francine: on the unprecedented grave and serious threat, japan's prime minister slams north korea for firing a missile over its nation. gold gains as investors goes resolve -- risk off. ,he euro climbs above $1.20 will that help merkel's reelection campaign? to get tells britain serious. he airs his growing frustration as the gloves come off in the printed negotiations. this is surveillance, i am francine lacqua in london. like a lot of news coming from north korea impacting your markets.

let's get on your data check to see what we should be watching out for. risk off mood. as the significant today dollar, traditionally a haven, is not the haven per se. and havens after the missile launch, gas and oil caning with energies bracing for another hit from tropical storm harvey. 108.51, but gold, the outstanding winner in all of this. my euroo take you to chart. this for me is significant, it has hit 120, not only from a technical level, but it encapsulates a relatively united leadership in brussels and the chaotic things from washington, d.c. we have heard. this coupled with improving european fundamentals, so watch out for that. this is the euro. we brought it back to inception

in 2000, currently at 120.42. its get to the first word news with nejra cehic. hasa: tropical storm harvey drifted into the gulf of mexico and is poised to strengthen before crashing ashore again on the texas-louisiana border. some predictions already pushed -- putting the cost of the damage as high as $100 billion. u.s. gas prices holding gains ofh has much of -- as 30% the u.s.'s refinery power under flooding. donald trump with a proposal to build a tower in moscow on three occasions with his lawyer. the house intelligence committee was told the trump organization with the plan from september 2015 to january 2016, he also said he emailed the secretary for vladimir putin to ask for assistance. negotiator hast accused the u.k. of not being

serious about its withdrawal from the block and called on britain to be more clear about its position. michel barner spoke in brussels. concerned. time passes quickly. i welcome the u.k. governments paper, and we have read them very carefully. very carefully. positions on.k. all separation issues, this is necessary to make progress. apple ceo tim cook has collected 89.2 million dollars worth of shares. he received the stock because the company outperformed at least two thirds of businesses in the s&p 500 index over three years. 560,000 shares were the most cook was allowed under the iphone maker's long-term compensation program and his fourth consecutive payout at the

top threshold. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i'm nejraountries cehic, this is bloomberg. francine: thank you so much. north korea has launched an unidentified ballistic missile over japan. it landed 1200 kilometers off hokkaido. shinzo abe described it as a seriousented, grave and threat. he said president trump he had agreed to improve -- increase pressure following a phone call. position completely matches that of the united states. north korea's missile launch poses a serious and grave threat level.nprecedented i them in agreement with president trump we must convene an emergency u.n. meeting and increase pressure on north korea. francine: let's get more with our managing editor for japan and korea. have, first of all, how

leaders responded to the provocation and what is it like on the ground? brian: this is a series provocation by north korea and japanese officials have been holding press conferences all morning long to reassure they are taking this seriously and watching the situation and they are in close contact with allies in the u.s. and south korea. they did say they determine very quickly dismissal would not landing in japan and therefore, decided not to shoot it out of the sky. the point of being that they had the ability to do that if necessary. the main message has been to stay calm and we are working on closetuation and in contact with, especially the u.s.. as you said, we had to the 40-minute call between mr. trump and mr. abe. francine: what do we know about the missile that was launched compared with previous launches?

brian: north korea has launched more than a dozen missiles so far this year and several times in the past, has fired rockets over japan. is in thefference past occasions, those rockets were carrying satellites into orbit. had a midrange, ballistic missile designed to carry a nuclear payload, flyover japan. first of all, that is a first. second, it looks like this missile was fired from the city pyongyang's- where international airport is. the speculation is it was launched from a mobile launcher on the back of a truck, possibly from one of the runways. if that is the case, it indicates north korea has the launch missiles from anyplace in the country. it can move them around. it is harder than to track them and prepare for them.

francine: thank you some much, brian fowler, our managing editor for japan and korea. we will get plenty more from him through the day. kelly, more with robert he joins us now via skype. professor, thank you for joining us. grave threat.f a how serious is this escalation intentions. pretty i agree this is serious. firing over a states auburn airspace -- state sovereign airspace, is a pretty big deal. really have don't the assets to shoot this thing down. this is going to spark a big system.n japan to buy a look likeans doesn't they are going to stop building missiles, japan will need to start putting serious money into this if they are to have safety about it. francine: why did north korea do

this now? a warning to the west or something more sinister? robert: first, it is the drill season, the exercise season between the united states and the south koreans, and the north koreans usually do something in response. they usually do something. is why more interesting they chose to fire over japan. it is really threatening. north korea is increasingly accepted as a shinzo missile state, abe president trump will never say that but analysts have fairly widely said north korea isn't going to bed -- go back so they feel they can get away with it. francine: china says these threats and sanctions cannot solve the crisis. it is north korea's biggest economic partner. will china mediate? robert: probably not, they will

do what they did in the past and for calm in the region and everyone needs to relax. this is quite maddening. have beenoutside saying the north koreans have been creating the issues. the chinese don't want to push north korea too hard. i think the big deal will happen if the japanese are quite incensed over china not francine: saying anything. are we underestimating the capabilities of north korea or its intent? this was after rhetoric from the u.s. that there were no further provocations from north korea. are we too naive? robert: i don't think anyone is naive much about north korea anymore. we have all been around the

spock repeatedly. every three or four months we are on tv discussing launches. ison't think anybody surprised. as far as intentions, i don't think we should get too carried away. i think they want the ability to strike south korea, japan and the united states nuclear weapons. but not for offense of reasons. this is mostly about deterrent. -- north koreans arkansa are afraid of regime change. i don't think they would use them for offense of purposes. i think north korea wants to hang on and see if nuclear weapons are the best way to do that. francine: what role can russia play in all of this in pressuring north korea? russia and china, more china and russia, it would be play theut in wouldn't spoiler and use north korea against the west. russia voted for sanctions helped a lot, russia could also

crackdown on what trade occurs between north korea and russia on their north korean laborers work in siberia that send revenue back to the regime. russia has a role to play, but china is really the big story. 90% of north korean exports go toough china and you've got close that date. russia is a small player in that, i think. francine: thank you so much, robert calais. more from the senior fx and rate strategist at cba europe. peter, always great to have you. seem to be pretty sanguine about this, but we are seeing a move into new havens like gold. peter: it is quite interesting much a nationery centric risk aversion. you saw dollar-yen tumbling little and yen appreciation quite a lot. strange in that wash again appreciate if it is in the

firing line? when it comes to the safe havens, if you look at the swissie, it has underperformed for good reasons. you have seen gold go through the roof, which is part of the broader move in the dollar with dollar weakness. it doesn't surprise me and it could continue. francine: dollar-yen, this is the first korea -- north korea scare around the end of march and the second -- why are we seeing such low volumes? because of the chaos in washington? also inartly, it is response to the low volatility market we have. -- it is just not realizing. consequently, -- back withwe will get peter shortly. in the meantime, let's get to the business flash.

nejra: google faces a deadline today to tell the european union how it plans to comply with an order to stop discriminating against rival shopping search services. the eu gave the health of the unit 60 days to propose how it would stop what it calls a legal content and 90 days to make changes to how it displays shopping search results. failure to do so could risk a 5% fine of daily revenue for each day it doesn't apply. -- comply. a co-finder -- co-founder said a public fighting court would harm the company. his removalseeking from the board and said he duped. in a filing yesterday, he said investors, including benchmark, even in the three seats. facebook's rising star is leaving to join google a week after his 21st birthday. he joined the social network as a 17-year-old intern, later becoming a product manager, advising on experimental products for teenagers and

helping executives understand trends. at google, he will be a product a digital assistant. that is the latest on the business flash. francine: tropical storm harvey has drifted back into the gulf of mexico and is poised to strengthen before crashing a short again tomorrow on the cap -- texas-louisiana border. some predictions put the cost of damages as high as $100 billion. gasoline prices holding gains with up to 30% of the united states refining power threatened by flooding. peter, when you look at how much this costs, is it impossible to predict because of estimates? peter: it is impossible to say with long-term impact is going to be. it is a chaotic situation as we can see on our screens and a lot of the area remains underwater. until we have -- know how long flooding will go on and what the impact will be, it will be hard

to put a number. the key question, the economy now, whether the chaos in the energy industry in texas has an impact on the board of energy market, whether gasoline prices are sustained, we see fluctuation in gasoline supply into areas like the northeast of the u.s.. at the moment, the picture is that because gasoline stockpiles are at a 20-year high for this time of year, the be the u.s. energy industry has the ability to cope for the time being. a storm hitting louisiana again will be a key moment. that part of the coastline has more than one half million barrels a day of refining capacity. if some of those refineries closed down, we could see the disruption accelerate. francine: and the energy sector is the backbone of this economy. do we know how many refineries and whether the damage will be permanent? >> over the course of the storm, the texan bank suggests as much

as 30% of the u.s. refining capacity may be impacted at some point. interestingly, we have seen a couple of refineries closed in corpus christi down the texas coast come back online, but the next major thing will be the storm going out into the gulf or it may recharge and is forecast to hit the louisiana-texas border. a key refining place. that is something to watch the next day or so. whether it is permanent, these things don't tend to be permanent. revitalizeable to and repair, it is a question of how long it takes. wti'sne: this chart is discounted to rent oil price. tend to forget is youline prices went up, if look at wti, demand is lighting

because people are stuck and there is no electricity, but the price also went down. this storm will strand a lot accrued oil. refineries are off-line, they can't process their crude. there is lots of crude now that is exported from the u.s., which can't get this -- exported, that is trapped in texas. the physical market will not be well surprising -- supply because people aren't able to use the supply as they would normally be able to. peter, away from the tragic human aspect to all of this, what does the fed to do with it? the implications at the moment are difficult to discern. peter: our view is that the fed reduce theirmber balance sheet.

i don't think it will have any broad effect on whether they will raise rates in the short-term. i have the view we will see possibly one more rate hike in september and thereafter, we will see. i don't think it would impact the fed thinking at this stage from what we know. if things change, it could change outlook. francine: thank you so much. will kennedy, allen managing editor for commodities. up next, the u.k. told to get serious about brexit negotiations and both sides express frustration over the speed of the talks. this is bloomberg. ♪

francine: we shall: the u.k. to be clearer as the two sides opened up a third round of talks. british negotiators have -- about what they see as stubbornness. >> to be honest, i am concerned -- time passes quickly. i welcome the u.k. government's paper and we have read them very carefully. very carefully. francine: let's bring in the managing director still with us.

thank you for joining us. what do we know. are the two sides very frustrated and not getting along? >> the rhetoric is the function of the fact that the article 50 clock is ticking. on substance, there are issues where the gaps are fairly significant. secondly, how the police withdraw bill. the most important part is you can't resolve these. , the britstical push want to talk about future, barnier wants to talk about the divorce. teresa can't write a check for our the amount will be without something in return. she needs a deal that will be notaged in september if october. francine: what does it mean, we had labor weighing on the

customs union and a possible contraction of the period. we have a clear position of what they want? >> i don't think we have a clear position on the government on some of the substantive questions, not on citizens rights or the financial section. transition,ign a the u.k. will be transiting to somewhere. even within the government, there is no clear position. labor raises all kinds of questions for theresa may. it may increase the odds of a government collapse, the odds vote fails on any aspect of the brexit vote. i think the baseline level of political risk is about increase labor's position and it is not clear to me the outcome is necessarily a softer exit. francine: that is where i wanted to go. does brexit still me exit or canopy water down? c kenneth the watered down

down? it be watered >> -- they will seek customs union and single market membership. in the end, as well as through the transitional period. -- have one soft brexit with hard brexit with soft edges -- ultimately pure transition, it is likely to be a king to something like our way. i think that is -- akin to norway in terms of the final framework, very unclear. i don't think the cabinet has discussed in any serious way the trade-off between sovereignty and economic proximity. francine: what does this mean for pounds? is this the way to traded or do you go pound-dollar. peter: given the broader dynamic with the euro we are seeing you want to -- your exposure.

or 0.94.to around 0.93 even at the height of the national crisis in 2009, we didn't trade near parity. stirling is far too cheap at those levels. it is definitely not the call i would make at the moment. as far as the clarity regarding the bank willic, be able to raise rates in the short term because they don't know the right environment they will be raising rates in. peter, thank you so much. they both stay with us. this is bloomberg. ♪

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delivers consistent network performance and speed across all your locations. fast connections everywhere. that's how you outmaneuver. ♪ francine: this is bloomberg surveillance, i am francine lacqua in london. here is nejra cehic. north korea has fired an

unidentified ballistic missile over japan. it landed about 1200 kilometers off hokkaido in the pacific ocean. shinzo abe said he would -- had agreed to increase pressure on north korea following a 40 minute phone call. completelyposition matches that of the united states. north korea's missile launch poses a grave threat on an unprecedented level. i am in complete agreement with president trump we must convene an emergency meeting and increase pressure on north korea. topical storm harvey has drifted back into the gulf of mexico and is poised to strengthen before crashing a short again tomorrow on the texas-the louisiana border. some predictions are putting the cost of the damage as high as $100 billion. u.s. gasoline prices are holding recent gains with as much as 30% of the nation's refining power under threat from the flooding. it has emerged that donald trump proposed to build a condominium tower in moscow on three

occasions with his company's lawyer. the attorney told the house intelligence committee that the trump organization with the plan from september 2015 to january 2016. he also said he emailed the press secretary for president vladimir putin after -- for assistance on the project. the eu chief brexit negotiator has accused the u.k. of not being serious about its withdrawal from the block and called on britain to be more clear about its position. as the twoer spoke sides opened talks in brussels. he expressed frustration at the slow progress with a summit just eight weeks away. concerned.nest, i am , i welcome quickly the u.k. government's paper and we have read them very carefully. very carefully. -- on -- we need a u.k. position

on all separation issues to make significant progress. nejra: global news 24 hours a day, powered by more than 2600 journalists and analysts in more .han 120 countries this is bloomberg. less thanthere is now a month until germany chooses its next government but a large portion of the electorate is still undecided. as we are about to see, it is a complicated system. voters cast a ballot with two votes to pick up a total of 598 members and parliament. the first vote is let's irreparable -- local representative, the second is for a party. out of the 598 members of parliament, 290 nine our local representatives who automatically get a seat through the first vote and 299 seats are filled proportionally. if a party's share of the local representative vote exceeds its

percentage of the party vote, extra seats are added. these are known as overhang mandates. the votersstorting choice of a party, other parties are compensated with extra seats. 2013, -- received 45% in the individual vote more than for the party. that means it gained 16 seats in the bundestag, 17 seats were added for the other parties bringing the bundestag to a total of 631 members. the party or block that takes the most seats has a mandate to form a government. if none have a majority, talks on forming a coalition in soup and coalition will be vital. germany hasn't seen a majority government elected since 1957. a great explainer package there to tell you what you need to know ahead of that vote on september 24.

you can also see live pictures of berlin and the chancellor newsng an annual summer conference. i imagine it will be a different news conference than in the past because she is actually campaigning. peter, the rate strategist at cba europe. aoadly speaking, this is centrist versus centrist campaign. i don't know what you have learned other than that some voters are angry. dieselgate is still front and center. >> i think it is not a complicated election at all. i think merkel will win but who will her coalition partner be? a granda choice between coalition with the democrats or the free little -- liberal democrats. largerives her a majority and she can pass legislation through the bundesbank, but being get will

be her final term, a grand coalition will allow her to do more in europe, which is an important part of the mandate of this election that she will hope to achieve, given macron in france. if, there is a working majority with the liberals, her party will force merkel into a coalition with the liberals because that is more ideological with two right parties. francine: peter, let me bring you to our election tracker and if you look at the polls, the chancellor has also been in the office for 12 years. is it a snooze fest from the investment? so, nof view >> i think change in economic policy, no change with policy with respect to the eurozone and european union. we might end up getting a little more policy action with respect to european integration. that coincides with the macron victory in france. it is a proper snooze fest.

nothing going on with relevance for the euro. francine: what about france? macron is about to reveal labor for forms -- reforms. his popularity has shot down, is there an explanation or just the way things are? >> if you look at the context of the first and second round, 40% voted for antiestablishment insurgents in the first round. thatnk it is no surprise he has come down in popularity. he is being forced to choose between reform and cuts, fiscal targets to build credibility in berlin to advance his euro agenda. was expected his popularity would come up, that doesn't necessarily cloud perspective. -- in theth will be

previous campaign, there was a lot more ambiguous and commitment to reducing the deficit. it was difficult given the issues within the socialist party. macron won on a pro-european mandate and there is a signal from berlin that berlin is willing to do more if macron can do more at home. francine: peter, at what level does euro become a problem for france? probably anything around 140. they can tolerate some euro appreciation, i don't think they will be too worried with where we are at the moment. francine: is the ecb word on this? >> no. francine: you heard mario draghi

could have talked it down the jackson hole. >> from lions -- perspective, euro inflation has been with the ecb expected to do. the ecb won't be too worried about the value of the euro. it is only when you find inflation really declined substantially that growth comes lower. that is when they worry about euro. at the moment, with the consolation we have, they won't worry about the euro. discounted that we could see something ugly in italy when elections come, they have to be held -- before april may of next year. fiscal at the moment to -- difficult to measure the popularity of a movement. problem, that018 is when we start thinking about it. -- he can't engineer the early election. it is difficult for him to do it. he wants to because he recognizes the popularity of the democratic party is going to suffer now -- between now and

next may given the refugees, the fiscal corruption straitjacket issue. i think it is a more medium term challenge for 2018. europee: i've never seen this together in dealing with brexit. does that mean it is a new eurozone? think when one thinks about january 2017 and all the risks on the horizon, a lot of the big risks haven't started so they look better than at the beginning of the year but there are still massive challenges that need to be resolved. francine: thank you both. peter., china is slowing, but the rest of the world will fill the impact. this is bloomberg. ♪

♪ francine: let's get a check of your markets. swiss franc rising to the highest level since november. gold highest since north korea fired a missile over japan. boosting demands for havens today. gold surging 15%, rising every month apart from june. investors flocking to gold. , pushing thee 100-day correlation. .eep an eye on that correlation as we go forward, crude oil yesterday, biggest drop since july the seventh. fallingas oil prices

against brent. crude refiners shutting processing units along the gulf coast in response to tropical storm harvey. millionion build -- barrels of crude a day. about 12% of the country's total has been shut in reducing demand for crude priced against wti. that is another big chart. sending morearket positive signals to the boj's reflation efforts. roseob to applicant ratio in july. the highest level since january 1970 four. unemployment remaining below the boj's estimate. -- alsoomes are our picking up, pointing to stronger pressure on wages, which could support consumption in japan. france, 1.7% year on year in the second quarter. below the eurozone's level. administration will soon

publish his five-point plan to overhaul the labor market on thursday before setting out tax and spending cuts on september 2017. francine: thank you so much, mark barton. many is experiencing in cyclical slowdown according to ups asset management. it uses the word many, as it -- it also reckons most of the impact will be felt by the rest of the globe rather than china. let's get more on this with asset brisco, at ubs management. the kuiper joining us today. give me a sense of why this time it feels different. a panicthink i have had get out of china story for at least 12 months. the key point, i think everyone is looking at china right now because the numbers look really great.

the policy action is getting put in place is going to show up in six to nine months in statistics. what are they doing? they are trying to slow the housing market and more importantly, now that xi jinping a in control, there is deleveraging in the banking sector. all of that will slow the economy as we get into late 2017 and 2018. why does that matter? they forgot the firepower to deal with any slowdown in the country, but we have to remember they are the single largest commodity buyer in the world today. if you look at the revisions, whether the s&p 500 index, high-yield markets, emerging markets, all the revision is higher and based around energy and commodities. that is where the pressure will come and we would see the slowdown. you were saying investors should not shy away from longer duration bonds in

their portfolios. at the moment all the chatter is around inflation numbers looking good. synchronized growth pickup around the world and all of that would sake you generally you should be avoiding bonds because there will be more rate hikes. particularly if china sends commodities back down and we see slowing growth again coming out of the country, impacting the rest of the world. from our research, we think the credit or the rate of change in credit inside china is now going in reverse when it has been the key thing driving the world since 2015 and into 2016. now flipped into reverse, you will start seeing slowing and the rest of the world. we think a lot of this synchronized pickup is due to china spending money. francine: what do you think people and investors commonly misunderstand about china? i think it is this

delay. when you see policy action today, if you are in the west, you would see that translating within one quarter or two quarters. is this delayed reaction, official statistics, it is around six to nine months. china went into negative territory in its credit creation some work around that march, april. the numbers will start to bend down. what the west tend to do from the way they look at china is they over extrapolate and think there is going to be a big blowout. we never really think that because it is net credit to nations, some no one is calling them on their capital today, but what it does mean is there would be an impact on growth around the world and that is synchronization. that will put a question around this pickup everyone is looking but that could flip into reverse and that gets you interested in bonds again and started to talk about deflation again and what it really worries you about his emerging markets. we were seeing a huge flood of

capital recently into emerging markets and commodities, as well. a big key sector is either in the s&p or five yield. francine: give me a sense of debt in china. they manage the debt because it is managed by the government. what if it turned into a financial crisis? that theow i would say key thing is xi jinping is at the center of the party. this is the first time he has got to pick his entire party. he is now center of that, i think he will have a very high resolve and you can already see the way he has changed the heads bankingepartments, the and stock regulator, the recalled week be changes in the insurance side. all of that is telling us they are under way of a clampdown on the deleveraging and unwinding it. will they pull this off perfectly? that is where the big risks are

and to your point, could there be a blowup? there is a slight probability today but they still have flexibility to deal with these problems. that will have an impact on the rest of the world more than inside china. francine: hayden, thank you. hayden brisco, head of fixed income at ubs asset management. facebook prodigy jumps ship for google. this is bloomberg. ♪

♪ francine: this is bloomberg surveillance. let's get to the bloomberg business flash. collected cook has $89.2 million worth of shares. he received the stock because the company outperformed at least two thirds of businesses in the s&p 500 index over three years. the 560,000 shares were the most he was allowed after the iphone makers long-term compensation program and his fourth consecutive payout at the trop threshold.

uber cofounders is a public fighting court with benchmark would harm the company and expose him to "fabricated allegations. thist pursued him earlier month seeking his removal from the board and saying he duped the firm into allowing him to fill three seats on it. in a filing, he said investors including benchmark gave him the right to fill the three seats. that is the bloomberg business flash. francine: thank you. a 20 -- 21-year-old has abandoned facebook for google. socialan intern at the media giant when he was 17 and secured a full-time engineering job at 18. the rising star helped facebook understand how his generation uses their phones and advised on experimental products for teens. a week after turning 21, he will googlesduct manager for boy space assistant. this storynated by because he has a big job and he

is 21, but he is a key advisor to these voice activations assistance. >> this is an example of the craziness around hiring in silicon valley. , he codedsual story his first program at age 13, he somehow got under the radar of facebook and applied for an internship and flew out to meet with mark zuckerberg personally and brought his mother, as one does when they are 17. he ended up getting the internship and was hired by a mid-level he is employee, i wouldn't overstate the significance of him leaving. it isn't going to change the trajectory of facebook business, but it shows the talent wars underway in silicon valley that google would come in and hire this guy. >> talk to me about voice activation. is this the future? a it is an opportunity that lot of tech companies are chasing after. amazon has done well with its come outgoogle has

with its own assistant and they also have a home stereotype thing and apple has syria. all of the technology companies are racing to perfect this technology that is complicated to develop because it incorporates artificial intelligence in a way that the computer has to be able to understand what you are saying. today is also the deadline for google to respond to antitrust allegations. deadline to under a get its answers into the european union about how it is coming to change its policies with respect to ranking of its search after the shopping case, it came down earlier this year with a big ruling against google. doesn't specify how google has to do this. google has to come up with the remedies themselves that they submit and the regulators review

that and decide if they are going far enough. francine: adam, thank you. bloomberg's global tech support her. bloomberg surveillance continues in the next hour. tom keene joins me out of new york. we will be talking with asia-pacific mobile research group's jasper came. it is all about this north korea on to japan. stocks drop, gold leading the havens after this korea missile. gasoline gaining with oil as energy companies brace for another hit from tropical storm harvey. there was a lot of news and we have all of your cross asset data checks. this is bloomberg. ♪

♪ francine: an unprecedented grave and serious threat, north korea the japanese prime

minister first fired a missile over his nation. theeuro flies above 120 for first time since january on improving fundamentals. will that help merkel's reelection campaign? and barnier tells britain to get serious. the gloves come off in brexit talks. this is bloomberg surveillance, i'm francine lakhdar in london. tom keene is in new york. i am looking at global sentiment. stocks are dropping, gold leading havens and it has to do with north korea and we look to texas and hurricane harvey. tom: the news looks exceptional for a late august. it is most interesting to go to china and japan, steve engle will come to us this morning from japan. toncine: first, let's get the bloomberg first word news with taylor riggs. the u.s. and its allies are considering a response to north korea's latest provocation. kim jong-un's raising -- regime over a missile that flew

japan. shinzo abe called it an unprecedented and serious threat. abe says president trump has agreed to increase -- increase pressure on north korea. -- internet wall street bracing for the fallout from the most expensive natural disaster in u.s. in five years. houston has been inundated by floodwaters caused by harvey and the area may get another 20 inches of rain. some estimates reach $100 billion. the oil industry reeling from shut down refineries and disrupted production. harvey may make second landfall along the texas-louisiana border. donald trump discussed building a hotel in moscow three times with his company's lawyer during the presidential campaign. told thehat the lawyer house intelligence committee. at one point, the lawyer gmail the press secretary for vladimir putin to ask for help on the product -- project.

president trump said as a candidate he had nothing to do with russia. global news 24 hours a day, powered by more than 2600 journalists and analysts in more .han 120 countries i'm taylor riggs, this is bloomberg. so much.k you equities, bonds, currencies, commodities. we are risk on. at futures, -16, now -22. dow futures right now, -140 three. the euro surges 12063 -- 120.63. onto the next screen, the fix, averages 19.term we are nowhere near that average yet. 30 year bond comes in 2.69%. the yen is stunning. when 08.44. there is the yen, korean yuan , which is well within its range. it doesn't show a panic level this morning.

francine: also, because i have spoken to a lot of research analyst saying gold is overtaking the yen as a favored haven and the missile launch bem north korea seems to reinforcing that trend. another trend i'm looking for is the euro above 120. definitely one of our biggest stories. the contrast between a relatively united political leadership in europe and more chaotic washington, d.c. adds to this improving european fundamentals. this morning. north korea has fired an unidentified ballistic missile over japan. it landed about 1200 kilometers off hokkaido. shinzo abe described it as an unprecedented and serious threat and he and donald trump agreed to increase pressure on pyongyang following a phone call. japan's position completely matches that of the united states. north korea's missile launch

poses a serious and grave threat on an unprecedented level. i am in complete agreement with president we must convene an emergency you in meeting and increase pressure on north korea. francine: let's get the latest with limericks chief asia correspondent. talk us through exactly what we know. the reaction in japan so far and how big deal this is? >> it is a significant development, although in the world scheme of things, it doesn't advance us on any conflict resolution. shinzo abe called for increased pressure, one channel is increased sanction. we know economic sanctions were increased a week ago. there is another channel that china can go down on the , which isanctions blocking oil exports. that would cut off the juice to the north korean economy.

we are not there yet and it is worth pointing out that a beijing sayster in it shows the sanctions aren't necessarily the solution going forward. it requires dialogue and negotiation. we are in a bit of a logjam in how the situation can be resolved. francine: congratulations on the quick takes you have written on what would happen if there is a strike on korea. what do we know about the missile that was launched? does this mean they are a step further in becoming more dangerous? view is that they had to launch the missile in the direction they did as part of the testing for a long range device. it didn't necessarily mean there any closer to the nuclear capability, at the center of this conflict. the overall picture remains that the north korea is expected to continue testing missiles. when you consider the state department considered a recent as a-in missile tests

positive for north korea. it indicates they won't stop anytime soon and that is why there is focus on whether economic sanctions can succeed in putting a break on the north korean advances. so far, there are no signs of an effect. tom: the usual speak after an event like this, i in curious as to what the dialogue will be, vuitton will be between the leadership of china and russia. will xi jinping and vladimir putin speak about the dismissal of an? enda: russia has been pretty quiet on this up until now, which is curious. china was interesting to hear from a spokesman today that sanctions are not necessarily the way forward -- extra sanctions, he is calling for more dialogue and negotiation. that is keeping the ball very much in mr. trump's court. if he got intervention from russia, it would be significant, but so far, it has been quiet from moscow. or is much to be gained between

beijing and washington. francine: thank you so much, joining us from hong kong. on the phone from seoul is the director of the center for conflict management at you walk university. why does korea do this now? is this a warning to the west or something sinister? two things, one is they want to prove to its people, the leader of north korea, that he can do what he wants when he heja wants.m second, this message is similar to the international community. it is testing its redline. is there a redline and so far, a resounding no, there isn't. x the sanctions seem to be having little impact, strikes would be catastrophic. what are the options for stopping north korea from having nuclear weapons that could hit north america? jasper: there is no nice

solution. just a bunch of messy options, one looking worse than the other. is an issue here is that both sides, north korea and the u.s., both are ratcheting up this wargame -- of words with the u.s. threatening sanctions and north korea continuing with missile launches and both want this to translate into negotiation points at the table if and when that happens. tom: your work is in negotiation, but you have also done a lot of work in the idea of defense of korea. let me ask a dumb question in the morning. can anyone should these missiles out of the air? it is not a dumb question, it is a question that people are trying to figure out and the answer is, no one knows with great certainty. people are always highly confident with the latest technology, but this uber confidence brings little things to catastrophic results like in world war i, other wars. we: the battle of the somme

didn't know what we were doing until the germans fired back. we have the capability of firing back if these missiles point at tokyo? point at vladivostok? or honolulu? jasper: we don't really know, and the region of northeast asia, i am sitting in seoul, which is not far from tokyo. all of these cities are basically looking at each other like sprung mousetraps. anything could trigger one event, which triggers another event and another event. that is where things can go from comta© chaos very quickly. francine: think you very much, jasper came, director of the center for conflict management. let's get to daniel at bnp paribas. he stays with us for the hour. let me bring you to my bloomberg terminal. this is a simple u.s. dollar-yen one-month volatility chart. this is the korea servant end of

march, this is the volatility now. do we have a new haven or do investors ignore the threat for korea? daniel: another factor in this that is difficult to put into the analysis is even though we have had problems with north korea for years, this is not the first time we have had these provocations trying to come up with solutions, you still don't know how president trump is going to react to this. on one hand, putting pressure via china but relations are not optimal. the whole issues around trade and tariffs, it is quite unpredictable, simply the uncertainty driving sentiment right now and yields lower. i'm calling it the beginning of september, you are the guinea pig for an early september this year. fade chart.ump we see that with the election of a president, up we go, everything will be wonderful and

this big rollover, now we have a second leg of a rollover. is this rollover because of daniel morris's world of finance and investment, or is it just about geopolitics? daniel: i think it may be a slow-motion correction and for a while, we have been talking about the desire to see a reset in the markets. certain evaluations got higher than a lot of investors would like to have seen and you wanted tosee a correction, nothing significant, but something to bring value back into the market. that is we had the last month or so, a reset. expect more in line with the outlook. it is something that won't go on to much further barring an unexpected shot. it is just to bring value back into the market so people can move in. daniel morris is with bnp paribas. we have a lot of good charts for the reset of september.

talk about mr. trump's september. this is bloomberg. ♪

♪ francine: this is "bloomberg: surveillance." escape to oil and gasoline tropical storm harvey has drifted into the gulf of mexico and is poised to strengthen before crashing ashore again tomorrow at the texas-louisiana border. some productions are putting the cost of damage as high as 100 billion dollars. gasoline prices are holding recent gains with as much as 30% of the nations refining power under threat from the flooding. let's get more with bloomberg's managing editor for energy and commodities, will kennedy. also with us.

let us talk about how difficult it is to estimate the damage. it could cost between $10 billion and 100 ilion dollars. -- $100 billion. >> until flooding recedes, we won't know the full extent of the cost. probably constructed to compare those numbers with hurricane katrina. ranks as the most expensive natural disaster in history. loss paid was about $87 billion, the biggest ever, more than the japanese tsunami. at the moment, insurance expect -- experts don't expect it to reach as high as katrina, but anything in the range puts it as one of the most amazing catastrophes of all-time. francine: price hasn't done that

much on oil because it has impacted demand. although oil is the backbone of the economy and a lot of refiners will mean shut for a while. daniel: -- term, thehe near refineries are closed, they don't and crude oil. the u.s. in the last year has become an exporter of crude oil and at the moment, tanks are full of crude oil, there is not the demand, there are to the customers so despite this huge event, you have seen a very limited impact on the price of oil. you have seen the impact is gasoline, up more than 10% in the u.s.. interesting to see where the path is. this is a new chart from end of u.s., we have had in the last number of hours. i want to make clear to the global audience, we are not talking economic forward view. there is still heated recovery and rescue efforts within houston. what is interesting is new

orleans. here is nashville, cincinnati, chicago, st. louis. a truef this is across agricultural midwest. yeah, thetrack, cities are involved but this is almost a little hurricane and horrific storm over the next couple of days. is exactly right, the weather story, the catastrophe is still unfolding. at the moment, we expect the storm to come ashore on the border between texas and the louisiana and that is key because it is another huge refining center. we have in the path of this storm, the hugest refinery owned by saudi arabia, near port arthur, that could have to close. gets into the agricultural heartland's of the u.s.. that threatens this year's harvest, it threatens crops a huge issue. is 1.2 million cows in texas and many of those have been hit by the flood. yes, there is a lot of impact. tom: i know nbc in houston had a

video of a herd of cattle going down a street pass. i think a dairy queen as they were moving them out. that was really something on twitter. daniel morris, i have a question , it is complicated. jpmorgan came out with one gdp estimate of a hurricane, goldman sachs came out with another. a good french firm is smart enough to not do that. can anyone model gross domestic product of a horrific disaster like this? you probably can, we have had enough experience is unfortunately to know the impact on gdp. you get the short-term hit in terms of the reduction in production, as well as reduction in demand. you would subsequently get a boost. over the long-term, it tends to average out to zero. you would expect to see a boost

gdp over the next several quarters. a lot of the infrastructure has been hurt by the hurricane needs to be rebuilt. let me -- francine: let me show you the projected path and reported when spread. this is a good tool if you want to keep an eye on this. does it change the way the fed acts in the next couple of weeks? >> we think it probably does not change their outlook. the thing they are focusing on now is still inflation and honestly, this would potentially boost inflation if you look at the impact on gas prices. generallys for agriculture and so forth. ultimately, it will be a temporary effect that should reset. they are looking at the core rid of inflation. at this point, i don't think he will be a factor in their decision. tom: thank you both. the american red cross is asking disaster inp with

texas. the organization already has dozens of shelters up and running but expects the crisis to grow exponentially. thousands of texans will end up relying on the red cross for food. for water and a place to stay. your donations will help. go to www. red cross.org. all of the details are tax-deductible. from new york to london, this is bloomberg. ♪

♪ this is "bloomberg:

surveillance." u.s. economic data dominates the schedule this week. manufacturing data on friday and the u.s. jobs report. bmp parabolic to senior asset management. this is the real data point that is less backward looking since we had jackson hole. is that the key indicator to see if the fed can raise here? i think it is going to be the wage growth number people focus on. payroll should be solid, the economy seems to be doing well. it is just this ongoing mystery about if there will be acceleration. the fed, to a degree, is looking for defense of its raising rates in september.

-- when otherwise inflation seems still weak. tom: can they raise rates with a 10 year under 2%? we're not there yet? it is kind of trying to understand why the 10 year under that rate. is interpretation is it because growth is going to be so weak and inflation is going to be so weak and that justifies yields at this level. another part of the analysis is the belief the fed is going to hike anyway despite low inflation and that leads to lower inflation because the hike in rates isn't going to be supported by the economy. it is this skepticism in 10 year yields, i don't think the fed will take that into account. long-termlook at the outlook. but it shows skepticism on the part of investors. and they have been skeptical for the past six months, they have been proven right. daniel: it gets harder to call it temporary if you get six weeks in a row of these numbers. whether you need to come up with

a model remains to be seen, but their belief, if not as confident as before, is that inflation will come back. tom: very good, daniel morris with us, 2.09% on the u.s. 10 year yield right now. on bloomberg radio and bloomberg television, someone very much in forh with the mood -- move september across all of america. about, stephenlk engle in japan. from new york and francine's london, this is bloomberg. ♪

tom: in london, francine lacqua. right now to our first word news, here is taylor riggs. aylor: japan calls a grave

threat and asks about what the u.s. will do about the korean missile launch. the missile landed in the pacific ocean. japan's prime minister says he talked with the president and the president agreed to increase pressure on north korea. and southnts china korea to take action. harvey is not letting up on houston. the fourth largest city in the u.s. has been inundated by flood water and rain is in the forecast. harvey is drifting out into the gulf of mexico and will drift again on the texas-louisiana border. offshore oil and gas production has been humbled. promised trump has that texas will get emergency disaster aid quickly. he says there will be rapid reaction from congress, but still there are signs that there may be a political fight over

money. texas conservative says he wants to cut spending to pay for the response to harvey. 24 hours a day powered by 27 journalists nameless and more than 120 countries, i'm taylor riggs. this is bloomberg. francine: the eu's chief negotiator has told britain to get serious over brexit negotiations. on them to be serious as the two sides opened the third round of talks in brussels. british negotiators are left exasperated as what they see as the eu's stubbornness. joining us now to discuss all this is bloomberg's london chief. us, thanks forg joining us. the order thing he can negotiate is this divorce bill and the

u.k. wants to negotiate other things. see that inl october when the political leaders get together at the and we will see if there is political wiggle room. one of your guests may the point that these issues cannot get sorted out technically or legally. it's a political decision. the talks are about to start again now in brussels. they will be looking at the technical details. frustration only the brussels side that britain has not given any indication what is prepared to pay on the as britainettlement t has had a range of positions on things like data protection. that's the relationship and they have not answered the question that the eu is split to them -- how are you calculating the settlement? francine: it's not like theresa may can give out 30 billion euros or whatever it is. emma: she definitely needs to

get something in return, doesn't she? that is why the brits are pushing the talks on a future relationship so that whatever the u.k. pays is seen as perhaps access to the single market or whatever. she needs to get something return. up a chart to throw here because i do not think people are aware of the size of the depreciation we are talking. here's eurosterling. the blue circle is present. this is not what we usually look at. that leg up his recent euro strength and weakness in sterling. if wes a 23% depreciation get to parity. is the british government ready for a 22% devaluation versus the continent? emma: it's interesting. it stop that the british government talks about a huge

amount. he says he doesn't comment on the exchange rate. they have still access to the single market. as you stay at some point, that is going to affect voters because they're coming back from their summer holidays. at some point, i suppose that those have oppo-taco impact. -- some sort of political impact. i get that is the bmt affect, but help us here with a 23% potential devaluation in eurosterling. what does that mean for a nation? dan: on one hand, and really should be good for domestic demand. u.k. touristof coming back and seeing how much their holiday on a content cost, they will probably do a staycation because they cannot afford to go abroad. we should see an increase in manufactured investment.

it is really something that is supposed to boost the domestic economy. supposed to do's and that is what we wanted to happen during the eurozone crisis when we wanted greece to devalue. although there are parts of the economy separate from it, their ultimate part of the company that -- economy that will rebound. francine: this is the latest piece called brexit is "a lot like no brexit. -- beginning to look a lot like no brexit. is this wishful thinking or all these for attracting negotiating tics, could they lead to a watered-down frexit that is essentially no brexit? daniel: you'll likely have a

transition in which things have not changed all that much. the good news so to speak from the economy's point of view because of no disruption, but used up the question of what comes next. do you ultimately still become a market and so on. ,t is postponing that decision but as this is pointed out often, businesses have to make a decision day-to-day. it helps, but it does not resolve the ultimate problem. tom: all agreed that washington will be mad this coming september. will london be mad this? -thomas'smma watt calendar for the united kingdom? emma: september will be interesting because we give the legislation that sets out that oflement implementation brexit. you have lawmakers think about amendments so that will be high tensions for theresa may.

she does not have majority in parliament so that will be pretty interesting. in october, we have the tory party conference. we will see if their potential leadership candidates. also october is the big summit settlement earlier when the european union gets together and decide whether britain can talk about trade with the european union or not. francine: emma ross thomas, thank you so much. daniel morris stays with us. for more bloomberg stories, you can check out bloomberg businessweek on newsstands and on your digital website. in the u.s., the cover story looks at the silicon valley warriors and how the players in the nba are taking a big stake in tech. it's a wonderful piece and it's a really great cover story. visit businessweek.com and access and analysis and insights

to stay ahead of the competition. this is bloomberg. ♪

francine: this is "bloomberg surveillance." tom and francine reunited from london and new york. tom, let's get more on this crisis from north korea. missilerea's ballistic launch over japan has rattled asian markets as the u.s. and its allies way on how to respond. japan's prime minister has agreed with the u.s. to increase pressure on kym johnson's regime. he also called for russia and china to take action. let's also get the latest from stephen engle in tokyo. what is the mood like? our people all in panic?

stephen: it's not a panic response from the streets of tokyo. i've lived in the region for nearly 30 years, including in tokyo, and this is not necessarily a city that gets rattled at this kind of rhetoric or action from north korea. this is an unprecedented act with this ballistic missile flying actually over territory to the north. the alarms all went off there. there is panic up in the north then there was here in tokyo. course, the leadership here taking it very seriously. the prime minister has convened the second emergency meeting with the security council with the foreign minister and the finance ministers meeting for the second time today already this hour. francine: is the prime minister

try to talk to china? if you try to talk to russia? -- is he trying to talk to russia or is he putting pressure on the u.s. to do that for him? stephen: shinzo abe had a 40 minute conversation with president donald trump. they were discussing ways to get china. that has been a long problem in their eyes -- giving china to play a much more critical role and also getting russia to play critical role. the six party talks that include and japan again states and south korea and north korea have long fallen apart. the envoys for the six party talks have convened telephone conversations today to possibly find ways to reconvene this talks, but so far those efforts have been futile. u arestephen, your outsid outside at historic building in tokyo.

i will tell you folks it's really something to see. soldiers of japan went through that station to go over to china a lifetime ago. what is the relationship in this new lifetime between japan and the china that you know so well? yes, i mean the has beenhip of course in the history books filled with animosity and distrust. of course, they fought a war in northeastern china for many years before the western allies got to the war. resentment atr least in china and north korea for the occupation at the chinese had of the korean peninsula. that is where a lot of the the southhave toward koreans and the japanese. also, the united states, their biggest allies.

the animosity is a lot more on that side than on the side. tokyo and japan is a modern economy and they have moved on. tom: stephen engle, thank you so much, from tokyo this morning. someonespeak to truly decades front in north asia. he is from cornell. gordon shank has been a sharp critic of the methodology . wonderful to speak to you this morning. help us with the defense against north korea. can these missiles be shot out of the sky? shoot: united states can north korean missiles out of the sky, but we have to have our assets in place. for instance, i think our mainline of defense against the vessel like this would be our ships offshore. question is -- will our ships be in the right place for a missile launch?

you have to remember that the north korean missile launches have been mobile missiles. they can move them around faster than we can move our ships around. we do have batteries in japan, but those batteries are around tokyo and around our military assets, which are in okinawa, the other side of the country where this missile traveled over. i'm not so sure we could've shot down this particular missile. tom: well said, gordon. the missiles have midsouth -- have move south as a generalization. it was for 80 miles from vladivostok. how will russia and china with their northern assets respond to a missile going the other direction? gordon: if this missile headed toward china or russia, we would see very different reaction from the part of moscow and beijing. china and russia know the north koreans are not going to do that and i think china has been fueling this crisis largely

because they get a lot of short-term benefits when the north koreans do something provocative. koreans dorth something provocative, we send sometimes an envoy where secretary of state to beijing to plead for china's cooperation . went something like this happen, we stop talking about the things chinaatter to us with like cyberattacks in the south china sea, you name it. the chinese have not been particularly helpful. they have been dragged to the party by the united states, but they have not come willingly. francine: wise north korea provoking now? -- why is north korea provoking now? is it warning the u.s. and others about attacking it or is it the underlying tension of attacking first? gordon: there are couple of things going on with this launch and the ones on saturday. we have the guardian exercises between south korea.

the north koreans always do something provocative during these exercises which occurred each time this year. it was bound to happen. also because i think secretary of state tillerson and president trump on tuesday said thi that things work going well with north korea. tillerson talked about the absence of provocation since august 5, the last set of security council resolutions. the north koreans just give us the middle finger. in ourrt of put of us place and i think the north koreans are enjoying that immensely. francine: does it also mean that we are underestimating the capabilities of north korea or are we underestimating the intent of north korea? gordon: both. capabilities, the the american intelligence community has accelerated the timeframe for the moment when the north koreans will be able to put a new gone a missile that

will be able to reach the american homeland. we're now talking in terms of month or perhaps a year. if you go back to her three months, we were talking three or four years or five years down the road. clearly the north koreans are making much faster progress and that is in large part because they're getting help from china. with regard to intent, we know that the north koreans are being difficult and have continued to be so, but i think where we really misjudged intent is with regard to beijing. we have tried to have cooperation from them by showing cooperation to them. that approach sounds good to the year, but it has not worked over the course of decades. the united states needs to have a very different position with regards to china because what we have been doing since the beginning of the century clearly has not worked. francine: gordon, thank you so much for your comments. we need to come back because this week the treasury imposed sanctions on the number of chinese and russian companies that they say were helping and

abetting north korea. daniel moore stays with us/ . this is what you can do if you want your favorite haven call or if you have any questions for dan morris, log onto tv and ask them a question on your screen. this is bloomberg. ♪

is "bloomberg: this surveillance." let's get the bloomberg business flash. ae cofounder of tpg has reason to celebrate gilead's takeover of kite pharma. they will reap a profit of at least $425 million from the deal. bob goodman invested less than $10 million back in 2011. bmw want to give tesla low more competition. the automaker has given its electric car us 40 makeover. -- is 40 makeover. it will have an you wanted front end. that is your bloomberg business flash. francine: thank you so much. and thetalk regulation

sweeping real changes that come into effect on janeway third that have led widespread concern to the cost of research. it is seen as a particular threat to the business model of smaller firms that are already brunt of investor exodus. let's get back to daniel morris. various firms try to look for models and fee structures, but how would it fundamentally actually changes industry? daniel: it should end up with a fairly significant reshuffling in terms of where those resources are held. is it outside research provided free now to asset managers? to those people now go to smaller boutiques or are they going to be absorbed in the asset management industry itself? i think it's reasonable to expect that a lot of the research functions are now going to be a part of the bigger asset managers and they will develop their own resources that might potentially lead to decisions

because you are developing those ideas yourself instead of sharing an idea. tom: that's a beautiful expedition. -- explanation. this is really inside baseball, but it's huge consequences for the street. what you just described i've heard described somewhere in the vicinity of six times over umpte en years. it has yet to happen with rare exceptions. owe price and baltimore would call it. what happened when the buy side takes over sell side research? i don't buy it for a minute. daniel: with this type of regulatory pressure, it does pressures seems to be where a lot of the asset managers are going to go. now primarily its european regulation. is this something adopted more globally because of the difficulties that a lot of asset managers might have tried to differentiate where the costs

are coming from? i think it is a pretty significant change and what is quite different from what you might've seen over the last six years. tom: what is the pay cut going to be for the sell side research people? number you a are working with without getting you in trouble to general counsel? daniel: no, i don't have a number. tom: francine, do you have a number? [laughter] francine: a lot of people don't have a number. by strike him a tom. -- nice try, tom. when you look at the source of the markets, to this change of them as they try to figure out what their future is? daniel: ultimately what it should do is that it's promoting price discovery. you are able to see now hopefully more clearly than you did in the past exactly what the research is and what value it is to you and what you are paying for it and then you can explain that to your clients. ultimately that th is the objective of the regulation. tom: daniel, thank you so much.

we greatly appreciate it. so much more to come. stephen engle's in japan and we have covered from china as well on korea. we are looking at the effect of the hurricane as the rescue operations continue in the early morning in houston. will be joined on the mac and economy. the jobs report on friday. with markets on the move, futures -17. stay with us. this is bloomberg. there is the tokyo train station. ♪

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over al qaeda. okaido. noki the yen stronger and equity futures have declined abruptly. this hour we will go live to tokyo at the tokyo train station built in 1914. on to houston, america's fourth-largest city will never be the same and in the dark of night, rescue efforts continue . it is still too early to consider the huge economic recovery ahead. this is "bloomberg surveillance." live from bloomberg world headquarters in new york, i'm tom keene and francine lacqua in london. an extraordinary news flow in late august. a isine: it i having an impact on stocks, but the swings are pretty subdued to what we have seen in the past. to our bloomberg

first word news, here's taylor riggs. taylor: we are starting with north korea. the u.s. and its allies are considering a response to north korea's latest provocation. they fired a ballistic missile of a japan before landing in the pacific ocean. annzo abe called it unprecedented, great, and serious threat. president trump agreed to increase pressure on north korea. bracing for a follow-up from the most expensive natural disaster in the u.s. sinc in five years. houston has been inundated by flood waters from hurricane harvey. some estimate that damage could reach $100 billion. the state oil industry is reeling from impacts of shutdowns and refinery production. harvey may make landfall again on the texas-louisiana border. president trump discussed building a tower in moscow

according to a lawyer talking to the house committee. he talked to vladimir putin to ask you for help on the project . president trump said as a candidate that he had nothing to do with russia. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 127 countries. this is bloomberg. tom: they have been this mid range. the curve flattening the euro 120 and change. weaker oil of the last month number of days. away from complacency at 13.78. the 10 year under 120. that is for basis points lower for the 30 year bond. there's the japanese matrix of currencies. francine? francine: i'm glad you're

looking at yen. the yen may remain the first was amongst major currencies, but the dollar seems to no longer be the obvious second place. i would point to the euro picking up above 120. gasoline also gaining as energy company's are bracing from another hit them tropical storm harvey. this quite a lot of news around and assets we need to look at in your data checks. they have fired this unidentifiable ted ballistic missile over japan. it landed in the pacific ocean. the japanese prime minister described it as an unprecedented, grave, and serious threat and that he had donald trump have agreed to increase pressure on pyongyang following a 40 minute phone call. >> japan's position completely matches that of the united states. north korea's missile launch poses a serious and great threat on an unprecedented level.

i'm in complete agreement with president trump that we must convene an emergency u.n. meeting an increase pressure on north korea. francine: let's get the latest with stephen engle in tokyo. stephen, first of all, let's start off with you. what do we know about what this missile was and what it means for the advancement technologically of where north korea is? is most likely not intercontinental ballistic missile back to reach the united states or guam as has been threatened by kim jong un. it was most likely an intermediate missile that flew over the japanese northern island before falling apart into the pacific ocean. it's an unprecedented act. there's not ame, lot of panic that i've seen in the few hours that i've been here in tokyo flying up from hong kong.

the national security council has already convened a second meeting of the top ministers and shinzo abe's cabinet. they are discussing their options. not much panic. the markets were down a little bit early on and a noted economist was saying that in past years if there was this kind of missile incident, there would be a three or 4% selloff in the nikkei. not so much, with only half a percent down on the nikkei. tom: stephen engle, good morning. what is the distance from tokyo to sapporo? decadesso expert with on the culture of china and japan. how far away is tokyo? stephen: i will have the exact miles or calamity or's, but it's about an hour and a half flight. year fore a skiing.

it's a rural area and absolutely beautiful. it's not is populated as the main island of hot soup here -- haronsu here. there was a story that i caught up with the missile flying over that the air raid sirens going off with fishermen quoted saying they thought it was an earthquake warning. was not a lot of panic. what do we doring in the event of a real missile attack? tom: stephen engle, thank you so much. kevin cirilli, when he takes a train, it's the amtrak. he is the chief washington correspondent. what will the generals advise the president? we have a set of generals including at the pentagon come up three key generals -- mattis come a kelly, and mcmaster. what will they advise this president? kevin: great to have you back.

there has been radio silence virtually coming from president trump following this latest missile testing. we should note that it came days after on saturday when three missiles were tested. this is the first time that the missile has been launched over japan since 2016 and another sure test that the generals are definitely going to have to be having president trump's ear. the of heard radio silence of the hours after this. no official statement from president trump following this latest development. francine: what does this mean? this launch comes after president trump and his foreign secretary said that kim jong un was starting to respect the u.s. it's almost a personal affront to the trump administration. kevin: definitely the way you put it is absolutely correct. this came at a time when president trump had tried to shift, so to speak, the narrative in which he was dealing with this dictator, this 33-year-old dictator.

now there seems to be a major setback. nikki haley is going to be a key figure here, the former south carolina governor now united states ambassador to the united nations. she is going to be pushing for this united nations security council meeting. let us know that it was also just last week that treasury secretary steve mnuchin announced new sanctions not just chinese financial conditions but also russian financial institutions for their engagement with north korea. tom: very quickly here because we want to get to dan clifton, but his nikki haley going to replace secretary tillerson? what is the zeitgeist that you see on that important gossip this morning? you talk to folks any see that this is where all this is centered. anecdotally speaking, secretary tillerson with the vice president and chief of staff at the press conference in the front row of the white house. tom: kevin cirilli, thank you for the briefing.

no price to your wonderful value from washington. he writes the most acute notes on the fiscal dynamics of the hill. it has been way too long since we have caught up with daniel clifton. mr. clifton those it will be a most busy september. the news flow is extraordinary for the end of august. i told the team this morning that august starts this morning -- i mean, september starts this morning. daniel: if you look of the news flow today, yet north korea. you have houston suffering from floods. and then we are facing a gigantic fiscal agenda for the month of september. is the government going to shut down? are we going to raise the debt ceiling? are we going to do a 2018 budget resolution? these are critical issues that are now being compounded by these outside events that are going to make their job more difficult.

the way i would think about this is that will probably create a catalyst to get the defense budget higher. i would call it defense the new quantitative easing. the fed will be tried to pull back their balance sheet and the federal government will be pushing out higher defense running. -- defense spending. eventhey goes back to johnston us of the deep south of decades ago. do you have a statistic for how big that defense add-on will be? am i wrong to say a trillion dollars is not out of the question? daniel: right now we are at $600 billion, but if you can look out over the next 10 years, $1 trillion is not out of the question. these outside the united states are the largest since the cold war. the list goes on and on. the u.s. is going to have to invest in these resources. what i find to be most interesting is that the

president has been silent on north korea. at the same time, he has those three key advisors there who know what they're doing and they probably don't want to show their cards ahead of the u.n. meeting today. at the same time, we have increased sanctions so much, whether it was just the limits on north korean exports that eventually there is going to have to be a military response and that will cost money to do that. francine: how much money? do we know? daniel: that's a great question. usually they start off very small. i would say that we put $16 billion in afghanistan and turned out over chilean dollars p -- $1 trillion later. a $100 billionat increase over the next two or three years in the defense budget, which is very significant on a $600 billion base. francine: you later that clearly -- later that clearly that we have issues in the u.s., but is north korea a distraction? daniel: i would say this now

couple gets the task more, benefits beautiful process of getting budget issues out of the way to focus on geopolitical events, then there is upside to that. clearly you do not want to be dealing with north korea and iran coming in at the same time. iranve to certify that deal every 90 days and the president has not been happy with that deal. tom: where is senator mccain on this? the boat named after his father and grandfather has been damaged with horrific death. where is senator mccain's voice on a budget for a refurbished navy? daniel: that's a great question because i want to start from everything john mccain has been doing since january has been trying to get the defense budget higher. he is been footing against oil and gas provisions all to manage may suffice the defense budget higher. what happened to the ship named after his father and of the ships in asia is that they have

been hacked by the chinese to alter the gps system. i don't not if that's true, but that's a lot of chatter about that and that will require investment. from i understanding, senator mccain went through his first round of cancer treatment. i'm not 100% confirmed, but that is the talk in washington and it dovetails with the news flow out of north korea. tom: don't be a stranger. mr. clifton is a strategic is research where from washington. -- thenk of my fed uproar over how wall street will be compensated in london. will that come to new york city? schloss with ralph nstein. stay with us. this is bloomberg. ♪

francine: the french president saying that north korea is in the latest missile launch and is wanting in irresponsible. he is warning of a growing ballistic missile threat. he is making comments in a speech to french diplomats in paris on tuesday. he is saying that france is fully supportive of japan. this is "bloomberg surveillance." francine lacqua and tom from london and new york. big week for economic data. tom: it's a huge week for economic data. the news flow in august is supposed to be sleepy and we are not there. haram bundles took a vacation. how long are you off? >> two weeks. tom: no one would take that off. it's as if september is starting

early. report. to the jobs print for august has been weaker and we have had accentuated strength of the numbers. it's a little bit of a correction and nothing to worry about, but i have to admit that i've been looking for correction the last month as well. we have this use positive surprise, but i think we should not be shocked to see another week a number on friday. tom: i show this chart earlier. we are fading earlier very quickly. we show this in the last hour. there is the election and up we go and things are going to be great. we roll over and here's this fade. is this a world of bad economic doa slowdown tepidness or you just say that this is an outlier based on geopolitics? harm: if you would show the equity chart, it would look completely different. we have this bit of a disconnect between the equity side and the

fixed income side. then come world is a bit distorted by central banks. there will be a little bit of retracement by central banks most likely on the qb side. the trump boost has faded for sure, but on the equity side, there's still a lot of optimist some -- optimism there. today's news flows where negative for risky assets, but i think the market in general is still looking for solid growth. when you said is that a reaction to that i can't data, i would say -- that economic data, i would say no. francine: what did you learn at jackson hole? it seemed like central bankers had a chance to talk then currencies but they did not take it. harm: the lesson from jackson hole is that investors what the euro-dollar higher. when janet yellen did not talk about monetary policy outlook,

the dollar took a hit. when mario draghi did not talk about the policy outlook, the euro went up. the really shows right now positioning in markets, which is pretty much in line with our own house view. the euro is already at 120. that is basically where we see at the your end, but it's a good problem to have. we are one of the most bullish on the dollar. we are glad that the euro is so strong. tom: an important interview as the rescue efforts continue in houston. we will talk about his truly state disaster. pete sessions of texas in the 8:00 hour this morning. is washington looking at trillions of dollars in aid to houston, texas and western and southern louisiana as well? stay with us. this is bloomberg. ♪

francine: this is "bloomberg surveillance." fire francine lacqua in london and tom keene in new york. tropical storm harvey is expected to cross again tomorrow on the texas and louisiana border. some are estimating the cost of the damage as high as one billion.00 will, thank you so much for coming back on. this is a chart charting the

difference between wti and rent. we have seen a lot of price swings when it comes to gas nots and the wti moving as much. will: we got a lot of oil refineries out in the u.s., as more than 2 billion barrels a day. refineries are not working and that is dampening demand for crude oil because they're not putting oil through the plants. the u.s. has become a big export of crude oil. the shipments are not being made. the situation you're getting is a buildup of oil in texas and oklahoma with nowhere to go. all the market action has been in gasoline. tom: let's go to the deep state. we showed this in the last hour to great acclaim and let's do it again. this is the national weather service map. for global audience, here's houston down here. here is the louisiana border that francine just mentioned here. up here are the great cities of st. louis, nashville,

cincinnati, and chicago. you will learn this if you follow baseball and football in america. the track of this is hugely agricultural and rural, isn't it? will: it is. it's going to have an impact on agriculture. we have already seen it happen impact on the cattle market where prices have risen. 1.2 million cows in texas and a have been extreme flooding. the storm has a real second go in energy because that border area between texas is home to some of the biggest oil refineries in america and they may have to close this week. tom: rescue effort still very much underway versus the economics. very quickly here, can you calculate the gdp affect? is that people just keeping busy in august? can you actually do it? harm: it's hard to answer.

it is really would hurdle to sacred -- brutal to say. if you look at it interestingly, gdp growth accelerated in the third quarter 2005. gdp is not a good measure of welfare productivity and something like that might spur activity with cleaning up in rebuilding. i think the gdp impact will be limited. what we will see is probably a big rise in jobless claims. it went up 100,000 or something like that, but everything else is really a lot of speculation. tom: thank you so much. will kennedy, thank you as well. good morning. ♪

francine: this is bloomberg surveillance. we need to wrap up our coverage of germany. we're less than a month away until german elections. angela merkel speaking in berlin

early on said the rising euro is almost certain to have an impact on exports. something not only the rest of europe needs to be aware of but i'm sure the trump administration will look at very closely. i'm francine lacqua in london. tom keene is in new york. unprecedented in threat. what to do about the north korean missile launch. a ballistic missile flew over japan before landing in the pacific ocean. the prime minister shinzo abe said he talked to president trump and the president agreed increased pressure on north korea. also wants china and russia to take action. tropical storm harvey isn't letting up on houston. it has been inundated by floodwaters. is in themore of rain forecast. harvey has drifted into the gulf

of mexico and will crash ashore once again tomorrow on the texas louisiana border. 10 of the 25 oil refineries in texas have been closed. offshore oil and gas production has been hobbled. trump is promising that texas will get emergency disaster aid quickly. he says there will be very rapid reaction from congress. be a political fight over the money. suggestss conservative he wants to cut spending to pay for the response to harvey. global news 24 hours a day powered by more than 2700 journalists and analysts in over 120 countries. i'm taylor riggs. this is bloomberg. the eu's chief negotiator says britain must get serious over brexit negotiations. he called on the u.k. to be clear about its position as besides opened a third round of talks in brussels. british negotiators have been

exasperated. bloomberg's london bureau chief will join us shortly. we also heard from the european commission president lashing out at the position documents. it seems the rhetoric is getting quite ugly. we are trying to get a sense of whether it is rhetoric and whether it changes when the eu leaders sit down. interesting is the political dialogue i am a little bit removed on. up the chart on eurosterling. this is extraordinary and underreported in america. here's the weakening of sterling off brexit. which is here basically the idea of a 23%

depreciation if we get to parity. can any nation stand a 20% depreciation? the think we are seeing real economic impacts in terms of purchasing power of british residents. consumer spending has been the weak spot of the economy. it as a result of the weaker currently. francine: i want to get back to our london bureau chief admiral thomas. we are talking about the aggravation between the eu and from theand we heard president of the european commission. all of the position papers and none of them are satisfactory. is this just fighting for -- talk or is it turning ugly? not very much further on from where we were a month or two ago. the eu wants to talk about the issues surrounding the divorce. the bill, the financial settlement, the irish border.

the u.k. hasn't published a position paper on the financial settlement. the spokesman come out again this morning and said we want to talk about the future relationship. a are still talking about the sequencing of talks which is a debate we thought had been sorted out in the early part of the summer. ireland the uk's new border with the eu is going to run straight through the middle of the island of ireland. and the u.k. government has said the eu needs to show imagination. what people in brussels say is are you passing the buck. you created the problem. you created brexit and now you are asking us to create a solution when you have said you are going to lead the single market. francine: do we look at brussels but then thession

real power lies with the politicians? >> what has been interesting is there has not been a chink in the unity. had theon bloomberg we portuguese prime minister being quite friendly towards britain thing they are friends and we should approach in a friendly way. he is also sticking to the line that what the commissioner says goes. there's a feeling the eu wants to move on. they don't want to spend all of this political energy talking about brexit. francine: does this mean a watered-down form of brexit or a higher likelihood of the u.k. crashing out of it? >> we will have to see in october what the mood is like. there is an idea kicking around in brussels that the u.k. could basically pay into the eu budget during a transitional arrangement and those payments could be subtracted from the final financial settlement.

what is clear is the u.k. does not want to sign up without getting anything it can show voters in exchange. tablets are vicious. -- the tabloids are vicious. tom: and existential question. what is the proper of prime minister -- power of prime minister may right now? didn'telection in june go according to planned parenthood doesn't have a majority in parliament. there does seem to be the view in the conservative party at the moment that she is useful. earlier on in the summer there was a lot of noise about potential rival leadership bids. that is certainly died down. we will see. the conservative party conference in october is going to be the place to take the temperature about what her powerbase is like. in parliament is going to be pretty high wire. harm bandholz is with us.

what does mr. nielsen say about brexit and the potential for gdp? >> we actually think that position hasmay's been weakened after the election there is a chance for a bit more of an orderly negotiation. we think there are signs the u.k. has to given to the eu. tom: how do they do that? i don't understand the distinctive moment where they give in. what is it? >> first of divorce than what's going on later. the u.k. will accept that. they already accepted the transition period. they are talking about the u.k. will do some payments to the eu. how these payments look like

that is more a matter of detail. in general excepting there is something like an obligation is a good first step. it will develop over time. we have until early 2019 and then we have a transition period. investors is for that it won't be as disruptive as they looks a couple of months ago. of the day we think it's hard for the u.k. to stay in the single market. what are the main stress points we need to watch out for? conservative party conference? another round of talks in early september. the mid-october summit is the key one to watch. if they don't come to an agreement then the next opportunity for the eu leaders to give the green light is december and that really does

shrink the time available to negotiate a trade deal. they have said they don't want to talk about transition until the divorce is settled. -- everyoney well has agreed there needs to be a transition but they are not going to negotiate the terms until the eu decides. tom: thank you to all of our london team for your assistance. mr ross thomas. our london bureau chief. we'll continue with harm bandholz. working fulltilt in august. megan murphy has a great team with a really interesting set of stories. this week on the mba. i believe that mr. curry to the left. mba investing in silicon valley. cover on the silence of the trump. an image from his recent visit to phoenix as mr. trump looks forward to september.

you can't do better than bloomberg businessweek to get you to september. stay with us. from london and new york, this is bloomberg. ♪

>> this is bloomberg surveillance. let's get to bloomberg business flash. the cofounder of private equity giant tbg has a reason to celebrate. gilead's takeover of kite pharma. will reap a profit of 400 and $5 million from the deal. on german invested less than $10 million in kite starting in 2011. bmw wants to give tesla more competition. the german automaker is giving its electric car a sporting makeover. the updated version will look less squat.

bmw comes out with the revamped car in november. ford and dominoes are teaming up to test out driverless pizza delivery. the pies will be delivered in ann arbor, michigan by a ford fusion capable of self driving. there will be a ford engineer at the wheel. the goal is to see how customers .eact that's your bloomberg business flash. i'm not picking up the pepperoni and mushrooms. get through that with a straight face. tom: driverless pizza. our single best chart is the chart. it's the mother of all outlier charts. a little bit of history. right now. chart in the vicinity of 5%. even 6%. people like dean maki at our place talking 4%.

so was harm bandholz. he is saying we are going to 3% unemployment rate. he believes you. how do we get there? -- nobody believes you. how do we get there? the labor force is growing at 100,000 or less over the next couple of years. tom: is this about demographics? we and our politicians haven't adjusted for it. yes. tom: you have to say more than yes. it's tv. we need less employment gains to keep the unemployment rate constant or lower. if you talk about payroll gains of 100,000 they say you are pessimistic. that's not true given that demographics are changing that much.

tom: let's talk about the reality which is a huge body of america feels underemployed. are these good jobs that have gotten us from 10% to 3%? we have several very good jobs and several very poor jobs. what's really missing is the middle class. not that easy that we can dismiss all the job gains as being poorly paid jobs. there were a lot of very well paid jobs. the middle classes eroding and that is playing into the unhappiness we're seeing across the country. you threethis is the unemployment figure. what does this chart tell you about what kind of jobs the u.s. needs to create? underemployment is still much higher than the official unemployment rate. that has almost normalized.

only starts in the early 90's. we don't have that much of the history. the underemployment rate is not that far away from the precrisis low. there are some part-time jobs where people would like to work full-time. that chair is coming down as well. there are a lot of full-time jobs being created. it's not all bad jobs. not all part-time jobs. it is a real genuine improvement in the labor market that started some 10 years ago and it continues. i haven't done this in so long. i messed up. excuse me. francine: give me a sense of what we are looking at.

should we just forget inflation at 2% because of the changing nature of the economy? should we look at gdp and the trend going higher for the fed to raise rates? >> that is a fair question. has beention rate probably one of the biggest puzzles we have been facing. shapet to the changed which means we still have the negative correlation between unemployment and inflation or wages. it is not as steep as it was. if you are talking about alternative measures have to look at unit labor costs. bitth has slowed quite a and that is also one reason why wait gains are not as strong as they should be. unit labor costs are not that much out of sync with what we have seen in previous cycles. research notenal i saw from harm bandholz. i remember when i first read harm bandholz. it was on oil in saudi arabia.

we've got you in the building today. ed morse will join us later. what i want to know is oil right now a benefit to the american consumer? is it a benefit now to consumers? the new development in the energy market have tremendously benefited the u.s. economy. to increased activity. we are talking about well-paid jobs that have been created because of shale gas. an agreement that the price between $40 and $60 is the sweet spot because it is not too expensive for households to pay for. at this price range it is positive for the u.s.. bandholz on jobs and

the 3% unemployment rate is extraordinary. let me tell you about tv . i used it on my holiday. tv with harm bandholz. you can watch it live. i can go here and get francine looking at eurosterling. stay with us. from london and new york, this is bloomberg. ♪

francine: this is bloomberg surveillance. i'm francine lacqua in london. coming up, bloomberg daybreak: americas with jonathan ferro and alix steel. we are covering all of the safe haven moves in the market. in particular what's happening with gold. we are right around the levels we were when the u.s. election happened in november. who better to discuss that with a then ed morse? we will also be talking through many different angles of hurricane harvey like a gasoline, oil, refineries. also petrochemicals. we have all your bases covered.

i can't believe i can't talk to tom about game of thrones. i have been told no spoilers. watchingillion people good extraordinary event. congratulations hbo. i couldn't talk about it because alix steel and see it until last night. alix: it was so good. tom: i had to extend my vacation a day because of it. francine: all right. game of thrones. thrones youame of can also watch bloomberg surveillance. angela merkel says the rising euro is almost certain to have an impact on exports. she also says she is not that concerned about germany's trade surplus with other countries. it's less than one month to the german election. we are back with harm bandholz. when you look at the polls it would be very difficult for someone to unsettle angela merkel. what kind of coalition can she do and what does that mean for euro? poll she haslatest

almost all options on the table. the question is who wants to go together with her. the jr. coalition partner has always been punished in the next election. the grand coalition is possible. fore may be a small chance a black yellow. the liberal coalition has been conservativeal bloc in germany. possibility of a jamaica coalition in germany. it's all on the table. it's called the jamaica coalition. tom: you learn something every day. i did not know three parties in germany could be the jamaica coalition. let's go to the chart. good morning for those of you watching in the caribbean. here are german rates. this wasn't supposed to happen.

is it even thinkable that the negative two-year to go below the early 2017 maximum negative? is that even possible? >> i think a lot of things are possible. probably need a very big negative shock. i can imagine what that would be right now. you know where the ecb is heading. there should be less support for bonds and all kinds of fixed income products. tom: everyone is talking about where the fed is heading. where the bank of england is heading. in years of my experience they never get there. facts change. they change. francine: there's a technical concerned that mario draghi may be pushed to the balance sheet because he doesn't have enough german bonds to buy. they got where

they wanted to go. it took them much longer than they initially planned. getecb is on track to closer to tapering. the question is do they announced in september or october. mario draghi didn't give any signals in jackson hole. there is a bit of a technical constraint. theyey wanted to buy more could maybe find ways to find other types of assets. i think they fundamentally think they are at a point where it -- taper. so: harm bandholz, thank you much. we are watching dollar-yen this morning. this is bloomberg. ♪

jonathan: north korea fires a missile over japan.

shinzo abe calls it a grave and serious threat. the white house remains silent. markets adjust to geopolitical tensions. texas faces more flooding. heavy rains devastate america's fourth-largest city and the heart of the u.s. oil and gas industry. from new york city, good morning. welcome to bloomberg daybreak: europe i'm jonathan ferro alongside alix steel. david westin will be joining us a little bit later to interview ralph schlosstein. off inery much risk global markets. futures are negative. .6% on the s&p 500. the euro stronger. trading near a january 2015 hi. yields printed new lows for 2017. the down four basis points. alix: take a look at what's happenth