>> john yang is preparing for intercontinental blissett missile launch after its latest atomic test. trump threatens wider sections. merkel stands firm. the chancellor faces tough questions on diesel in a tv election debate. the polls show martin schulz failed to score a breakthrough. novartis -- the at at novartis. david davis should stem reports that the prime minister is said

to approve an eu exit payment of up to 50 billion pounds. i am mark barton in london. plenty of great guess including raghavan seetharaman on who joins us in half hour for his first interview of the day. let's have a check on what is happening to european equity markets. .5%.toxx 600 is down by south korea detecting that north korea is continuing to prepare for a possible intercontinental ballistic missile launch, a move that would further raise tensions. choice is the haven of in the currency market. it is rising against all 10 of its major peers. the dollar down by .7%. the german ten-year yield is

falling by two basis points, down to 36 basis points. high.ising to an 11 month bloomberg first word news with juliette saly. juliette: market, u.k. brexit secretary says he dismisses nonsense reports that theresa may approved to pay as much as 50 billion pounds to leave the european union. brexit talks may fail to move on to trade discussions speculation was dismissed. >> resolving the issues that on the table, then will think about the trade relationship. it is no secret that we think we need to have a very strong trade relationship with the u.k. out of the eu but first things first.

juliette: as a merkel faced tough questions on germany's diesel dark just diesel car crisis. in her only televised face-to-face clash with martin schulz, merkel expressed outrage about auto executives saying that they undermine a pillar of germany's economy. northey is -- to the crude market slump. according to data, 14 projects have combined peak production will start this year, the most since 2007. the report says the lack of investment is likely to weigh on the outlook beyond 2018. steven mnuchin says congress should combine initial aid relief with an increase in the

u.s. the debt ceiling. attempt to link the two measures was intended to avoid a standoff that rattled the market. mnuchin has a goodly said congress must raise the debt ceiling by september 29. global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. saly.uliette this is bloomberg. mark: juliette, thank you south korea says pyongyang is preparing to continue -- is continuing to prepare for an intercontinental ballistic missile launch. president trump responded by threatening to increase sanctions and hold trade with any country doing business with north korea. u.s. defense secretary says any threat would be mass -- met with a massive military response. >> we have the ability to defend ourselves are allies just

ourselves or allies -- ourselves or allies. any threat to the united states or its territories, including guam will be met with a massive military response, every spence both effective and overwhelming. kate is here.en south korea detecting north korea continuing to prepare for an intercontinental missile launch. what is the latest? the tunnel that you need to conduct a nuclear test and -- are in operation. one is a nuclear test, one is another missile launch. this could be something that shot over japan into the pacific ocean.

last week when north korea shot one over japan, kim jong un warned that more test for coming . south korea saying that could after a lot sooner, a day that massive bomb went off in north korea. mark: president trump tweeted is finding their talk of appeasement will not work. the only understand one thing. how is trump's criticism of south korea being received? daniel: not well among the analysts. they see this as a division among the alliance that trump is bringing to the four and public rift. he saw james mattis try to -- you saw james mattis try to tone that down. of weakening the trust

of that alliance is south korea doesn't beloved that -- doesn't believe that and one day may pursue its own nuclear weapon if it feels it cannot rely on the u.s. or if the u.s. is seen as pushing too much from just for some sort of primitive war. next -- and, daniel, thank you a lot. join us, brian myers. thank you for joining us. if north korea wants to launch an intercontinental listed missile either today or tomorrow, what message would that send? message would the be an ability to master the necessary reentry technology. at the moment, that is the last hope of the united states and south korea is that north korea is going to need a while to get that reentry technology down.

the south korea experts are saying this launch might be intended to show they can master that as well. mark: professor, what is going to happen next given president trump has suggested there will be tighter sanctions? for now there will not be any military reaction. he says he will stop all trade with any country doing is this with -- doing business with north korea. so it wedon't think have been through this over and over. media have handled the story a dozen times. each time they say it is unacceptable, they say measures are going to be taken in people suggests this time china is going to get tough. nothing ever changes. one of the problems is south korea. daniel was not completely correct in saying that trump was

the one making divisions. there's been a division inside this alliance since may in the tough talk that north korea has been making has to be seen against a consistent softline down track. it was only a few weeks ago that new gene was saying south korea will do anything to avoid war. what happens, south korea would never agree with any sort of military action against north korea. that puts in a different perspective south korea's compliance with various shows of military strength. --hink kim jong un nones knows he is dealing with a softline south korean government and therefore with alliance that is not nearly as unified as it pretends to be. mark: south korea has paved the way for the full deployment of this u.s. defense system. doesn't that tell us he is

getting south korea is getting more serious? brian: may be serious about placating the united states. moon jae-in's party was against -- some response to north korea's nuclear test after they happened but it only takes a couple of days after it happens for the south korean left to revert to its old sunshine line that north korea is afraid of the united states and south korea needs to play the role of an intermediary between pyongyang and washington. this good cop/bad cop game which the allies has been playing is starting to get really dangerous, because it encourages north korea's hopes that it can subjugate south korea and soon as american troops. that is what north korea's after with this missile program.

force the united states to withdraw troops from the peninsula. if south korea wants to be helpful and put a stop to that, he needs to stop sending mixed signals. tok: south korea is the key deescalate tensions? are the other measures that could be taken by either side? -- are there other measures i could be taken by either side? to say chinass could put a very quick stopped all of this by cutting off the supply of oil, but that is not going to happen. that is one thing we need to have learned is china has no interest in a north korean collapse or american troops standing on the yellow river. just as russia has no interest

in seeing american troops standing on the border to russia. american jews need to have -- american troops need to get their own house in order. no more good cop/bad cop come i mean america has to stop making while threats that he cannot back up and south korea has to stop pretending that it is an intermediary, that it is somehow a bystander for some kind of existential conflict between north korea and the united states. this is all about south korea. it is important that they convey the strong conviction in its liberal democratic principles that west germany always conveyed to east germany. that is not happening now. mark: professor, thank you for joining us. a couple of headlines, china says trump trade threats is unacceptable, unfair. we are hearing from the russian deputy foreign minister who says russia sees a risk from north

korea progress on its nuclear weapons. more on this from today's surveillance. coming up, on the these of the fence, merkel defending her decisions in the aftermath. the diesel scandal. one that next. -- more on that next. this is bloomberg. ♪

mark: i am mark barton in london. let's get the bloomberg business flash with juliette saly.

juliette: the eu's competition commissioner says google must show much choice of shopping services to avoid further investigation. the eu is weighing the companies plan to give equal treatment arrival -- treatment to rivals. >> will have to see the change in the markets that customers get a chance to choose other shopping comparison services, because if you have to go to page four to find a competitor to the google shopping, you are not to be found. what we are looking for is changes in the marketplace, so we as customers our first. juliette: novartis says joseph jimenez will retire next year. the company is attempting to counter declining sales of its best-selling cancer products

which is losing ground to cheaper copycat drugs. maine capital and sin bin started -- have agreed to give minority shareholders a higher price. the original deal will be offered $74 per share. that is your bloomberg business flash, mark. mark: angela merkel accusing german carmakers of undermining a pillar of germany's export economy following the diesel scandal. in her only televised face-to-face clash, merkel came under pressure from her opponent , martin schulz, about whether she had gone to easy on the industry. >> excuse me, you can't accuse me of going easy. i am outraged because exactly

what he was mentioning my happened. the main pillar of our economy coming of the expert champion germany has been put in danger and with this hundreds of thousands of jobs and people were put at risk by no fault of their own. mark: who won the abate -- who won the debate? >> i would say it was a tie. she was put under pressure but overall, it was a tie. schulz was better than expected. mark: does the of just does the debate have any effect on the outcome of the upcoming election back of -- election? behindlz is trailing merkel around 15 percentage points. he might gain a few points, but not enough to change the expected outcome of this election. mark: what was new in the

debate? pensions, a socially just economy, refugees, trump, road tolls, turkey, the diesel scandal, all topics that were discussed. what new was uncovered in last night's discussion? >> there was one interesting moment when merkel was pushed by schulz to say something on turkey, where she said, this is the first time she said that she the be in favor of ending talks with turkey. i would have to talk to the eu leaders about this but it seems like she has changed her mind. lot. think -- thinks a -- thanks a lot. laurence mutkin is here. good to see you.

there seems to be a view that schulz struggles to differentiate his traditions from those of merkel. he was trying to create a gap between them but there's a perception that there isn't much of a gap. movingelection a market election, like the dutch election? what could be an interesting italian election? laurence: no, it is not. debates wereof the about we sticking positions of the german government already has. so the market is really looking north of that, but more contentious votes, the vote in catalonia and the a lot -- and the italian elections, germany is one that we feel relaxed about.

mark: let's talk about the ecb. we have done a poll, 67% of economists we surveyed says that draghi will express concern about the euro. are you in that 67 percent? laurence: he always has to finesse it. certainly i think the tone he will strike will be one where he will endeavor to make sure the euro doesn't accelerate. mark: how do you phrase? to ensure the achievement of that objective? laurence: most people are looking for a move to balance in the written statement itself, but the q and a is a lot more scope to be nuanced about. i think he would reinforce the

forward guidance that he has mentioned before, explaining the process will be very slow and it was floated the final announcement over the details on the takeaway expect -- on the taper we expect. policysure the change in perceived by the market is being extremely gradual. mark: we don't expect specific announcements on qe this week? are probably not going to get into the end of the year. laurence: maybe november. -- if thedon't go market behaves in a very benign way, it is still possible we get more detail not at this meeting but the one after. from the point of view, what is the hurry? it is not like inflation is for

the market is reacting badly to the uncertainty. the market is behaving very well, at a very low level of volatility and low trajectory. mark: inflation though, core inflation. it is sticky, isn't it? well below 2%. does that provide you with any encouragement the ecb is closer to filling -- to fulfilling its mandate? laurence: no. our economists are more cautious on inflation than the market next year. harder to justify the ending of qe or the beginning of rate hikes. we still see the taper finishing the summer of next year, but we are in an environment where inflation is unwilling to rise. it still leaves a very long time

for there's any rate hike or prospect. mark: bond markets, you think will remain benign through this process? laurence: the thing is even with a benign policy view and even with the ecb wanting to go i the end ofact is the year the ecb will have announced a paper for next year and the federal reserve will have announced it is reducing the balance sheet. the bank of japan is buying many fewer bonds that it is saying it is going to buy. next year, even with nothing going on on the rate side, they're still going to be a great increase in the number of bonds in europe and globally that the market is going to have to absorb. that is a reason to stick to the term. it is not great news for bonds given how much we have screened the summer. mark: the german ten-year,

there's a slight turn in haven assets today. we heading back to 60 basis points which was the july high. laurence: it is not unusual to have a squeeze in august because of slow by -- because of supply-demand. you would expect we are going to get issue is coming back. you would think that now would be the time you see a rise. as long as it is gentle, don't worry. mark: we are going to speak to the chief executive of doha bank. this is bloomberg. ♪

so we need tablets installed... with the menu app ready to roll. in 12 weeks. yeah. ♪ ♪ the world of fast food is being changed by faster networks. ♪ ♪ data, applications, customer experience. ♪ ♪ which is why comcast business delivers consistent network performance and speed across all your locations. fast connections everywhere. that's how you outmaneuver. ♪ get to bloomberg first word news. te: president trump has

threatened to increase sanctions and halt trade with any nation doing business with north korea following the claims of them successfully testing a hydrogen bomb. james mattis says the country would face a massive military response if the u.s. or any allies are threatened. >> we have the abilities to defend ourselves and our allies. from any attack. our commitments among the allies are ironclad. any threat to the u.s. or its territories, including guam or our allies will be met with a massive military response. a response both effective and overwhelming. >> u.k. brexit secretary david davis has said it is nonsense that theresa may will pay as much as 15 billion pounds to leave the european union. the economic affairs commission left open the possibility of brexit talks may fail to move on

to trade discussion after october. >> we must start by resolving the issues on the table and then we will think about after that. it's no secret we think we need to have a very strong relationship with the u.k. out of the eu. juliette: the u.k. north sea is on track for the biggest oil start up in a decade, it is showing prison -- surprising resilience to the crude market slump. 14 projects would combine production of 230,000 barrels a day. a lack of says investment is likely to weigh on the outlook beyond 2018. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm juliette saly, this is bloomberg. getting some construction

data out of the u.k.. getting some construction data out of the u.k.. pmi data on the construction industry. construction growth unexpectedly slowing to the weakest in a year in august. the industry hit by reduce business investment and heightened economic uncertainty. this is the latest survey. the lowest since august last year down from 51.9 in july. lower than the 52 forecast by economists. new business volumes falling for a second month. survey highlighting a lack of fresh orders to replace completed projects. companies exercising greater caution in their approach to hiring. staff numbers growing its the slowest pace since july last year. reduced levels of commercial work a major reason for the continued slowdown, offsetting more robust growth in residential building. the latest report highlight the struggle.

slowing, inflation , inflationto continuing to squeeze the pockets of consumers. don't forget last wii's manufacturing growth, one of the strongest in four months in august. services make up 80% of the economy. cut off as has been -- arabiamer head of saudi 's intelligence agency said the ball is in qatar's court. joining us is the chief executive of doha bank. thank you for joining us today. what is your biggest concern around this spat between qatar and its neighbors? what is the ongoing impact on banks as this enters its third

month question mark --? >> if you look at financial stability, they are holding. importing steel from saudi coming from jabbar -- to buy. commission from plan aid to plan b is management that has been effectively being executed. at the same time, we need a solution to it. we are trying to understand what is the real issue. there is no breach of universal sanctions by qatar or the institutions. whatever the listed united nations terrorist list institutions as defined, they

are in full compliance. we are beginning to wonder what is the deal. from sources heard that delhi bank is seeking to raise funds via a private placement of dollar bonds. we gather you are holding talks with international banks. what can you tell us? can you confirm that story? raghavan: we have raised capital 20%. as a long-term we need to have debt paper as well. , for thisto public reason it is i'm here. mark: who were you talking to? we have a few long-standing partners. mark: international ones. all over.

our relationship across the blow -- all over. our relationship across the blow -- globe exploring the possibilities. the financial stability is completely under control. mark: investors in the gulf region will support any fundraising? raghavan: we have. at the same time it's better to have diversity. fromve a very strong base asia, we are exploring the possibility of europe as well. mark: what about the rest of the year? is it affecting your outlook? is there an effect to your earnings outlook to the strategy for expanding the bank? it has an impact, but not significant. put the outlook to negative, one notch down. cost is going up slightly and that has to be measured and controlled.

we have a good asset quality. we can see through a good earning again. mark: will you sell some assets as a result of the gulf spat? raghavan: that is balance sheet management. optimize your books. we are exploring the possibility to see whether we can have sufficient cover in terms of liquidity. mark: you've talked about a lot of consolidation in the past. does a weaker environment necessitate quicker consolidation? are you talking to anyone now? raghavan: if you look in the and loansn months about 5.6%, banks are well capitalized. consolidation is going to happen. mark: foreign deposits dropped

the most in two years since june . are some golf lenders refusing to hold over? -- roll over holdings? raghavan: the balance sheet has been well focused going from traditional liquidity to public institutions and it has shown financial stability is a downtrend. we don't have any issue in terms of liquidity. mark: economists are expecting gdp to expand the slowest since 1995 this year. the last years have had extraordinary momentum. --

financial stability is there, the banks will be well bandaged by the scent -- well managed by the central bank. we are seeing a pre-zone public partnership with an investment climate, plenty of -- that will give sustainability long terms in of the economy? i wish there were solutions. to buildworking hard brand equity over the last years. it is a big shock for all of us. is a different substance. we are truly recognizing human rights and dignity and we hope they recognize us as a sovereign entity. chief executive officer at delhi bank. bank. hart --doha

this is bloomberg. ♪

♪ you are watching "bloomberg surveillance code ." equities opening lower after gaining 6/10 of a percent last week and after a three-day rally. stronger euro playing into this but it seems to be general risk off sentiment across the market because of geopolitical risk. some people sing the ecb will be focused on european equities. a have got to talk about number of things. i could've shown gold, but i'm

showing you dollar-yen. of quite at the session low 109.23. the dollar down 7/10 of 1% against the yen. even though we have seen the yen strengthened, we are seeing hedge funds net short on the yen. that is the third most popular trade for speculators out of the major currently pairs. -- major currency pairs. yuan, thisowing the is the onshore advancing to it strongest level since may of 2016. the offshore on its 14th day of gains, the longest stretch of gains on record. some calling it a safe haven assets. some saying this is ignoring the geopolitical risks of how china might play into it. all of this really interesting might not do much

about the stronger yen because it plays back into the risk. interesting point of view to take into account as we see the yuan this strong. looking at the move index, treasury cash markets closed for labor day. we have seen treasury futures rising. the move index points out just two points above its 2017 low and it is eerily quiet in the treasury markets a bit like 2008 before we saw the huge volatility. secondary brexit david davis dismissed reports theresa may is set to approve as much as pounds to leave the european union. thecommissioner left open possibility they may fail to move on to trade discussions after october. he spoke exclusively to bloomberg. >> we have no choice.

we have no alternative. brexit must be sold by the 29th of march in 2019. we know the needs to be ratification before. we of the calendar for negotiations. we must solve the problems we need to solve before looking at the future of the relationship which is obviously important. the first things first. mark: still with us, laurence mutkin. parliament gets back to business. how encouraged are you about making progress to extricate ourselves from the eu in this -- in these talks? laurence: these were always going to be long and difficult. specific controversy that

comes up every day doesn't itself hold a lot of meeting in terms of the negotiation. the way the negotiation stretches out and fails to make bad for is naturally business and investment. the fact the process is clearly not going to be as it were done quickly. mark: that doesn't bode well for the economy which is already showing signs of brexit impact. the economy in a way is bifurcated. it did grow quite strongly. mark: it's slow down .3 from .2 in the first quarter but well down from the lofty .6 from last year. laurence: that is for sure.

it has not been a collapse or a slowdown to recession levels. that is partly because of the currency safety valve. enabledluation has growth to keep going. what it has had an effect on is inflation and therefore we are seeing these high inflation rates. therefore we are seeing negative real rates and ultimately that is going to continue to be a drag on the economy. mark: the implications for the bank of england. put brexit aside, we need to raise rates. sense in thate argument? laurence: there is a sense in it, but where we would differ is the approach. we think they will be isappointed by the the approach. we think they will be disappointed by the approach that we see in the second half of the year and therefore the premise for raising rates will

not in fact come to fruition. mark: inflation in the meantime does what? i think the reason the part things dovish we shouldn't move is because the signs of inflation from the currency devaluation moving into core inflation are very negligible. little on wages and services which suggests if you're a forward-looking central bank, you don't need to raise rates just as you see a high inflation rates at the moment. mark: where does that leave u.k. rates, the currency, the bond markets? laurence: all low. for us, rate rises probably don't happen until more than a year from now. even then, the trajectory is presumably quite shallow. the term structure implies a low trajectory more or less forever

in u.k. rates. that is a disturbing message for people looking at the u.k. economy. it says presumably after brexit has taken place, the bank of england will need sustained rates at real rates below zero to maintain economic growth at the level that is positive or acceptable. depressing way to end are brexit segment. laurence: i'm sorry about that. mark: give us a ray of hope. laurence: the economy would be doing a lot worse had it not been for the fall and the pound. that is always the safety valve. we thought initially that the pound had overdone its fall. we have priced in a very bad brexit outcome and of course the pound has bounced since then.

as the pound achieves a new low equilibrium, the models are able to decline again. we could still see a more modest decline. mutkin, thank you. president trump threating to cut off trade with china and impose more sanctions after north korea possible latest nuclear test. this is bloomberg. ♪

♪ bloombergare watching surveillance. south korea says pyongyang continuing to prepare for a possible missile launch after its most powerful nuclear test yet. had -- mutkin, we have investors proving very resilient to these geopolitical standoffs when it comes to north korea in recent weeks and months. laurence: i think there are two reasons. financial markets are very bad at pricing this sort of thing. it is not what should be driving our assets. we don't know how much it should affect the things that should affect their assets. are is one reason markets

generally incapable of pricing these because they are nonlinear. the other thing there are a lot of other things going on which are more directly relevant to our markets. we talked about earlier in the program. the fed, whether or not they start with the balance sheet. mark: do they start this month? or announce it at least? laurence: probably a bit later. complicationsded because of the tragedy of the hurricane and its affect on the economy. what you can say for a fact is they know the economic data for the next few months will not really be very and illuminating for the u.s. economy. we all know they have uncertainty ahead. the data can't be relied upon. the question is if you are the fed, what do you do? ago withaw a decade

hurricane katrina is that the fed cap doing what it was doing which back then in 2015 meant a gradual rise in interest rates. the question is what does it mean now for the fed it was doing before given that the path of fed rate hikes has been slow and somewhat erratic. was as it were also pilot before the hurricane was they would announce a balance sheet reduction program sooner or later either this month or the next meeting. to start before the end of the year in december. mark: and a rate hike or not? laurence: i think markets expect that. doing what you are already doing, knowing you have unreliable information would mean still announcing but not moving. mark: stick to the three hikes

next year. laurence: we think three next year which is probably more than the market. mark: why are you more hawkish? laurence: the local and reasons difficulties aside, the u.s. economy is looking pretty robust and policy is still extremely easy. this is still not really about tightening, this is a withdrawal. mark: lawrence, great to see you. bloomberg surveillance continues next. on the developing situation in korea as we look across the china north korea border. this is bloomberg. ♪

♪ guy: unacceptable and unfair, china fires back as president trump threatens to cut off trade

with the nation. merkel faces questions on the scandal of dieselgate. man. the sun there is a month replacing the ceo for the drug giant. guy johnson in london. tom keene and francine lacqua having a morning off. let's talk about what is going on around the world now. geopolitics front and center. let's get a first word news update. >> the governor of texas says the ultimate bill for hurricane harvey may top $120 billion spent on hurricane katrina. lastly president trump asked for

$8 billion. governor greg abbott said that is just a down payment. angela merkel and her main election opponent has gone head-to-head in their only televised debate of the election. faced kurt questions over keeping the borders open for immigration. the country's election takes place on september 24. the european union's chief brexit negotiator says the british people need to be educated about the price they will pay for quitting the eu.that is according to the bbc. he is reported to have told the forum that there are serious consequences to leaving the single market. use economice

affairs commissioner says brexit talks may fail to move on to trade discussions after october. a told bloomberg tv he has first look attitude. >> we must resolve the issues on the table, then we will think about the relationship. it is no secret that we think we need to have a strong trade relationship with the u.k. out of the eu. >> global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. guy: thank you. let's talk about what is happening in terms of the data in the markets this morning. the u.s. closed liquidity out of the session. risk off seems to be the theme. stoxx 600 down 6%. 0.8%.s

there, downoin in 10%. i am a bit surprised by the market reaction. you would have thought if you cut out the primary supply something it would go up in value, not down in value. the economics of it going remain a mystery. -- bitcoin remain a mystery. south korea is now said it has detected pyongyang is continuing to prepare for a possible icbm launch, a move that would further race tensions a day regimeim jong-un's conducted its sixth and potentially most powerful nuclear detonation. president trump called for ending trade with any country dealing with north korea.

china: that unacceptable. -- china calling that unacceptable. what do we know about this possible missile launch? >> here we go again. we are just learning in the last three hours as tensions wrap up hour-by-hour. thehave local news saying u.s. and south korea are discussing possibly deploying strategic bombers to this region , also a u.s. carrier group, this just 24 hours after we saw by northh nuclear test korea, the strongest yet. tremors felt as far north as china. we have also learned in the last couple of hours as many as four of these anti-ballistic missile defense systems could be after south korea

on condition approved and environmental impact study on sad. that is a key hurdle that has been cleared. this has been a sticking point for the president. he has been against this kind of program, in fear of angering china who sees this as a threat. beijing not particularly happy with these latest development. guy: let's talk about beijing a little more. the trump administration talking about imposing sanctions against any country that does business with north korea, and escalation in the trade war story surrounding north korea. tell us what the chinese response has been. the response has been measured.

we have not exactly moved the dial on how china is perceiving koreansh, but the south have a particular sway towards a more military approach. they are looking to ratchet up pressure on north korea until we see them ready to talk. toot will have to hang on what is going on with this latest u.n. security meeting happening later today in new get on whether the u.s. can china and russia to approve additional sanctions on north korea. the latestuy: surrounding north korea. let's get our guest, built saunders with more on this and kristin keller. philip, what strikes me as

interesting is the rate of change on this story is changing. we have gone from a story that moved along incrementally every few weeks and months, and now we're seeing this develop on a day by day basis. isn't that rid of change that is catching the market's attention? >> if you look at the reaction, it is somewhat more muted recently. if anything, the reaction is moving in the other direction. i think the reaction has been remarkably sanguine. that is because there is a lot of bluster. the reality is the americans do not do much, and limiting trade with china is just words because you cannot simply cut off your supply chain. the global economy is much more integrated than maybe mr. trump understands. i think the market reaction is muted despite the ratcheting up

of tensions. guy: these moves are quite short-lived. let's talk about the true story with china, but even at the margin if you change that story, say we're going to impose limitations on banks in china and their ability to use the dollar system, i guess that is a change that could have profound implications for global trade. that strikes me as an area where there is a potential for things to move along. a shooting war with north korea is unlikely, but some impact on global trade looks increasingly like the direction of travel. >> one thing on north korea, markets have a hard time for two is -- thehe first risk is so big how do you price it? guy: that is the point i'm trying to make. a shooting war is unlikely.

have a sort of metric on which you can judge and go from one end to the other. on one end that is diplomatic, etc.. >> after the trump election, we were afraid he was going to start something in january and february. he said he was going to declare china a currency minute learn, -- manipulator, and suddenly nothing happened. in, i think if you look at the size of china and the u.s., anything between the two becomes a global issue quickly. what it means for the entire region in asia is big.

more material risk than a couple of weeks ago. guy: the president has domestic troubles at tom. -- at home. do i need to watch the interplay of these two factors? >> i think so. is it anything more than rhetoric? markets are probably responding to other factors like rolling over inflation, potential shifts in ecb policy, and our focus is obviously on something like korea, which is a potential geopolitical event and ramifications, and that changes focus from fundamental factors that actually drive prices. guy: i see a treasury market that is barely pricing in any change down the pipe.

we will take that idea around a little more. up next, we talk about germany. schulz puts merkel on the defensive over dieselgate last weekswith less than three to the election in germany. did last night move the needle? i will get the latest from berlin. this is bloomberg. ♪

♪ is "bloomberg surveillance." let's get to the bloomberg business flash. jimenez will retire as chief executive officer of novistar next month. to counter ang

drop in sales. bitcoin dropped as much as 10% earlier as china says a trade offering will take effect immediately. they say it is illegal and disrupts financial markets. google must encourage more choice in shopping search services to avoid investigation. we have to see a change in the markets, that customers get a chance to choose their other shopping comparison services because if you have to go to page for in your search results to find the competitor to google shopping, they are not going to be found, not going to happen. we are looking for changes in the marketplace so that we as customers are better served. >> that is the bloomberg

business flash. guy: thank you. angela merkel has been put on the defensive in the early tv debate of the german election. her main rival, martin schulz, accused her of taking her foot off the pedal with dieselgate. erkel's response, was it adequate? she insisted that was not the case. >> excuse me. you cannot accuse me of going easy. i am outraged. exactly what mr. schulz was mentioning happened. the main pillar of our economy has been put in danger, and with this hundreds of thousands of jobs and people were put at risk by no fault of their own. guy: pollsters found that schulz's approval rating rose after the debate. european more from our

team leader out of berlin. allen, did you manage to stay awake? >> absolutely. i think it is a bit misleading to say this german election is boring. i think it is the nature of the german economy that people prefer some form of stability. sparks don't fly in the way they do with the u.s. debate. that said, that is a challenge for martin schulz, because he is the one who had supply -- sparks fly if he is going to challenge the incumbent after 12 years. merkel won suggested the debate, and this was his best chance to win the polls. with the diesel scandal, he came

across relatively well. she has a difficult role to play. she is trying to protect the industry on one side, i've huge amount of jobs, and keep the pressure going. guy: they focused on the soul turkey,ey -- diesel and where was the debate on the future of the eurozone, still big issues with the german public? there were a huge number of issues that were utterly absent from this debate, not least of all brexit, which did not feature at all. there was criticism today about the fact that the debate focused for more than a third of its 90 minutes on refugees where essentially the two candidates do not really differ. they touched on a lot of the elements related to europe, but they did not talk specifically

about the future of the eu. guy: thank you. alan, our european government team leader. still with us kristin keller, head of research at barclays. i joke about the fact that alan managed to stay awake, but it is not turning out to be the most theting of elections with u.k. election or the u.s. generate does that complacency from financial markets? the markets seem to have discounted this, assuming angela merkel will win. are the markets wrong? >> there are nuances, and i think the market is a bit complacent, although i'm not willing to say it will make a huge difference. about 37. you have a bunch of parties around 10 and 11. you could set up a new

coalition. would not be a fall over guy. you could suddenly get a situation where merkel will not be able to push through things as easily. it could be a difficult coalition, invincible good for the economy with tax cuts, but maybe tougher lines when it comes to risksharing and the future of the euro. guy: that is the point. the euro has done well with the french election, and mr. macron seems to have driven that. it seems that we will see a redesigning of the project as it goes forward from here. it coulda danger that be not as aggressive with the

outcome of this german election? >> the market is pretty long the euro at the moment. the market has been from running any potential shift in monetary policy, which is clearly out of whack with the fundamentals on the ground. looking forward, angela merkel reelected with a significant mandate has the potential to be more radical on that front. that is not really in her nature. the reality from the investment perspective is positioning in the euro is extreme at the moment, and that is what will drive behavior at the exchange rate. guy: thank you. you will both stick around. ews coming out, expecting their third child. i'm not affecting it to have a meaningful impact on brexit, but the british public sometimes get distracted by these things.

we will find out who was filling the new ceo role, what the likely job is, and the legacy. that is coming up. ♪

♪ 5:24 a.m. on this labor day in new york. you're watching "bloomberg surveillance." announced the surprise departure of their chief executive officer, joseph jimenez.

who is the successor? what do we know? vasant narasimhan has been with the company for a while. doctor fromut as a harvard. he worked his way up the ranks of novartis, his current role is global head of drug development. he is well known within the company and with investors and analysts as well. guy: let's bring up this chart, novartis against the drug sector in new york. what can he do? >> he faces a number of challenges. novartis has been in a slump in recent months and years. the company has a pipeline of what it says are a dozen potential blockbusters. they are on the brink of critical decisions including what to do with their ailing eye

care division, and the perennial question of what they do with their stake in roche, their rival. he has his work cut out for him. the company faces what could potentially be a return to growth in 2018. that is what the company is banking on. he is coming on at a crucial juncture for the company. guy: thank you. that chart was back to the beginning of joseph jimenez is tenure at jimenez's novartis. this is bloomberg. ♪

♪ 5:30 a.m. in new york. this is "bloomberg surveillance." guy johnson, i am in london. tom keene enjoying the day off.

francine will be back next week. let's get to first word news. >> president trump has promised to increase sanctions to any country doing business with north korea. china has called the move unacceptable and unfair, meanwhile james mattis says pyongyang will face a massive military response if the u.s. or any allies are threatened. >> we have the ability to defend ourselves and allies, south korea and japan, from any attack. our commitments to our allies are ironclad. any threat to the united states or its territories, including guam, or our allies will be met with the massive military response, both effective and overwhelming. >> the governor of texas says the ultimate bill for hurricane harvey may top the $120 billion

spent on hurricane katrina. last week president trump asked for $8 billion for hurricane harvey. governor greg abbott says that is just a down payment. angela merkel and jermaine election opponent martin schulz have gone head-to-head in their only televised debate. merkel stood firm on her record, consisting controversial decisions on immigration and turkey were right. merkel won.nd the european union's chief brexit negotiator says the british people need to be educated at about the price they will pay for leaving the eu. theresaid to have said are extremely serious consequences for leaving the single market, and any to be explained to the british people. the eu's economic affairs minister says brexit talks may

fail to move on to trade discussions after october. he told bloomberg tv he had at first things first attitude. >> we must start with resolving the issues on the table, then we will think about our future relationship. it is no secret that we think we need to have a strong trade relationship with the u.k. out of the eu, but first things first. >> global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. guy: thank you. let's get to our top story of the morning, the situation in korea. joining us on the line from indeed fork you joining us. is the half-life on this story accelerating? it seems we are getting more news on a more regular basis, the nuclear test or launches

the news that south korea detects another possible icbm launch. >> usually the summers are a little slow, but this is probably one of the hottest international concerns. it is escalating tit-for-tat, verbally and missile tests, saber rattling. we don't want this to escalate out of control. hopefully it will not. guy: why is north korea testing china at this critical moment politically for china with the big october meeting coming up? >> i think in part three of feels ignored by china. it is a huge trade partner, its largest, but kim jong-un has not been formally accepted in person by chinese leaders, so that could be part of it. the other is north korea is very

angry about the fact that china is in some ways complicit with the u.s. and basically finger-pointing at north korea. when it comes to face, north korea is very sensitive. guy: does this make, on the chinese front, xi jinping look weak? >> i don't think it is weak, but maybe calm and resolute, especially in comparison to other world leaders. donald trump is very bombastic with his rhetoric, trying to go tit-for-tat with kim jong-un. that is not the way to go. russia is trying to act as a broker between north korea and the u.s. guy: just to go back to the beginning of the conversation. the motivation that is driving north korea to pursue this, do events give us any clarity on

what that motivation is? >> that is the million-dollar question. that is where japan is. how do we decode kim jong-un? a lot of people are speculating, but the truth is no one really knows what he wants. on a broad-based level, we could say he wants security and sell perseveration, but so does everyone. how do you translate that into negotiation points and the dialogue because that is ultimately where this has to go? guy: one of the things that is being tested is the commitment of the u.s. to its allies in the region. from beijing's point of view, i wonder whether a positive that comes out of this is that those are being stressed tested, does military alliances and guarantees are being tested. >> back could be one issue from china's perspective and north korea's first active --

perspective. the fact that how does the u.s. and do theyes work, see any fraying of that? i think verbally everyone is on the same page, but when it comes to deployment of these defensive missiles in south korea, what it will do, the new south korean president, these are all being stress tested. in the southeaders korean president and donald trump even though he has spoken a lot for a long time, he is relatively new in power. speculation the u.s. might use derivative sanctions for countries or companies doing business with north korea. walk us through the efficacy of such sanctions. >> it could well be productive.

if we look back to recent years when the u.s. did this through the u.s. treasury department, apply financial sanctions to financial meteors, that is what got north korea back to the bargaining table. the bank of delta asia, that was located in macau, which was an intermediary for north korea in terms of financial transactions. it is a sensitive spot or north korea. the u.s. will try to push that button harder. guy: thank you for spending some much time with us this morning. next, breaking the brexit deadlock. reports suggest the u.k. wants continuous talks with the eu after the third round of negotiations ended in stalemate. we have that story next. this is bloomberg. ♪

♪ york.:40 a.m. in new i am guy johnson. this is surveillance. britain is said to be seeking rolling brexit talks after the third round ended in stalemate. for indefinite exit talks as the most recent bill ended in defeat. calling -- completely wrong. philip, let me start with you. there is an event coming up in which the eu will say whether or

not they think there has been sufficient progress made on the brexit talks proceed onto trade talks. that is one of the pivotal moments in this process. the u.k. has argued they need to be parallel and sequential. if the eu turns around and says, we don't think enough progress has been made, what effect does that have? >> the pound is already very cheap currency, and market prices have been short of it. you have to have significant information in terms of either weakening in the u k economy or u.k.tical chaos -- in the economy or political chaos, which you cannot exclude either, but on negotiations, you run it right to the wire, and something will come through at the 11th hour in october i suspect. it is not a done deal.

are you stretched now? is there anything else in the vision that anything else -- is there anything of sufficient magnitude to take us to that level? >> i think it is unlikely not impossible. >> you would say the currency is already very cheap. we lost 3% in june and another 3% in july. this is not a matter of whether it is fundamentally cheap, but this is a very asymmetric discussion in the way the u.k. stance more with its back to the wall. be decembere would where they can say yes. inhave the party conference october. there is a challenge to the leadership. there is a lot of uncertainty to drive the currency. i'm not sure whether there could not be more pressure on the

pound. because of the positioning and how far we have come, the order of magnitude for that event to take us further has to get bigger and bigger. it was already cheap. it has gotten significantly cheaper since then. the market has been incredibly short sterling. when do we get to the point where bad news is good news? when do we get to that old line that comes out of the market, we have so much bad news, it is all priced in, and think start changing quickly? >> when you talk about parity, it is a matter of two currencies. it would have to imply that the euro takes another step stronger. i think this will be part of it. you are right. this is well-known now. if you have a local leadership

challenge in the u.k. and more political disarray if you want, that may make markets more nervous. i was in asia two weeks ago. there is a lot of investment from singapore in london still. people are watching it, and it is something that is not being questioned so far. guy: one of the things that has happened. well in has done very currency terms as a result of what is going on with exit -- br exit. we can do it here. ftse 100, 3% year-to-date. u.k. ininvesting in the terms of the ftse 100, i have to keep a weathered eye, and maybe i had my currency risk, but are

we at the point where the markets could turn around the currency? >> if the markets were to turn around and rally significantly, that would have an impact on the ftse 100. if you think about the composition of this, it is all multinational companies. these are not domestically focused businesses. domestically focused businesses have been bad. it is what is your true currency exposure? if it is a multinational on the london stock exchange, in sterling terms it is ripe to depreciate. with their comes out numbers tomorrow morning. if you look at the areas that are most exposed, these give us a sense of where the real value is. if you are outside the company now, you are on holiday, labor

day, if you're looking for value in the u.k. markets, where is it? give us an idea of where you're seeing value. >> i think very high quality businesses. cheapook extraordinarily at the moment. guy: stick around. philip saunders and christian keller will stay with us. we will talk about the single currency. will mario draghi try to talk the euro down? after 13% gain against the dollar this year, will he talk policy? this is bloomberg. ♪

♪ is "bloomberg surveillance." let's get the bloomberg business flash. jimenez will retire as chief executive officer of novartis next year. they have named vasant narasimhan as his successor. toy are losing ground

cheaper copycat drugs. bitcoin fell as much as 10% earlier as china set a ban earlier. they said it disrupts financial markets. hollywood's worst summer in years is coming to a close. estimated sales reached $75 , -- in thecanada u.s. and canada, the slowest labor day weekend since 2006. that is the bloomberg business flash. guy: thank you. downday, that point is 9.54%. itcoin is down 9.54%. that is fascinating to see coming out of china. let's talk the ecb. the latest policy decision comes thursday. mario draghi will voice concern

about your strength when he speaks about the news conference. have seen a 13% surge against the dollar this year. think marioo you draghi will be justified in talking the euro down? >> i think talking down currencies is difficult for central bankers. they are typically concerned about rapid moves. you can overshoot. i think he will have a hard time. when they did what they did, they were clear on emphasizing that the monetary policy was not about bringing down the euro. wasade the point that it europe,o that helped that when you're trying to exit and you say it is not going to

help the economy, that is not symmetric. for the general theme of exiting, central banks are very accommodative. i think he will not overemphasize it. guy: if you are a u.s. investor, you have made nearly 20% investing in europe this year. if you are a euro investor, you have made half of that, less than half. you know what,g, the stronger currency is beginning to have an effect on european earnings? is there a smaller and smaller reason for european equities? >> i think the european equities have corrected in local currency terms. investor, it u.s. will be taking some profits on my euro positions and running my equities because i think from a

bottom of perspective, -- bo ttom-up perspective, you have this high gearing and apparently embedded recovery going on, and i suspect earnings dynamics will remain poor. guy: do i flip? i have been investing in companies that will do well globally, the ftse argument, there is a global tailwind, do i switch to domestically focused companies? >> i think that is not necessarily going to be the case. in the case of the year, if we see another further phase of depreciation, because although there have been perspective adjustments and monetary policy, if it were to go materially high er, that would have a negative effect on your pain next orders -- on european exporters.

draghi have any choice but to look at exit? >> i think he has no choice. i would not say because he is running out of things to buy. by next year, they will have problems trying bunds. we expect them to reduce the amount they are buying next year and further. infants for they could continue to buy for a long time. the real reason is it is difficult to justify to run such an aggressive accommodative monetary policy when you're economic zone is growing at 2%. that is a big question for him. ending qe is one. do you continue to run at a -40 basis point policy rates until

the end of qe and well past the horizon. that is a significant thing. that means they could only start hiking rates in 2019 or so. that is a long time off. bank editions in the u.s. are getting easier, and in the eurozone they are getting harder. who has the tougher job, janet yellen or mario draghi? >> i would say draghi. it is always multifaceted with many political issues. there are a lot of issues. guy: i'm going to ask whether the periphery is strong enough to sustain this. >> that is the big question when you talk about growth. german companies, you see the effect the dax is. that will not bring down the german economy. that is true. italy is the one you have to wonder what will they do?

they have probably been helped by a weaker euro. guy: how brazen is draghi feeling? he knows the election is coming up. gohe brave enough to really aggressively down the route of tapering when he is facing political turbulence? >> i don't think he will do things because he is italian. i think every central bank president has to take charge. guy: i have got to wrap this up. thank you. flip saunders and christian keller. this is bloomberg. ♪

♪ unacceptable and unfair. china fires back as president trump threatens to cut off trade

after north korea's latest test. did schulz blow his chance to break through on the polling numbers? ceo, ang retiring surprise move. this is bloomberg surveillance. i'm guy johnson, in london. it is labor day. tom keene is off. i am holding the fort. good morning everyone. if you are watching in the happy labor day. you're up very early. 6 a.m. in new york. >> president trump has been to an greece sanctions with any nation -- has threatened to increase sanctions for any nation doing business with north korea. china calls this on acceptable

and unfair. pyongyang willys face a massive response if any of u.s. allies faces arm. >> our commitments among the allies are ironclad. any threat to the united states or its territories including guam or our allies will be met with a massive military response, both effective and overwhelming. sayse governor of texas rivals the bill for hurricane katrina. the request is thought to be just a down payment. angela merkel and her main opponent martin schulz have gone head-to-head in their only televised debate.

they talked of controversial issues. one flash poll released after the debate found that angela merkel one. the election takes place on september 24. the european union's chief brexit negotiator says people need to be educated about the price of quitting the eu. there are serious consequences of leaving the market. prince william and his wife, the duchess of cambridge, kate middleton are expecting their third child. that has come from kensington palace in the last hour. the queen is delighted with the news but kate is reported to be suffering from morning sickness. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is

bloomberg. let's talk about where markets are. european stocks are up and gold is a better bid. the swiss franc is reasonably well bid as well. , chinese authorities are clamping down on primary issuance of bitcoin. bitcoin is heading south on this one. it had been vertical. butines are unavoidable nevertheless i thought if you cut the supply off it generally went up in value but that is just me. let's get back to the story moving those markets. been korea says it has preparing for an intercom to

like dual -- and intercontinental ballistic missile launch. trump has threatened to increase sanctions and all trade with any nation doing business with north korea. he sent a tweet out around 18 hours ago to that effect. china has called that idea unacceptable and unfair. let's go to seoul. yvonne, any further updates about the possibility of an icbm launch? >> not a whole lot right now. we are approaching nightfall here. the headlines have died down in the last couple hours. not so much on the timeframe of when north korea is planning to prepare yet another missile launch once again. we have known in the past they like to choose pivotal days like september 9 which is foundation day in pyongyang, the

establishment of its ruling party as well. key days in the next couple weeks, we also learned that the u.s. and south korea are considering launching these strategic bombers as well. applying these u.s. carrier groups to the region on top of that, as many as four of these anti-ballistic defense missile could benown as thadd launched soon. it has been a contentious issue with the locals as well as with the president. china not liking this news. guy: let's talk about china. , inainly being challenged terms of authority. the president of the united states talking about derivatives , intermediary sanctions for anyone involved in doing business with china. what is the perception in beijing?

what are you hearing in the region about how that will change the narrative surrounding north korea? >> the fact that this nuclear test happened on the day that csina was hosting the bri summit, was seen as a humiliating move for president xi jinping who is showing that they cannot rein in north korea at this moment. that, oilact sanctions, food sanctions, something that the u.s. and japan have been pushing for. a lack to go on during the un security council in new york later today. nikki haley pushing for that effort. guy: it is hard to ignore what is in the background. i understand there is a pop concert. is this indicative of many south koreans, simply ignoring what is happening here?

i wouldn't say ignoring, it is just business as usual. life goes on. the show must go on. not so much a party but a fashion show that is happening here. they have been there for 12 hours. they have been prepping for this, setting up four hours. there is a sense that life goes on. a milo a, that is the blue house. the government house with the -- a mile away, that is the blue house. the government house where the president is. guy: thank you very much indeed. putting in the hours and south korea and monitoring the story for us. isabel, a chief strategist at the blackrock institute. i am looking at the screen on

morning.mberg is i have equity softer, gold stronger. not a big response. is the market underplaying this as an event? >> know i think it is positioning itself for what it is which is a situation that could go to further escalation or back to normal. at this point it is hard to figure out what, if anything, will be the lasting market impact. it will be unnerving. the environment is not one where you want to take crazy risks. the global microenvironment is supportive of markets that it is more a blip. guy: i was looking at this. , you time we have an event have risk off, within 12 hours you're getting positions quickly. the risk is, you don't want to take the risk. >> exactly. said, no one can say with

confidence where the situation will go. it has the potential to escalate. is lots of interest on all sides to prevent that. take a clear bid one way or another so you fall back on fundamentals. but volatility stronger treasury market volatility, is this still central banks or market muscle memory from the last two years? softer and softer. >> if you look at the macro data, volatility low. we happened to be in a predictable growth environment. very predictable central-bank environment. a stronger footprint in the market. historically these periods of have long persistence. because we have been in such a low volatility time for such a long time it means we will

probably stay in one. we are not the area. isabel will stay with us. she will be with us for the hour. in a debatemerkel about diesel in a debate last night. this is bloomberg. ♪

guy: this is bloomberg surveillance. let's get the bloomberg survey of -- the bloomberg business flash.

head,rent global attempting to counter a decline in sales. bitcoin fell as much as 10% earlier after china set a ban. the people's bank of china described the offerings as a legal and said they disrupt financial markets. commissioner talking of avoiding further investigations. >> we will have to see the change in markets. that customers get a chance to choose comparison services. if you have to go to page four in your results to find a competitor to google shopping, they are not to be found. it is not going to happen.

what we are looking for is changes in the marketplace. we as customers are better served. >> that is the bloomberg business flash. guy: thank you very much. angela merkel on the defensive last night in the televised debate in the german election campaign. accused her of taking her foot off the pedal over the diesel scandal. angela merkel insisted that was not the case. >> excuse me, you cannot accuse me of going easy. i am outraged because what mr. schulz was just mentioning, happened. the main pillar about, -- of our economy has been put in danger. these hundreds of thousands of jobs and people were put at risk. by no fault of their own. the gulf between the candidates still looks substantial.

is it too great? let's get more from alan crawford from berlin. did it last night and cap silly -- encapsulatem schulz's problem? it is tough for him to score points? >> it was virtually impossible. u.s. viewpoint these are those go liberal candidates bashing each other with wet fish, essentially. they agree on the single biggest issue, refugees. that covered 30 minutes of the 90 minute debate. on turkey, there was nothing between the candidates, even on donald trump how to approach the u.s., nothing fundamentally different in their approach. it was hard to differentiate

them. that being the case, the tendency is to go with the incumbent. did the prospect of another grand coalition, did the odds get shorter or stay the same? >> it is hard to say actually. inre is debate at the moment the german papers that perhaps, the very fact that these two candidates agreed on many issues will support the smaller parties at the fringes. which could in turn mean that some is more likelihood of kind of funky or, if you like. at the same time you saw sufficient agreement between these two party leaders which makes it hard to believe they couldn't work together in government. guy: we talk about this being the only tv debate. that is not quite true. we also have a debate between the smaller parties.

is that were the fireworks will be? >> i certainly would expect more fireworks. we have the alternative for germany party, this anti-immigration party that is surging in the polls. in some polls it is third place. --y are untouchables as part as far as the other parties are concerned. i expect there will be a lot of direct language. all these parties are scrabbling for a couple of percentage points that will make the difference between government or opposition. guy: what was missing from last night's debate? the list is substantial. there was nothing really on the future of the eu. there is nothing on the future of the eurozone. amazing considering where germany is right now. it is not entirely amazing in , it was covered by

four tv networks. the chief correspondence asked the questions. some criticism was that they focused too much on refugees given the fact that the numbers have gone down somewhat. it is not a huge issue it was six months to a year ago. the criticism in the papers today, the education for example, wasn't tackled. there wasn't much about the future of germany in the eu or domestically. there was a lot missing. see theame time we did metatle of the candidates. i think it will make a difference in the polling. we will see that in the next three days. guy: we will keep a close eye on those numbers. allen, always a pleasure. joining us from berlin. let's get back to isabelle

mateos. are the markets underplaying the german election? wet fish being incorporated into the debates, it wasn't a riveting affair. who comes third could make a big difference for the rest of europe. >> i think that is exactly right. maybe there was an excitement about the debate because there is little doubt about who will be the next chancellor. the only question is, how strong is the spd going to be? thet more likely that coalition will form. that is the only thing the market is interested in because that would have immediate implications for european integration. if it is sufficiently strong or cdu is strong to be able to do without the spd, that would be

negative for the europeans. less inclined to show solidarity and take measures to promote integration among eurozone countries. that is the main question people are looking at on the market. guy: thank you very much indeed. up next, europe's largest drugmaker, the ceo departs. who will be replacing him? we will find out next. this is bloomberg. ♪

>> from new york city, this is bloomberg real yield. leverage has been building up over the last year or so. >> we are seeing a lowering because yields are at lows. >> behind the curve? >> the way the fed to find that they are behind the curve. >> the cyclical trade it may be

getting longer in the tooth. ♪ guy: this is bloomberg surveillance. europe's largest drug maker has announced the departure of its ceo. james patton joins us with details. who is it? has been with the company for a wild now. -- heamerican -- for it has been with the company for a wild now. he was educated at harvard, he worked his way through the ranks eventually becoming global head of drug development. his current position. he knows the company extremely well. the pipeline. the research. is also have experience on the commercial side. -- he has also had experience on

the commercial side. guy: i have this chart. beginning it at the of his time at the company. it has underperformed. is this the reason why he is going and is this the biggest challenge that his successor faces? >> they are at a crossroads. they have been in a slump as the chart suggests. the company is talking about returning to growth next year in 2018. they have a dozen potential blockbusters in the pipeline. they just got fda approval for a cutting-edge cancer breakthrough which they could turn to different indications and different areas. they are on the brink of interesting decisions for the company. that this could be a time they looked at the situation and

said, maybe time to shake things up. guy: interesting. james joining us, health reporter, it is interesting that he is going back to silicon valley. the overlap between medical science and ai going forward. will mario draghi try to talk down? will the ecb president speak on the subject thursday? they have a policy decision and a press conference. we will be watching the carefully. he decided not to at jackson hole. maybe he will in frankfurt. we will wait and watch and bring you the news. this is bloomberg. ♪

>> 6:29 a.m. in the united york., and new it is labor day. if you are up early i hope you have a great day. i'm guy johnson.

let's get a news update. >> president trump has threatened to increase sanctions and hall trade with any nation doing business -- and halt trade with any business doing business -- with any country doing business with north korea. we have the ability to defend ourselves and our allies. south korea and japan. from any attack and our commitments among the allies are ironclad. any threat to the united states or its territories including guam or our allies will be met with a massive military response. both effective and overwhelming. the governor of texas says the bill for hurricane harvey may top the $120 billion spent on hurricane katrina.

request for a billion dollars from congress was a down payment. angela merkel and her main election opponent martin schulz have gone head-to-head in a televised debate. controversial issue of refugees was discussed. a flash poll after the debate found that angela merkel one while a second called it a draw. the election takes place on september 24. the european union's chief says thatotiator people need to be educated about the price of quitting the eu. telling the for him there are serious consequences for leaving the market. the eu's economic affairs commissioner says rex it talks failed -- brexit talks failed to

he had a first things first attitude. >> we must start by resolving the issues on the table then we will think about our future relationship. it is no secret that we think we need to have a very strong trade relationship with the u.k. out of the eu but first things first. >> global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. guy. guy: thank you. we have the central bank's latest policy decision on thursday. europe's single currency has seen a surge against the dollar.

mario draghi decided he was not going to adjust the issue of a single currency at jackson hole. the choice of strategic silence at jackson hole seems to have backfired. markets have taken it as an implicit agreement. we should be clear that at current levels the euro is not a threat to eurozone recovery. are not exactly expensive in the historical comparison but when we look at it in the context of the last five years, what we are seeing is euro strength being a reflection of investors and their portfolios voting on the credibility of recovery. we're seeing a reversal of the shock that under wade during the -- that wasisis

underweight during the financial crisis in 2012 and 2013. what they cannot afford is more disorderly -- guy: it is the rate of change that is important. i want to take our audience to china where xi jinping is brics nations and the leaders. you can see this live. once again, to a certain extent, what is happening with north korea undermining xi jinping and his authority in the region. certainly something to think about and factor into your thoughts when you think about how china is likely going to be responding. we will leave these pictures here and let you watch. isabelle, let me come to you. mario draghi has decisions to make on qe.

what does blackrock think about how much will be bought, are we going to see a shift in the way the buying happens? how does this work with the ecb? we don't think, that will be disclosed or unveiled later this week. we're just speculating. guy: when. inbelle: mario draghi says the fall. most likely. i think it will be very difficult for the ecb to give a clear signal while there is so much uncertainty on the market as to what the fed will do in december. you get uncertainty on the ecb side and certainty on the fed side that is all you need to send the euro through the roof and the ecb will want to avoid that. the more data point to get on both sides of the atlantic the more clarity you get from the fed and that will help. in terms of the how, we already know they will not go cold turkey.

there said we don't want to stop purchases. they will keep going. the question is, do they do it taper in the way the fed did with a clear endpoint or do they do a step decline like they did in the last round? we think the latter is more likely. a signal them to give that, no we are not tapering yet, we are just reducing the pace at which we are adding. it is a taper, not a taper. that is how they phrased it. the argument they have been making his we are no longer fighting deflation or fears but we are in a context where it will take a while for inflation to go back to targets. we need to keep providing accommodation but at a reduced pace. we think that is the most likely outcome. 240 or 30, we don't know. guy: what do you think? isabelle: something around 40 or

30. it will depend what happens. we will see what the projections are but the reality is core inflation is still stuck at 1.2% and going nowhere. until you see signs of life it will be difficult for the ecb to can pullbackme, we accommodations. the case is not there. guy: when we get these projections, they will have to factor into stronger euro and that will have an impact on inflation. itself in as difficult position. already they are seeing their inflation target drifting away from them. that will give us a big clue, delaying the process as much as possible. >> i think you are right. this will be a big test for the we are going to have more than just talks. some action from the ecb in response to that but to step back here, more than the euro,

the protections will have to reflect a whole range of holistic factors including eurozone recovery being strong this year. recovery has been strong for a long time, above trend, the inflation rate is low but it moved higher than the below 1% average of the last three years. growth andts employment underlying inflation, there is improvement. the ecb has to reflect that. earlier on, mario draghi did suggest that they were more confident about the fact that current inflation was where it was. the most recent strength of the euro will upset this upward growth protection.

guy: it is financial conditions. >> and more expectations. guy: european stocks are fading but there is a direct currency translation affect. you can see outflows of money coming out from banks. us,ll stick around with there is plenty more around. breaking the brexit deadlock. after the third round of negotiations. more on that story next. this is bloomberg. ♪

guy: welcome back. britain is seeking brexit talks

after the third round of negotiations and in stalemate. this comes after the u.k. brexit secretary suggesting a divorce bill was nonsense and wrong. is still withs us. abelle, pound positioning suggests that it is priced into sterling. the party conference is coming up, then we have the big leaders summit coming up. they will make a decision on whether progress is being made in order to start the next phase. will this continue to drive sterling in the direction it is going in? isabelle: i think you're right

and that the current price reflects all the bad news you can think of. from that standpoint there may be more upside risk than downside. equally we do not see any clarity coming to the table very soon. there are things that could go both ways. you've seen the rhetoric on both sides, have been unhelpful in recent days. that is likely to continue. there does seem to be the beginning of a shift in british political landscape with labor having changed its position in a way that could favor more open-ended transition toward a soft brexit. that is not the government's position. if it appears that there is more momentum behind that position, that could lift up -- guy: how geared would it be? -- maybe positioning is

accurate and there is more bad news to come. how geared is the market to good news? in terms of what the market would look like? isabelle: we are not given get the news will always be speculative and incremental. that is not an event which we would want or anyone would want to take directional risk. it is uncertain. where things are going to go and we are not going to get clarity anytime soon. you think the governor of the bank of england will raise rates? >> that is a good question. i think he hopes not to. guy: i thought he would have hoped to. then he would signal the british economy is bouncing back. >> that would be a good day. for now the markets are resolved to the fact that, policy

isicials as well, brexit part of political folklore of the u.k. debate but it won't be the reality for a while. specifics.t economic not a major breakthrough. it is clear that this next stage is going to be a line in the sand upon which then demands for free market access. and nontariff access. then going to become grounds for a new financial negotiations. we are not going to get there until we get there but there is a time case, the longer we get, the more pressure we will see from the economy. i think we are looking at phases of brexit reaction. guy: i asked the question because, is there an underlying economic story here? we spend a lot of time looking as the governor

himself suggested, is the economy being affected? i'm curious of the trajectory in your numbers. lena: it is clear that the initial phase of brexit optimism is being replaced with pragmatic clarity about the reality. the reality is, the economy has been running for a while and it is a consumer led growth model. the exchange rate would be beneficial in the long run in terms of rebounding the economy but in the short-term it is a haircut of domestic demand. uncertainty and business investment decisions. the export sector, as important as it is, cannot exist in isolation.

particularly at a time when the white house is gearing towards protectionism, asia is being politically isolated through the proxy war in north korea. all of this will lead to a less friendly global environment at a time when the u.k. needs one. guy: both of these guests will stick around. we will have plenty more coverage coming up. i want to leave you with these pictures what you're looking at coming from beijing. xi jinping -- the chinese president xi jinping. this is bloomberg. ♪

>> tweeting out following the reports of educating the british public, trying to clarify that. this is his words. we do not want to educate or teach lessons. in the last few minutes.

the ceo will retire next year. of drugal head development is his successor. they are attempting to counter a decline in sales, losing ground to copycat drugs. china set a ban on financing of coin offerings. in a statement, the people's bank of china said they were illegal and disrupts financial markets. the world's oldest bank is on the path to recovery and adding to the country's economic growth. was approved to receive aid. to the government plans treat the recovery process. contributing to the

italian economy. this will complete the process in which eventually the government will step out. of purpose of the injection capital is a temporary capitalization for precautionary reasons. we have to design a sustainable, temporary path. what will be the exit strategy and will you seek other options? >> the exit strategy has to be driven carefully by the median term industrial perspective. >> that is the bloomberg business flash. let's get final thoughts from our guests. we haven't talked about the fed. amazing, considering what is going on.

isabelle, the market has priced out the fact that the fed will raise interest rates this year. december looks off the table. we have got the story coming up we have payrolls on friday, didn't look great. dce the previous day which didn't going to inflation rising up to target anytime soon. how many rate hikes do you think we will get between now and the end of 2018 from the fed? more than the market -- maybe less than the fed. look, what the fed is facing is isituation where the economy powering ahead and doing well, i'm not worried about the august payroll numbers because almost

every year, the last six years, they disappoint. we will get a revision. not too much to worry about there. that was followed by a strong ism data. there has been a lot of noise in inflation data in recent months. when you scrape out the noise, large moves that are not reflective of trends, you see that inflation is well on its way to come back to target. are we completely sure about that? no. it is a strong belief. hasn'tse is, the fed made up its mind about whether it will go in december or not. but there will be more data points between now and then and the fed has shown in the past that it is capable of redirecting market perceptions fairly close to the meeting. the data evolves. our case is the data will involve showing that inflation

is coming back to target and the fed can take another step. that is on the rate side. on the balance sheet side, we don't see anything that would derail the plans that have been telegraphed and we expect at the next meeting, later this month, they will announce the change in investment policy to start in october. guy: if that is right, the dollar looks cheap? there are two questions in that. yes, that is right and the dollar looks cheap. doesn't need a reflationary dollar at this point. historical context, the u.s. economy has enjoyed the longest time of strength in a generation. financial risk indicators show no risk whatsoever. credit spreads are back to her they were during the last financial bubble. the fact rate is below where it was before.

there is a conundrum. the fed has become the master of dovish tightening. we are now talking about quantitative tightening this month, the markets are still considering, viewing those, as a dovish exercise. the fed to need for worry about reflation at this point. it will remain long after qt and another set of basis points. guy: thank you so much. anna edwards normally presents daybreak europe but today she gets to present daybreak americas. this is bloomberg. ♪

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across all your locations. hello, mr. deets. every branch running like headquarters. that's how you outmaneuver. >> it is 12:00 in london and 7 p.m. in hong kong. i'm anna edwards, welcome to bloomberg markets. ♪

anna: welcome to the program. here are the top stories we are covering around the world. nuclear options, president trump aseatens wider sanctions north korea prepares for a another missile launch after the test this weekend. mario draghi speaks out on thursday to weigh in on euro strength and the ecb inflation forecast. bad news for bitcoin. china's central bank declares initial coin offerings illegal. bitcoin tumbles the most since july. to the program. it is labor day in the united states. ,aybreak americas will be back bloomberg markets for the next three hours, live from london. taking in the stories around the world. l