battle line. ultraconservatives say if you want to raise the debt selling of a we have to have spending cuts -- debt selling, we have to have spending cuts. moderates and the white house said we want to raise it and make sure we make good on our debt and that will have political theater. what is different about this go around versus back several years ago is that's right now chairman mark meadows of the freedom caucus has shown he is more willing to negotiate with the

white house given it is president trump. we saw this on health care, it was not the house and that's the health care, -- in that sunk health care, it wasn't the senate. tom: thank you, kevin cirilli. are you in the bull market? are you near doubt -- the doubt 22,000? kit juckes -- gabriela santos, let's go to a chart to show how you define a bull market. people will calm off the lehman low, the dow chart and of the 22,000 and ip to would take it back to 1942. how could you not on stocks? gabriela santos: that is why we encourage investors to own stocks when planning for investment. remember the experience of the 1990's with a sideways

markets a it has been up and down. we seem to have broken out and we think regard in an environment where stocks will track higher. tom: to jpmorgan, where do you allocate new money? where do you choose to place a pot of money? abriela santos: with the that said, we have to acknowledge the next few years will be much more muted than in the beginning. tom: general counsel made you say that. where do i put the money? to puta santos: we want money increasingly overseas and we felt strongly about the eurozone recovery and emerging markets. investors in the u.s., specifically, and overseas are under allocated to a lot of these growth stories especially emerging markets. francine: almost every person on this set says it is now time to buy euro, when does it become

crowded? gabriela santos: if you think about where we are in the eurozone recovery, we are in the early innings if you think about earnings. and valuations are still reasonable for the euro area. still very much in the beginning of the european equity recovery and investors have not missed out if they have not not was a potential over the next few years for double digits returns in the eurozone. francine: what would you be buying in the eurozone? is it country specific? four undervalued periphery countries? gabriela santos: we have been talking a lot about the eurozone and in the past few years, weak bureau and by international akmpanies and that is -- we buy international

companies and that's how you make money. we want smaller more midsize companies and companies that have exposure to the domestic story like financials. tom: let's continue with gabriela santos from jpmorgan. and paul sweeney on our own. a timely interview, arguably he knows the general as no one else does, james, the admiral from the fletcher school of toss on is good, good friend -- school of toughs and his good, good friend. looking forward to that. this is bloomberg. ♪

taylor: i am taylor riggs. bloomberg business flash. struggling with the burdens of

litigation past misconduct. france's third-largest bank has increased provisions for disputes it did not specify. they are trying to figure out the impact brexit will have. bloomberg spoke with the bank's ceo. >> it is the outcome and for example whether we can keep branches on both aside, we have to put in place provisions is a big difference. today, i would not to be in a position of final impact of brexit. we have not enough clarity. oflor: socgen's profits fell 28% matching estimates. our will shares are rallying in premarket -- apple shares are rallying in premarket before new models are launched. we spoke to ceo tim cook talking about the iphone slow down fears

and he said it seems i rumors are louder than in the past and we believe it has created a apuse. --pause. tom: thank you. let's talk out will they go in -- apple may go to the broader tech sector. paul sweeney's kind enough to start his day with us. long apple, long, why would anybody wanted to go to a hold or a cell on this juggernaut? it has become -- paul sweeney: it has become a phone company. you could say iphone sales are slowing and the market is cautious and that is a played. they continue to have refreshes, the app store, that business is growing and it looks like this company continues to deliver and

improve the iphone so that the refresh cycles are meaningful. tom: the ipad did ok. gross margins are resilient. paul sweeney: they are. they have pretty good pricing power and to drive or preserve good margins and if they build up their services business. when people looked at a quarter last night, a good quarter. the guidance they gave for the current quarter a little better than expected. to the extent there is a slow down and of the iphone eight, it does not seem to be material. francine: how many apple phones do i own? will there be a drop list car or something with my health? paul sweeney: we see apple and like google put a lot of money into new technology.

apple talked about augmented reality. what we are seeing from the huge tech stocks and freeze cash flow stocks a huge cash flow is looking to diversified weather in the cloud or new businesses, services which have more marginal revenue stream. that is what we are seeing some of the big tech companies, apple, facebook redirecting free cash flow. francine: will they -- what do they deal with all of this cash they are sitting on? paul sweeney: i am sure they would love a reprint shenzhen holiday from -- repatriation holiday from the trump administration. you look at amazon that put their cash back up their business and some of these companies beside from buying back stock, probably better to rid in your company. tell we have two very different companies and gabriela santos is

trying to get people not to sell and paul sweeney grinding it out area the markets are seeing the bank stock, what is a bold blue-chip like goldman sachs do where there is no real caudal valuation? we were santos: when talking about the u.s. equity market and returns more muted, we want to focus on sector play and technology is one of the sectors we believe in. tom: is amazon at jpmorgan? are you telling lloyd it to load up on bezos? gabriela santos: an interesting sector. tom: this is the issue with they are almost a blends of the sectors you look at at bloomberg intelligence. paul sweeney: a lot of these

companies reach across a lot the sectors. google, is it a tech company? it is media. it is technology driven media and we see the intersection of technology, telecommunications we have been talking about and we now see it in at big drivers of the nasdaq. france bank -- francine: what is the favor company? companies, google, apple, facebook or volkswagen? is this where we should focus? paul sweeney: driverless cars, it seems to be driven by technology companies at the moment. the auto companies, when you go to the consumer electronics company in las vegas in january, it is an auto show and that control half of the floor space. -- at autoows companies are investing. left on 6thu turn

avenue in a driverless car? gabriela santos: i grew up in new york city so i never got my drivers license, so it sounds like a good idea. are on getting hit all the time. are you serious? will it happen? paul sweeney: i don't know. i am skeptical. our auto analyst thinks it will happen. a lot of these companies with a free cash flow on the balance sheet, they are looking for places. you look at google and they talk about moonshot and investors seem to be giving them a pass. would say give it back to shareholders. i know that is what he would say. paul sweeney, thank you for starting your day with us. and we will continue with gabriela santos. a lot, go up and tomorrow rank of england is focused on governor carney -- coming up

tomorrow and the bank of england is focused on the governor carney with negative real wage growth. stay with us, this is bloomberg. ♪

francine: this is "bloomberg surveillance." tom, let's go to germany, and emergency summit called by the government month the ceos of daimler and other automakers dieselet to say that

does have a future. matt miller is in berlin. great to have you on the program. what agreement can they get? at a draftre looking yesterday that said a we might get an agreement on a software solution which would cost hundreds of millions of euro and a hardware solution which would put the caught -- push the cost at 5 billion euros. it looks like right now from the reporting we are hearing out of the summit that the solution could be shelved after the september 24 election and the automakers may only have software. millions of diesel cars that pollute as much as six times or ine what they are allowed to at the lab when they are in the street. francine: how significant is this for the car industry as a whole?

matt: it is huge. volkswagen gets a global sales from diesel. and mercedes and all of them count on diesel to keep it there co2 emissions down. co2 is not the problem but nitrous out that gives people asthma, cancer, carter -- cardiovascular disease and we were not aware of how bad it was until the volkswagen dieselgate .rompted people passenger cars pollute nitrogen oxide of about 10 times in of heavy trucks or buses because those big vehicles are controlled much more stringently and cars are given the past because they only have to get through lab tests. wouldne: from somebody had a diesel car in my garage, are diesel cars done? is that what the government talking about? matt: they can't to be.

in a country which relies on the industry like this, a 2000 carmaker jobs in germany as they need to sell these to meet their goals and to keep those people employed. the auto industry is more important than one economist said to the german economy then greece. tom: thank you. much more to talk about full top will come back with gabriela santos and talk about the equity markets and not losing money which seems to be what so many people have a miss. a conversation with michael bloomberg and lloyd blankfein. mr. blankfein in the 8:00 hour. this is bloomberg. ♪

♪ tom: good morning, everyone, tom keene, francine lacqua in london. here is taylor riggs. rexx tillerson -- taylor:

tillerson says peace will pressure is the best way to deal with north korea and told reporters the goal is not to out kim jong un. told nbc there is a military option to destroy north korea. gary cohn is the new front runner to succeed janet yellen according to a new bloomberg survey. he takes over the top spot from yellen. the final decision is up to president trump. maytrump administration strike a peculiar deal for the next air force one plane. the air force is in talks to buy two 747s that were once earmarked for a defunct russian airline. boeing has the planes in storage since 2015. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: let's count to 10, but

let's do it in greek. rothman, formerly china less -- join or miss at lehman brothers is now it credit suisse. he has major credit had a chicago in the greek letters and trying to figure out in this quiet time of low volatility what to do. joining us is gabriela santos of jpmorgan. matt, wonderful to have you with us. i want to look back 10 years. we read this, that, other quantum stuff. have we learned anything, are we any smarter 10 years down the road? matthew: we are a lot smarter today than 10 years ago. 3.0 whenmost in quant 10 years ago we were in 1.0.

we learned a lot about trading, what other people know, and the world has become so much more digitalized every day, suggest the levels of data that we have and the machines at our fingertips are so much more powerful that we have just made a lot of it -- whetherit is 19 -- tom: it is 1987 or 1998 it is about -- i have got a constructive trade that blows up. the constructive trade of 2017 that worries you? matthew: what worries me is one, there has been a rush into q uant and mania about what machine learning can do for you and what it is capable of. i think we need to tech is just take a step back. -- take a step back. tom: 100% agree with that

statement. talking about stressing and testing the system, about robustness found through small failures. are we there yet, are we more anti-fragile where you have a greater confidence in the system? matthew: i think we have learned is what i learned the first day in my class at the university of the professor said, everything i'm going to teach you is wrong. it is a model. i think that most quant are very careful to understand whether models fail and that becomes harder when you get into the deep learning machines and artificial intelligence, to understand what your machines do not know if you do not know what your machines are doing and how. i think those are the kind of systematic failures that worry me. francine: where do you think the next financial crisis will come

from? matthew: what worries me most about that is that we have been in an era of very low volatility , and in an era of particularly low dispersion across returns, which is different than volatility. general volatility can be driven by back room events so you can see the vix spike on macro news, but all stocks may or may not move together. what is remarkable this time as we have seen low dispersion across returns, idiosyncratic news as we call it or stock specific news, those features are very low. that, more than the vix being low is what i think leads people toward leverage. what we really need to see is, for some kind of orderly pickup in dispersion across returns. francine: what i'm trying to get at, you are saying that quantum carefulness, they learn in terms of models and look at the analysis they are going through

because of the financial crisis, but what if we had a financial crisis or crisis from something we had not even thought about? what does that mean for your models? matthew: it means something bad for everybody's models. if there is something none of us willforesee, the quants not look at it and it is bad for everybody. tom: this is where gabriela santos is living every day, in the quiet. you can look at any asset class, it happens to be in the vix in the quiet right now. is it hard for you to have certitude about fancy quants systems given dampened volatility? is there almost a risk of a convexity, acceleration of outcomes and bad outcomes because of where the vix is right now? matthew: the vix is very important to look at and to understand volatility, but it

does not measure the volatility .hat concerns quants the most we want to look at the dispersion among returns. everything is moving together. tom: exactly. matthew: that makes it very hard and it makes it different than macro shot volatility -- macro shock volatility. i am concerned about macro shock volatility but concerned if you have a huge dispersion that will kick inward across returns. tom: on the back end of the timeseries function, there is an epsilon. on the back end of a linear function, thank you, james hamilton, is this epsilon. do you have a clue or does jamie dimon have a clue where the epsilon is in this system today? we do have some clues on where the epsilons are. if you are a good quant, you are

stressing your models all the time and trying to understand what don't you know, and that is what is most dangerous and that is true whether you are a quant or not. tom: take the brilliance of this over to you world does to your world, you have to explain to pools of money the rothman money. gabriela: a couple of the concepts we were discussing, in terms of volatility, that is a conversation we have been having a lot with the mom-and-pop investor. if you want low volatility, this is a very different world than the last six years. volatility in terms of economic data is much lower than it used to be. you now have a much better, more solid global economy, and the volatility in earnings has improved as well. this low volatility to us make sense and that is something we have been trying to explain to our investors.

put thisre going to conversation out on itunes on the podcast today, this is extraordinary. i will throw some books out on social media as well to keep up on. lotsll continue here, going on in economics, finance, investment. in the 8:00 hour, mr. goldfine of gold -- blankfein of goldman sachs, maybe he will discuss trading. this is bloomberg. ♪

♪ tom: a superb morning at "bloomberg surveillance," we welcome all of you worldwide across this country. right now, jonathan ferro with some important conversations, a set of interviews this morning.

fine, -- lloyd lang lloyd blankfein, the worst of his reign. alix steel will be catching up with him and we will be catching up with the ceo of rio tinto, a decent performance for them and a buyback. the resilience of china the story of the last quarter, the steel mills in full turn helping out the profits and a big mine is on the planet. -- miners on the planet. delivered in air presser on monday on the impact of a hard brexit on the in the -- airline industry. they said the prospect of brexit disruption is more and more likely. guy johnson is there with the ceo. guy: michael, you met with the minister this morning. what can you tell us felt that meeting? michael: we stressed the need

for an agreement. we have to have an agreement by september 2018, just 12 months away. he currently accepts if the u.k. leaves the european union we will leave opens guys, so the dutch open skies, so the -- open skies. we have french and german moving againstly an agreement or offering an agreement that is so undesirable it would break up the ownership rules. they are trying to disrupt flights to and from the u.k. from march 19 and the government should be concerned. guy: what is on the agenda? michael: when the divorce talks are concluded, but look at how that is dragging on. i think it will be september/october 2018 and one of the reasons why aviation is

going to be front and center, we go six months before everyone else so we have to know what the side rights will be by 20, otherwise we will have to start canceling flights. guy: i am booking a flight at that point. do you say, we don't know? do you say, we might have to cancel this flight, you cannot book this flight? what is going to happen? load the 2019ll schedules around march, april of 2018 and they will all have a .aveat at that point this booking is subject to agreements on flight rights between the european government and united kingdom government. to september, get october 2018 we will be screaming blue murder if we do not have an agreement, and i fear there will not be an agreement because there is not good will on both sides. cancelinge looking at

flights and british people looking to book their 2019 holidays will be confronted with less appealing options of driving to scotland or ireland. guy: when you send this to the minister, what was his reaction? is not fair, i said we would keep the meeting confidential. he is very concerned about the need for an agreement. he certainly does not disagree that britain needs to have an agreement by september 2018. he has said publicly he is optimistic an agreement will be reached. i am not optimistic, in fact i am pessimistic. people over here, certainly the u.k., need to wake up. this is a much more serious issue and a lot of people are avoiding the reality and hoping the deal gets done. that would be fine if there was not a guillotine on march 19 and hard will be if there is a

brexit. there will be a disruption to flights. orhael: if you are lufthansa other european carriers and were having a similar meeting with your minister, to the one you just had, what would you be saying? guy: i would be saying exactly what they are saying to their governments, do not have an agreement or use aviation as the stick to beat the british, force and to face european rules regulations, and underline all of the british government's redlines. that is the reason why i think we are so concerned there will not be an agreement in 12 months time and why there is a real growing likelihood that there will be an interruption to flights from april 19. it is not a long-term position but there is going to be a disruption, and i think the europeans see aviation as a way to create havoc in the u.k. up to christmas 2018, three months

before the brexit day comes around. maybe this is the way the force then desk to british electorate into, this is what you voted for. guy: and you would move capacity out of the country? michael: in a hard brexit we would move our u.k. aircraft into other e.u. airports because we are still in e.u. airline. there are so many u.k. registered aircraft they would not be able to fly to europe. guy: if we changed ownership rules to become a different story or easier? michael: it is not going to get anybody over the line. one of the lines that the european airlines are pushing very hard on is that the ownership rules must be applied. will leading to be citizens of a third country outside the european union and treated the way the moroccans, israelis would be treated. guy: just the likelihood of this

happening, this sounds very dramatic and very scary. olidays will be canceled, etc. i am standing here wondering why now, why are we having this conversation? did something change in your mind to make us all be here this morning? said this 12 months ago and what we got 12 months ago was no, and no, it will be fine, and agreement will be reached. we are farther down the road and no agreement has been reached. the reason we are airing this now, we are 12 months away from canceling flights. i very much hope i am wrong and i hope the british government will negotiate a good deal, but you are underestimating the europeans if you think they will be facilitating a good deal with the british. guy: when is your next meeting with the minister? michael: we continue to have meetings individually and with the industry, but there is not much more the minister can do to

be fair. we need to see more progress on the talks, which have made very little progress. use and governs the rights in the u.k., if they do not agree on that the federal minister cannot discuss aviation. what people need to understand is there is not a fallback position. if they leave the european union, they leave open skies. the pressure is on the british government, you must negotiate an agreement with the europeans in advance of march 19, which is in effect october 18, otherwise there will be a disruption. guy: michael o'leary, thank you for talking with us. tom: guy johnson, thank you so much, just fascinating. let me talk about tv , we are going to do that right now and come back with gabriela santos and matthew rothman, thrilled to have them with us on

the exuberance or less than exuberance of the market. with tv , the bonus is not my ugly face. you get to pull up a chart and look at gabriela santos' favorite chart, there it is tv on your trading desk at jpmorgan or credit suisse. ♪

♪ tom: we are most fortunate this morning, francine lacqua in london, i am always fortunate with francine lacqua. tom keene in new york. gabriela santos and matthew rothman are with us. he is buried in the greek letters. let's do a single best chart for each of these wizards. this is the vix, a look back to 2007 to 2012. in your reality, i am here, i am fat and happy, i am green, life is great, 2010. fordo you prepare people matthew rothman's ugly world of volatility? how do you prepare people for the sudden correction of a bear market? gabriela: we tell them

volatility is normal. the vix may be a bit of a complex topic for some of our clients, so if we just look at corrections in the market, going back to 1980. usually there is a correction of 10% once a year, 5% once a quarter, and we tell them that is absolutely normal and does not mean the beginning of a bear market. it may be temporary headlines, a temporary correction than the market returns to fundamental and it is a positive picture. black swan, once a century whatever it is, we are having one every six or seven years. how do you respond? matthew: absolutely, we are fat tailed. if you think returns are normal -- tom: take that to cfa. matthew: you are sadly mistaken. if you are a quant you try to understand, where am i going to get hurt?

you should not ignore the fact that returns are fat tailed. orncine: are there too many, is the proportion of hedge funds and the market distorting the realities? gabriela: in our view, we stuck with the fundamentals. we look at earnings, economics, and that is what drives our investment allocations. when we talked to our clients and they worry a lot about volatility, one thing we point out -- out to them is there is a danger of not being invested, trying to predict a black swan too early and not being invested. the last 20 years invested in the equity market, you would have gotten an annual 8% return a year. if you were worried about black swans of volatility, your return what a fallen to 2% of the year so there is a consequence of not being invested and that is what we tried to point out. francine: why don't we worry about china anymore? suddenly we think it is dealt with that it is not,

fundamentals are there but they are managing it in an ok way. gabriela: there have been two important changes in china in the last 18 months. they seem to have gotten the capital outflows and currency thatrns under control, and is very much a stabilizing factor for emerging markets, for risk assets. the second thing is we seem to of accepted that we are likely to see many cycles within china. it does not have to be the beginning of a hard landing, it can be a process of stimulus and reform. it does not have to be the beginning of the end. tom: bring this up, this is the terminal. this is really fancy quant stuff . i want to go over this risk. are we smarter than we were 10 years ago? when you look at something fancy like this volatility surface, dollar-yen, are we wiser than before the leverage of 1998? matthew: we are much wiser on a

lot of these dimensions. and we understand these things to a much greater degree. we understand how to excess liquidity, that liquidity disappears in markets like this. we understand that in terms of the positions we hold and we understand a lot more how the markets actually work because we have the data and we have lived through them, and we have the data to be able to do it now. tom: we will continue this on bloomberg radio with david gura. lloyd bankshour, line -- lloyd blankfein and michael bloomberg. ♪ is this a phone?

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record, the company beats the better than expected revenue for the quarter. better earning set up the dell for another all-time high. the stock market continues to shake off and ineffective congress, and the optimism over europe and the pessimism fueled idc the euro climbs to a new high against the dollar. a warm welcome to bloomberg daybreak, i am jonathan ferro alongside david westin. alix steel is onside -- on assignment. futures are treading water on the s&p 500, decent gains elsewhere with tech stocks getting a boost off the apple earnings. in the fx market, a stronger euro story, 1.1835. yields are higher by two basis points, 2.27 is your yield on a 10 year. 8:15, weming up at