sanctions against north korea as trump supports billions of dollars in weapon sales to south korea. commerce returns to work facing a debt ceiling and potential government shutdown. buysg, united technologies rockwell collins for $23 billion, the biggest deal in narrow space history also created a behemoth that could outline jetliners from to detail. david: i am david west and alongside alix steel. david.elcome back, he is awake, the eyes are big. the is where we stack up on september 5, it is a couple of hours into the open here in the u.s. s&p picking up a little bit of steam. zero dollar flat across the board but it is a weaker dollar story that is emerging in the markets.

the safe avon bits us to pick up touch. bit. getting a all of europe is down except for the dax as we take a look at what is happening in other assets. the dax is up by port -- .4%. goal mouth flat on the day and dollar yen down .3%. i am doing it, copper, three-year high. chinat killer pmi from and europe. it is unbelievable trade right now. exciting.tty time now for your morning brief coming up. we are going to get another round of brexit and nasa talks. theresa may visits japan and a series of u.s. economic reports that would include inflation, autos and jobs. throughout the week we pay close attention to north korea in the wake of the test they claim was a hydrogen bomb.

ambassador -- >> nuclear powers understand the responsibilities. kim jong un shows no understanding at his abusive use of missiles and the nuclear threat showed that he is begging for war. joining us now is yvonne man from seoul, south korea. yvonne, thank you for being with us picked give us a sense of what it is like in seoul. right. that is take a look behind me, things are still bustling. life still goes on. we talked to some people in the streets and you get a feeling that something is a little bit different this time around it's sunday was a bit of a game changer for most people here in the sixth and saw

most powerful nuclear tests coming from pyongyang. they are planning yet another missile launch on that. this to alowly moving nuclear test site monday. this after we heard from a phone call between president trump and president moon flexing military muscle talking about a possible arms deal and allowing south korea to buy heavier weapons. david: give us any clarity you can of what south korea really wants from the united states. askedad of south korea president trump to increase the payroll on those missiles. south korea's defense minster has raised the possibility of tactical nuclear weapons. yvonne: that is right. there is a little bit of confusion. they came up this morning to clarify a bit as they raised the possibility that they could be bringing u.s. nuclear weapons

back into the korean tesla. .-korean peninsula david: i think we lost yvonne man. yvonne pickg to what is the united states plan? >> the administration is threatening potentially new oil sanctions against north korea. the japanese are also echoing that sentiment. u.n. ambassador for the night estates, nikki haley, suggesting that the united nations has to take a look at the strongest possible sanctions against north korea. this is where this international chess game gets interesting because russia and china are much more skeptical of new additional sanctions. the russians have put out a statement suggesting that new sanctions would do little to diminish kim jong un's growing ambitions to continue to expand that nuclear program.

a lot of questions raising this administration and how it would deal with this growing threat. also this is the first time really that nikki haley is going to be thrust into the international spotlight. military?t about we saw general mattis come out of the white house and talk about annihilating north korea potentially. what is the thinking about military options? then coleman--kevin: president said all options are on the table and mr. mattis said any type of the dramatic talks will continue but you are correct. his assertion alluding to potential military options is a signal that the military community very much echoing what president trump has said. don't remember that he said any type of extension would be met ith "fire and fury." this is all evolving very

quickly. the role that russia and china play is going to be on full display as the u.n. years upwards united nations general assembly meeting. alix: yvonne man and kevin cirilli. this is s&p futures chart over the last three days. s&p futures opened yesterday, that big gap down. right around today we are on the lows -- hold on -- we are on the lows of the session today. is it time to the risk -- derisk? do you derisk today? jason: as we look at what is going on and were the futures you there might be some but have other things that are supporting the market in addition to talk of tax reform, that hope of stimulus that we may see at some point.

that has been holding up equity markets all year long so you have a lot of participants the don't want to necessarily miss out on that kind of action. the trading technicals are all supportive on the equity market side but if we look at commodities, i think this is going to be supported to gold prices and silver prices. they are likely to find more support in this situation. alix: a little bit of support on the safe haven. dean a tax reform and stimulus do you need a% -- tax reform and stemless to justify a 3% gdp? jason: there's a couple of things. first, what you have seen since the election has been not a reflation trade. we all realize inflation is very low. doesn't seem reasonable to think that equity markets have gone up this much because of inflation

which if you look at the cpi, 1.7%. that is not justifying the run-up we have seen but what does it justify it is a reevaluation trade that equity analyst have had to contend with as they put lower tax rates and a discounted cash flow models for evaluation purposes. you forget the tax cuts, there is more headroom but if the tax cuts don't come, there's a lot of downside. there is a bigger downside risk than what happens in korea in the immediate term. mikio: is it more of a risk opportunity? -- david: is a more of a risk or opportunity? yet the debt ceiling come out or a budget problem at got a lot of issues for congress to deal with. how much of a risk is there?

>> the short answer is opportunity. right now, you're correct to identify the dynamic, overlapping competing concerns. do all of that while different parts of congress are making demands trying to use those as levers to gain fiscal concessions and other places. -- concessions in other places. and song budget cap's the problem is what is going to be the sabr that is going to give you out of this. this is all going to be punted until december and in some ways, offers thatrvey face-saving opportunity. the type of volatility and economic uncertainty that is normal for the weeks preceding these events they gets pushed off into the fourth quarter. david: jason, what about that? the tragedy of harvey last week

but at the same time is there an opportunity in their? -- opportunity in there? if they tie that to the harvey relief, might they get it through more easily? jason: there's the fiscal monte side -- the fiscal monetary side stimulus monetary side. wheree to the terms about the debt ceiling is, how can we lower the income stream of residents coming into the government which will restent the debt even greater at a more rapid pace. it seems almost ridiculous that we're still thinking this tax reform is going to be such an easy thing or that we should believe it is going to happen. i have become very skeptical of this. on the monetary policy side, i think there's a lot of concern about what the fed is going to do and i think the harvey data situation is going to add a little more inflation for higher

gasoline prices we could see lower growth data. there is this mid--- this weird mix of data. i don't think any of this is very clear as we go into the end of the year. we get some real downside risks in a number of different areas. alix: where do we wind up on the debt ceiling? some kind of budget resolution in some form. does the how we get there in d.c. matter? >> if we take away some of the drama in september, harvey gidget they savor because the debt ceiling is confusing having those things together. the ease of the path of least resistance is putting off the discussion until next year. that is going to have to happen anyway. what hurricane houri allows this hurricane harvey allows is you have to -- you are going to have

trouble directing the funds to the recovery in texas. we think that is something that republicans don't have any appetite for. you probably get to skip the type of volatility you would've had in the weeks preceding and they gets pushed into the fourth quarter. we will have this competition again in six weeks or so. the code many thanks -- david: many thanks. coming up, larry summers the former national economic council post takinga blog issue with his successor gary cohn. life some -- live from new york, this is bloomberg. ♪

alix: it is ecb week. 67 percent of respondents think that mario draghi will address the euro strength on thursday but will not announce any decision on the future of quantitative easing. number of reported friday that the ecb would not finalize the decision until december. just a couple of weeks before the current one expires. still with us is jason schenker. peter talk to me about what to expect on thursday? when do we wind up hearing about the program. peter: i was one of the few guys that said they might announce something on mid-september. one of the things that crucial is we'll have to announce something at some point this year because of the economic thatns, it is very clear

you have to do something with their qe program. i think it is going to be september. the euro didalix: spike. mario draghi has to know that he doesn't talk but the euro he is going to see another rally in the currency. how does he navigate that? peter: ibec to differ slightly. last time the ecb was really worried about the east -- about the euro was 2014 and the situation on the ground was the domestic economy was going nowhere. the only thing that was banging the euro area up was the external. the domestic side is pretty strong and so if they can afford to have some slippage on the external side. i think they are content with where the euro is. i think they do have something to say on the euro, maybe not extensively because some of the other elements we are going to

see come out of this meeting is they are going to nail down the content through the forward guidance and the extension of the qe program which means the short-term prices on the rate hikes, that is not the enforcing argument. david: peter says you should be pretty comfortable. should the euro be stronger given where they are in current bounces? jason: there's an argument for why the euro is where it is. i have written a number of columns throughout the year taking a bullish euro stance. i think there is more upside. we look at the eurozone manufacturing pmi. that is contracted -- that is expanded for 50 consecutive months. that is really long run to see those kind of expansions mounting. you see the german vote, the

eurozone economies very hot. i think you are going to see that continue to be the case and that is going to send the euro a bit higher because at some point, the ecb is going to give this forward guidance and you are going to see the market began to price when the rate hikes come. you begin to see things become more aggressive there at the same time the outlook for the fed is potentially being tampered. alix: peter, i want to talk about what you both talked about. we got the pmi from europe. italy was pretty strong and some of the overall data was on the list of expected test list of excitations and we see a slowdown in growth? will they give room for the ecb? peter: worst of all, if we get some kind of a slowdown, it is going to be very shallow. we have to recognize that we are at pretty strong levels. voiceay add a different

to what we just heard, i think the ecb is not in any rush at all to allow the market to price in rate hikes. when you listen carefully to what the ecb is saying, how they are looking at the situation, they are clapping themselves on the back and saying look at what we have done so far, helping the economy pick up. we have a strong activity data, but our starting point was relatively weak oh and therefore it might take a lot of time until unappointed comes down. therefore we have to be very patient and we have to continue doing what we are doing. that is going to be their stance. i would be surprised we are going to be in a position to price and aggressive rate hike. david will both be staying with us. larry summers, he has an op-ed

piece and the solution for wage pressure and it is called unions. he said let's bring back trade unions. live from new york, this is bloomberg. ♪

alix: it is one of the biggest deals in aviation history. united technologies is agreeing to buy rockwell collins for $23 billion. this will create an aerospace giant. joining us now is joe livingston for a look at the company. how does this make sense? >> strategically it is a very good deal for the united technologies in that on the aftermarket business, united technologies, a move to about 40% of their total aerospace business, that is an area where there. boeing is going after that market and this gives them a lot pull back against

her buyer. to push back on both capacity and the ability to get pricing in that sector. alix: hey boeing, when do we see a cut? in terms of how they are going to pay for it, is that at all at risk depending on how much they have the issue? low aaa credit a rating. secured him to about four times leverage on an adjusted basis. if you look at historic deals pushing past where they really should be, some say the ratings should be at risk even though we expect that reduction. that may be one of the reasons why their slide deck may point toward having a strong reading. mikio: a decent amount of data but also rockwell collins has a billion dollars in debt and yet at that altogether.

the ends up to be a fairly big not -- big nut. how are they going to pay it down? joel: rockwell collins, they have leverage. should forma company generate $5 billion in cash. they do have the capacity to pay down debt. if you take two full years of debt reduction -- it should take two full years of debt reduction. david: what does this mean for the competitors? deter them from being very aggressive if they pay down that debt. they cannot do very many adventurous things. joel: a gives their peers a chance to jump in and knows there is one less buyer. in the aero supplier business, there's come be further consolidation, even the push back of boeing jumping into the business. alix: what does it united technologies become?

does it have to spin off something? how does it look in five years? anythingody has to do but i do think the right thing for shareholders would be a split of the company. -- and bothive it businesses have different types of cash flows. david: are there buyers for those assets? joel: without a doubt, this business is a crown jewel in the world of industrials. that would not be an issue. alix: the second part of the conversation we talk about what it means for other m&a in the space. are there other certain aerospace companies that have the balance sheet to make an acquisition to compete? joel: you think about the aerospace sector, it is a razor

type business model which means on the business side, you get very little margin on it. attacking that business and consolidating amongst the peers is a trend that will continue. pricewasn't at a high engine that united technologies got hurt with? david: a lot of complaints. alix: joel levington, great to get your perspective. coming up, mark and it will be joining us on the latest on of korea and he is the former assistant secretary of state. his take on sanctions. this is bloomberg. ♪

♪ alix: this is "a bloomberg daybreak," two hours to open in the u.s. smp is a little envelope, the

big gap continuing after north s cross.adline the taxes outperforming up by 6%. weaker dollar story, risk off trade, euro-dollar now flat overall has been the weaker dollar story throughout the morning. yields movingt lower by three basis points. oil is up, but copper is a three-year high. long positions are blowing out. what is the catalyst? what kind of a shakeout could there be, stronger pmi's. that's the one to watch. taylor riggs is here with first word news appeared taylor: president trump plans and and children era program, brought here illegally.

for severalend it months so congress can come up with a solution. theresa may will try to force the pace of brexit negotiations. she will make a speech to set the pace. to talk about key issues first. president trump and south korea's president have agreed on an arms deal in which the south korea would buy billions of dollars of military equipment. -- launch in seoul, and enter continental -- intercontinental ballistic missile. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. to explain the options we are joined by the tired

brigadier general mark limit, -- , assistantt secretary of state for military affairs under george w. bush. welcome back to the program. the do have you here. mark: how are you? prepare forad to decision-makers, the options open to them. give us a sense of what the options are open to president trump today on north korea. mark: we are looking at a significant number of nonmilitary options. often the military is the first to say let's look at diplomatic options before we look at the military. then you get down to the military options and there are a large number of options available. two sets, nonlethal and lethal options. we seem to talk a lot about the lethal options, pretty apparent, bombing, cyber strikes, so on. i think we also ought to look at

nonlethal options as well, certain kind of psychological , cyber operations as well. i think most of the military options can be broken down into -nonlethal, but unfortunately with the north korea, there is no graduated response. it would have to be a big, ballistic, military option that wouldn't be surgical. it would have to be overwhelming. david: if you're the president, you could say that is all fine triedod, but we have joint operations, flown the one bombers over, nothing has worked so far. mark: maybe the answer isn't ratcheting it up, maybe it is finally accepting north korea is

a nuclear power and rather then removing the power, which probably won't happen, get back to a containment strategy. no options would be effective, but not all encompassing. number two, the day after i think we would be looking at something on the korean peninsula with hundreds of thousands of people dead. tomay be that we have finally swallow the bitter pill and knowledge they are a nuclear power and try to contain them, not try to remove the capability. after president has said they will never swallow that pill, china has said they don't want a nuclear peninsula. what does it do to the neighborhood if you say, ok, fine. i think you're saying it's fine. it's just were going to make sure that -- as we did in the war, you're never

going to have chance to use them. it's a nobody's best interest to use them. the nuclear option is always bear. we always had it in central europe, we never had to use them, because there was a general containment on both sides. alix: the cuban missile crisis is what a lot of people relate this to, but during that time there were back channels. what is the back channel here? mark: we don't have a back channel to north korea, candidly. is one off,do through the chinese, south koreans, and somewhat through the russians. this is not a kingdom or dictatorship looking for a back channel. they are looking for front channel relations with the united states. they want to go not and six party talks, they want to negotiate directly because of the sense of who they are and what their country should be. you: few months and --

mentioned china, what would be the redline for china backing we u.s. for this when north korea basically embarrassed china thing were not going to listen to you. will in the end they listen to china. china does not want refugees coming into china, nor do they want their borders with the united states and south korea on the yellow river. we saw what happened in 1951. they like having the buffer zone on the korean peninsula between them and the koreans and the united states. david: when we were dealing with nuclearnd cuba, other situations, we assumed there were people on the other side that were entirely rational and will respond to both carrots and sticks. do we have any reason to believe that kim jong-un on will respond to carrots or sticks?

mark: we have to understand kim jong-un, little kim as i like to talk to them. i'd the end of the day all he wants to do is keep the hermit kingdom alive and himself in power. in many ways this is like clint tourino" and "grand jur he is not revolutionary, doesn't want to take over south korea. alone and bee left able to control his own country. he has seen what is happened to have nuclear powers, gaddafi, saddam, when they give up nuclear weapons it doesn't end well for them here to he is doing everything he can to stay in power, number two, keep table out of his country, and number three, do whatever he needs to do to defend his power. david: fair enough.

all three generations stayed in power i fighting off the need to fight the united states. if they came to some sort of peace with the united states, with that threaten his power? mark: i now think we will ever come to that. i think containment will be tough. will not be friends, we are not going to be engaging in trade. we are just going to try to say that there is nuclear parity on the subcontinent of korea and if you do anything about it, then we have the capability -- if you take the first step, we have the capability to totally end your regime. alix: thanks so much for joining us. i don't feel necessarily better, but more insight. coming up later on the program, larry summers, former economic

council director will be joining us. my guess is he may have choice words about gary cohn based on blogs posts this morning. this is bloomberg. ♪

♪ alix: this is "bloomberg daybreak." coming up in the next hour, chief market strategist for oppenheimer, john shape its. this is bloomberg. ♪ on fridayjob number was disappointing. live speech from the new york economics club, and tonight at 7:00 p.m. robert kaplan will be

speaking tomorrow, loretta mester and a bill dudley the highlight of the week, speaking at 1:00 p.m. of the new york fed on friday. anding us is peter david. 1.4%,nd futures contract they terminal rate for the fed. the market is looking at one more rate hike in the next year and three months. is that the correct way to look at it? so.r: we don't think for now they focus is going to be what they're going to do with the alan's sheet adjustment. and i think every man and his dog things are going to announce in september than the focus will shift and what will they do with policies.st rate

the market is probably underpricing that risk and we think that is the case. forhat is the hurdle balance sheet normalization and three next year? peter: we are seeing a slowdown in the data and obviously the focus on the balance sheet, but we have to see in our book the u.s. economy is still doing very well and the pressure for the beds in their own rhetoric is -- to stay the course. if that is the case we expect there will be a point in time that the market has to make room for the rhetoric of the backdrop it is. david: we had a disagreement for the markets on one hand and the doc -- on the other and now we have hurricane harvey coming in

scrambling the data. what effect will that have? a bit messy. so reason the fed has been slow to implement a removal of accommodation is, inflation is low. you're going to see with the higher gasoline prices, likely a pop in total inflation that will affect the core, but you can also see a slowing of growth, impact on the jobs numbers. ofre is a couple of months data that could be quite choppy at a time when the fed would like there to be clarity. they're not going to get it. in thing we have simplified the cycle is they have been consistently been to hawkish, too optimistic about inflation. although janet yellen didn't say it at jackson hole this year, last year she pointed out that the ability to predict where the federal runs rate will be

overtime is quite limited. was her quote last year, but still applicable here as well. peter, is it possible they really saw a path to raising no matter what and if the data are garbled, can they look through the data? every time they look through it it hasn't tightened financial conditions at all, right? peter: first and foremost, the fed has told us they are looking ahead. some may say they are looking too far ahead, but they have made the case on the phillips curve. do they have the ability to look through the data, i think they do. but if i may make one point, i'm coming from a market's background and trying to look at the market pricing relative to what might happen. and we have an argument about how often they will hike, but as you said if you look at what is

currently priced in the market, there is little. i think risks for markets are clearly tilted toward pricing more than less. hsbc saidhat point, the market will support dovish valuations. if there is more than one rate hike, what is the biggest shakeout going to be? a couple ofnk things, the expectation that the fed can be tightening is mixed in with the expectation that you get this goal policy stimulus -- fiscal policy stimulus appeared i think the biggest trick is the normalization of the fed balance sheet is something the fed will have to do carefully yard the european central bank tried this between 2012 and 2014. iey reduce the balance sheet

50% and had to double it subsequently as the economy was pushed to the edge of a potential triple digit recession. this is the only previous example we have of how this plays out. the fed has to be very careful and how they go about normalizing the balance in a way that doesn't exasperate any of the downside risks already present in the market and it doesn't dampen growth to quickly. alix: good stuff, jason. -- garywith eric cohn about why the discrepancy between jobs and inflation. : it has to comes or demand for more workers at a higher price. we create demand by creating a better operating environment in the united states by making the united states more competitive. you create the competition by lowering the business tax rate.

and having businesses have to be here and want to be here. alix: my takeaway is it needs to , not fromd.c. monetary policy anymore. peter: i'm not surprised he is saying this, but the unemployment rate is low and even if you factor in underemployment and these things, we have to recognize this stage of a cycle you should have expected inflation to be higher. surely there is something else going on than just the demand for workers. that brings us back to a discussion about monitory policy , the fed is saying it's going to happen anyway because of where we are and that is currently what the market doesn't believe in a sense. if you have other stimulus,

fiscal or otherwise, clearly that will help to some degree. alix: thank you very much. peter schaffrik and jason shanker. on bloomberg terminal tech out tv -- checkout tv , interact with us directly. i should point out that hurricane, is now category five. we are going to discuss the impact of hurricane harvey as we brace for irma. this is bloomberg. ♪

this is bloomberg. ♪ alix: it is hurricane season and now hurricane irma has become a category five storm. you can see the projected path looking to come in between cuba

and a florida on september 10 as it grows into a category five storm. it will change directions quickly, but nonetheless, something to keep your eye on as we assess the impact of hurricane harvey. the cost of hurricane harvey continues to mount. one place he felt it is at the pump. higher the43 cents biggest increase over the past few days. new jersey $.37, maryland $.41 and georgia $.43. buddy's.coms gas senior patrol analyst dan mcteague. how much longer can we expect this boost? dan: it looks like it will remain where it is. it may move down by this time next week, but there is much

uncertainty. euros,about 5.2 million 70% of refinery capacity shuttered why harvey. at this point 2.7 million is back online. servesl pipeline that gasoline will hopefully restart today, but that means there is a lag in the system. categoryly pointed out createsricane irma uncertainties and that could support increases we have seen across the eastern seaboard as the northeast and southeast in advance of the hurricane. for now, high prices is the norm. i don't see it ending for at least the next couple of sessions. dan, gasoline prices down about 4% today, but talk about

these achiness of higher prices through the pump. stickier on the upside and downside? dan: some of drops we're seeing have a lot to do with retail margins. we are seeing more of an effect toward eastern regions in connection to colonial. reflection here has been a slow increase, eight cents to $.10 per day, but we have seen that plateau and the market will take a wait and see approach. there is a lot of risk factored into the prices we see on the merck. i think we are looking at another two a weeks of sustained higher prices, higher than we have seen for this time of year going back to 2012. this is an active hurricane season.

obviously not going to be hopeful for motorists digging deeper into their pockets earlier this season. biggest increase in prices really came from the said, becauseyou they are dependent on the colonial pipeline. do we hear more conversation about gasoline storage increases in the southeast, any way to change how they get their product? dan: it is difficult to say where they're going to get product from. from's a list coming vessels moving from elsewhere cargo, but the reality is the greater options we have, refineries that have spare capacity, a good number have gone into maintenance. where there would be spare capacity, you don't have the ability to suddenly turn on without barges coming in and places like europe or from around the world.

that may take time. storage issues are a concern. states involved along the southeast have asked for and received epa approval to use winter gasoline. to of those things are meant mitigate the impact, but it will not slow down the back of the prices will remain high. alix: think is a much. great to get your perspective today. coming up, larry summers, former at atomic council director. cohnote a blog post, gary was mentioned a lot. he would join us. this is bloomberg. ♪