francine: north korea's latest missile test puts u.s. territory in range but markets shrug their shoulders. five months war of words. the ecb take shots over low interest rates. as alibaba makes a song and dance out of its anniversary, jack ma gives us exclusive insight into the company's future. good morning, ever. that was really good dancing. this is bloomberg "surveillance ." we have a pretty amazing, packed show for you today.

coming up later on the program prepares to mark the 25th anniversary of black wednesday. that is norman lamont at 9:30. let's get straight to your data check. quite a lot going on in the markets. we are seeing a little bit of risk off. stocks are mixed in europe. edging lower and then going higher. what investors are nervous about is north korea's latest missile launch, raising geopolitical risks. gold and yen showing markets are becoming immune to the provocation and diplomatic reaction. there is not much of an impact on yen. we are seeing pound, the 25th anniversary of, of course, what we saw in -- 1.34w31. there is a little bit of movement on treasury. let's get straight to the bloomberg first word news. sebastian: president trump says

he likes and respects janet yellen not made a decision on whether he will re nominate the federal reserve chair for another term. treasury secretary steven mnuchin sets janet yellen is among those being considered to run the central bank. in the u.k. that leader of the house of commons said theresa will have to listen to lawmakers who oppose brexit. said theresa may will have to listen to lawmakers who are post-brexit. falling for a sixth straight day. china is said to have notified regional regulators in a stock exchange by the end of september. the plan was distribute by the ofple's pabajknk china. the founder of alibaba says that it has played a role as a positive force. jack ma spoke exclusively to bloomberg as company marked 18 years. think 18 years is enough

for us to improve globalization instead of killing globalization. n trade stops, war starts. sebastian: you can get more on our special half-hour program at 7 p.m. in london. global news 20 pros a day powered by 2700 journalists and analysts in 120 countries, this is bloomberg. much.ne: thank you so north korea has fired another missile and this time it is far enough to put the u.s. territory of guam in range. it flu over japan's northern island before landing and the pacific ocean -- it flew over japan's northern island. the u.s. military says it traveled 3700 kilometers, further than the distance from pyongyang to guam. our managing editor joins us from tokyo.

first of all, is anything different about this launch? said, itll, as you is the farthest missile test we have seen today. the one in late august was about 1000 kilometers shorter than this one. of distance, it is farther, also a higher altitude than the one in late august. the flight path was pretty much the same, it flew over the northern island and fell into th the pacific. the real changes that guam is apparently within range. francine: why did japan not try to shoot it down? >> well, you know, japan has missile defense systems, both systems that are on board ships, ship to air, as well as ground to air. i think there are two reasons. first of all, if japan starts launching projectiles into the sky to take missiles out of the

sky, there is a risk that it could look like a shooting war egun. there is a greater risk of things spiraling out of control, accidents can happen. but i think the other thing is that there is a risk that attempting to do that might fail. those defense systems that japan has work best when missiles are just taking off. comingo weh missiles are back down. they do not work that well with a miss lizette peak -- a missile altitude. and i think the possibility they can attempt to shoot it down and fail would have been really disastrous in terms of the book sentiment, -- in terms of public sentiment and it would've played into north korea's hands. the best approach was to observe it, take data as best as possible and standby. francine: are people worried or are they getting more -- markets think the

reacted very quickly and then bounceback. i think investors are getting a little bit immune to this. they have seen up before. people on the ground are concerned. we had a front-page story in the national daily and it was citing north korean propaganda that ran on thursday saying north korea is vowing to sink the entire, the archipelago of japan with an atomic bomb. that's on the front page of one of the national dailies. people are worried about it and that is why they are looking for more leadership from prime minister abe. they want to see a concerted effort at restoring calm, not to sort of words and threats that would escalate tensions. francine: thank you so much, our managing editor for japan. let's bring in the head of global fixed income at j.p. morgan asset management. bob, great to have you on the

program. it seems investors are immune to some of these geopolitical tensions. is it because it is all the rhythms and they do not know how theyact, or do also not know how to price it in? bob: i think initially there has been some concern that they are seeing rational responses with the sanctions. it looks like everyone is trying to figure out where the line is and play chicken across the line or not. so, there is not that much concern for the bigger concern for the markets is the volume of money that keeps coming out of the q.e. and entering the markets. if you sit on cash too long, that pool of money is created and you start lagging. francine: what have is a something we happens with north korea? geopolitics could turn. are you worried that the market is taking too much in their strike? are they complacent? bob: i do not know they are being complacent. i think it has been a fairly rational response. dire happens too

with north korea, then you would expect the risk off market and a pretty significant way and the money was come into government bonds. francine: what would that look like? i'm trying to figure out. isnow we buy yen but yen also because of japan directly implied in this -- is yen a safe haven or does it go on to gold or just dollar? bob: i think you look at what moved during august and i think that is when the tension was a bit higher. gold certainly moved a lot. yen did move a lot. the dollar i think should do ok. and, of course, g-3 government bonds did well. those will be the traditional safe haven assets that people will park money into until they see how things play out. francine: what are you waiting for? you mentioned central banks and policy mistakes. is the fed now, is the risk that they hike too soon?

bob: i think they are getting it about right. i think that janet yellen wants to leave having set forth a path for normalization. we expect next week they will begin the balance sheet run off. another rate hike in december. we expect that she will leave in february. few fedf the very chairs to leave without a recession occurring on their 10 year. -- tenure. the last one was 40 years ago. i think they are in the right path. policy is miles away from anything that looks normal. we've got negative real yields all all over the place. with asset price distortion, balance sheets at central banks that are multiples of where they should be. this will take years to work out of the system, and i think getting started now is the proper response. francine: what is the most sordid asset -- bonds? bob: it has to be bonds. francine: which once? -- ones bob: the ones being bought.

gilts, european government bonds and still supporting the treasury markets. to some extent you mentioned complacency earlier. the market has become complacent about the zero and negative real yields that exist in the government bond market. how the central banks normalize and prevent bonds from imploding, that is the challenge. and that is why they're taking such a gradual path in the normalization process. francine: this is boj, fed and ecb, the inflation gauge. are we measuring inflation right? bob: so, that's the big question, because with all the balance sheet expansion and the paper money printer that has gone on, everyone is surprise that we are not seeing the traditional inflation measures much higher, particularly in the

labor market. i think we're measuring it correctly. i think just coming out of the financial crisis so much damage got done, it is just taking longer to heal and return to something that looks more normal. inflation is there. it will surface again. maybe yesterday's cpi report in the u.s. is the first indication that the reports will come in a shade higher than the muted expectations. francine: he stays with us. stay with "surveillance." plenty coming up, including the war of words. the ecb governing council member defends the central banks low interest rates, saying germany has also benefited. we discuss that next. billionaireibaba gives us exclusive insight into where he sees the future. this is bloomberg. ♪

breaking news over the last half hour. london's metropolitan police are confirming they are at the scene of an incident across from the green subway station. the underground operator says services have been cut along the line. we will have plenty more on that. in the meantime, let's get to the bloomberg business flash. sebastian: alphabet has held conversations with lyft in recent weeks. about one billion dollars could come from google. alphabet and lyft declined to comment. fortescue's ceo will step down next year. the world's fourth-largest iron ore exporter says it will consider internal and external candidates for the role. it reported full-year profit

double. its assety is closing management following a 15 year run that ended with losses. the fund slumped 9.4% to august. manager posted a 31% return in 2008 by betting against u.s. and european banks during the financial crisis. and french insurer aixa is considering consolidation in the sector. the company is considering a merger or joint venture for the business. potential partners could include -- but representatives for a xa declined to comment. francine: thank you so much, seb. jens weidmann has defended the central banks low interest rates and targeted his comments ministerat a finance who has been an outspoken critic of the policy. >> it's not the german finance

minister does not benefit from low rates. the impression you're giving is that low rates are just a benefit of specific countries in the euro area only. that is not the case. it is good news for every finance minister when the latter has to pay less under lower rates. francine: still with us is bob michel at jp morgan. is that right? low rates are good. bob: they certainly are. who would not want to fund themselves at the lowest possible rate? francine: overall the conversation we are having in germany as whether jens weidmann will replace mario draghi, if schauble stays. are you bullish on europe? bob: we are. we see a lot of growth, we see the benefit from a currency that had revalued. we see a banking system that is healing, corporate profitability quite high.

things look pretty interesting. you do mention who could be the potential successor to draghi? it sounds to me like weidmann is putting his name in the hat by his i think rather conciliatory comments. there are other candidates out there. what about mark carney? francine: yeah. i think mark carney, that is an interesting thing. what would be an ecb composition under mark carney? bob: i think what would be an ecb that is more dynamic, that does not move to a policy range and sit there, but actually takes incoming data, is willing to move rates around and perhaps willing to be more aggressive in tapering q.e. it looks like ecb policy to us is outdated. there is no emergency. rate, a negative real much less a negative absolute rate and continuing to expand the balance sheet is something

that is three or four years old. francine: i never thought of that. the president could be from a country that is not in the eurozone. bob: he has an irish passport. francine: where do you see value in terms of bonds? now. creditight still looks good to us i know it's come under a lot of criticism. and no one more than myself would like to buy credit at a wider spread at a higher yield. but you can't. in corporate profitability looks good. earnings look very good. and there is a floaw that come i n from asia, particular, japan, that is looking something back to yen that makes sense and that is the credit market. so, i don't want to fight it. maybe this time next year when the fed is well into taping, maybe the ecb will have one itsd -- wound down

q.e. right now it seems like you are fighting the flow. francine: thank you so much. . bob michele at jp morgan. ibaba celebrates its 18th anniversary, jack m gives his input. this is bloomberg. ♪

francine: you are watching bloomberg "surveillance."

already dominating the market in china, alibaba is looking at ways to expand its business internationally. the company shares have doubled despite short-sellers sayhining it's poised for a fall. jack ma says he does not expect another tech bubble to burst. stephen engle caught up with him in china. the think next 18 years, globalization, will be much better because the internet. because this is our mission. said, electronic world trade platform. we are making sure a small business, young people can benefit from that. and i think 18 years is enough for us to improve globalization instead of killing globalization. i believe when trade stocks, war starts.

we never changed our u.s. strategy. we want to help small and companies that sell to asia. we do not want to go to the u.s and be the local e-commerce company, amazon and ebay -- it's all over the usa. stephen: you do not want to take on amazon? how about an entertainment? i know you had a partnership with amblin and steven spielberg. you have been the tortoise there not the hare. what is your strategy? prepared ali entertainment for 10 years. we have seven years to go. so, the important is not going there to buy movie company or by this and buy that. all the stuff,y you have to learn from them trade you have to partner with them. that i think there are a lot of

things china entertainment can learn from hollywood to partner with them. she not think about that is good, let's buy it. stephen: you talked about the coming winter in 2007 when you listed alibaba.come. winter came pretty quickly with the collapse of lehman brothers and we saw the collateral damage. i was watching your progress through the tech bubble. so, you have had these challenges that wiped familiar names off the board. are we facing a similar kind of tech bubble right now with these billion-dollar unicorns and inflated techs? are there any similarities? jack: no, not very much. i think the challenge at that time, a lot of people did not understand how -- powerful the internet is. and whether the internet consisting. so, people were jumping -- i found a a lot of people had crazy ideas but does not know how to operate and does not know

how to make their dream happen. knowsday, everybody internet is powerful and change human history. and also, i think the infrastructure of the internet. the infrastructure of technology is much better than 10-15 years ago. if you are not that greedy, if you're not that stupid and crazy, it's easy to survive today. ma.cine: that is jack you can catch plenty more of that interview this evening. up next, head of tomorrow's 26th anniversary of black wednesday we speak to the u.k. chancellor at the time. this is bloomberg. ♪

francine: welcome to our weekly brexit show it in london. a quick update on a developing story. london's metropolitan police in apple's today are at the scene

of an incident at the green underground station in the southwest of the capital. they report an explosion on the carriage injured several passengers. services have been suspended. now let's get a roundup of all of the week's big brexit news. government'sk. plan for taking the country out of the european union cleared a major hurdle. in the early hours of tuesday, lawmakers agree to allow the e.u. withdrawal bill to continue its progress through parliament by 326 votes to 290. sterling searched the highest in the year against the dollar as the bank of a win signal it could raise interest rates sooner than thought. inflation hit 2.9%, mark carney confirmed he is among the majority of officials who see a need for tightening soon. to return inflation to that 2% target in ia sustainable manner, there may need to be some adjustments in interest rates in the coming months. we will take the decision based on the data.

sebestian: negotiators postponed next week's round of talks. they will now gather on september 26. meanwhile, it was announced the u.k. prime minister will take her brexit charm offensive deep into the historic heart of europe with a speech in florence. next friday, theresa may argue that britain can work closely with the e.u. after leaving the bloc. the chancellor promised the european union that -- he said the u.k. will push for greater transparency, cooperation and standards-based on international norms. global news 24 hours a day's powered by 2400 journalists and analysts in 120 countries. this is bloomberg. francine: thank you so much, seb. now joining us is the former u.k. chancellor and u.k.'s trade envoy to iran, norman lamont.

it is great to catch up to we catch up every couple of months. i can have your thinking on important matters such as brexit negotiations. what is your main take away from this week? a lot of negotiations have been halted. are we going to get a deal sooner than expected, or is there a bigger chance that we crash out of the e.u.? mr. lamont: theravance things happening domestically and internationally. domestically, i think the good news from the government's point of view was that the withdrawal bill got a secondary view in parliament and there was not a single conservative vote against and they had the majority of 36 compared with the government's theoretical majority of six. so, that is good indication that this bill with the odd amendment is going nonetheless, it will get through parliament. that has been a worry. that ought to reassure people. on the actual negotiations, i

think it is gone much as expected, perhaps a little bit better. i've always expected drama. probably be a walkout. nothing much was going to happen before the german elections and even after the german elections, it will take a month or two or three to former government. that means the window for negotiation is really quite small from the beginning of next year to the end of next year because it then has to go through national parliaments arguably. the e.u. are maintaining the position can't talk about trade until the money is agreed. but the money is not going to be a great. francine: what does that mean? mr. lamont: in the end, there will be agreement at some point that sufficient progress has been made. maybe on the way the constellation will be made. maybe the british government will say it some point it -- if we're going to have a transitional period we'll pay in during that period. i think there is is higher than 50/50 chance of an agreement.

francine: higher? 60? mr. lamont: something like that. francine: who will be the people that can agree to start talking about trade before we talk about the divorce bill? is it angela merkel and politicians or will it be the commission? mr. lamont: well, in theory they are saying theresa may should not talk at all to angela merkel and other politicians. and angela merkel has so far gone along wit th that. i think the reality is by one means or another there will be plenty of communication. and i think people have been making the point recently that -- has his own ambitions, was to become president of the commission. jean-claude juncker has said the two president should be combined. mr. barnier probably wants that job. it is in his interest to get a deal. so, i'm not pessimistic about getting a deal, although i personally am of the view we can

live without a deal. francine: what with the u.k. look like without a deal? away from that, do you cut taxes, for example, to make yourselves much more attractive? with the you can become a bigger singapore? mr. lamont: that is what the europeans profess to be terrified of. i do not see how they can stop its own taxermining rates. that is a matter of domestic politics, a matter to did the determined at the time. francine: what would you do? it lamont: outside the e.u. is important that your tax rate should be competitive. you need to look at everything from square one all over again. francine: is there a danger that you become too competitive and, therefore, society becomes less fair? how do you square the two? competitive for corporate companies but at the same time giving the people in the country that are worse off a chance of going up. mr. lamont: that is the dilemma you always have. in setting taxes.

public services versus incentives. francine: but this is, i guess, the biggest challenge you can rewirite the future of the u.k. this is like clean slate. mr. lamont: the burden of taxation as a proportion of gdp is at its highest level for a very many years. so there must be -- to cut taxes and cut spending. francine: are you concerned about the inflation and wage growth, we're fully employed but wage growth is not following. mr. lamont: yes, i suspect this is like the united states. there are profound structural changes happening within our the economy. the gig economy, the advent -- these things. it may be full employment will not raise wages automatically. and that is quite a problem. francine: will it come? or is there something more sinister? temporary? mr. lamont: it could go on a

very long time, because i think the structural changes caused by technological change are only just beginning, the effect on the retail market, the high street, only beginning to see that. the things that happened in the united states will happen here. and that may mean that wages do not rise as fast as people would expect from this stage of the cycle. francine: but will that change or do you think retailers will go out of business because of it? mr. lamont: i think retailers have to change their model but i am not a businessman. francine: as a former chess free a thing or two to say. norman lamont stays with us. up next, they prepared to mark the 25th anniversary of black wednesday. we speak to the man who was chancellor. he is lord lamont. this is bloomberg. ♪

welcome back to our weekly brexit show. let's check in on markets. mark: the latest north korean missile launch to a large extent being shrugged off by markets. the stoxx 600 on track for a weekly increase of 1.7%, the most for two months. containing that trend of alternating between weekly losses and gains that started 8 weeks ago. sterling price remain supportive of further upside, having extended thursday's gain, the most in five months yesterday after boe suggest rates could be raised in coming months. 1.3450 was the one year high today according to bloomberg fx. risk reversal is on one-month, 22 basis points in favor of pound called, the highest since

2009 spread over two months. this is this chart. chart dynamics adjuster run on june3566, the high 27 last year. one year high today on track for a fourth weekly gain against the dollar, the best run since may. wti briefly rising above $50 yesterday. the spread between wti and brent crude will narrow as u.s. refining capacity recovers according to fitch. since the beginning of july, the spread has increased by $3.00 a barrel reaching multi-month high. the spread is to remain above the average of$2.76 a barrel as risks to u.s. demand limit price gains to wti. bitcoin more than 20% plunge on

china's reported plans to shut down crypto currency exchange trading has investors speculating whether it will drop below $3000. the level maybe 2877. about the time the digital currency most recent leg up began. it's also bitcoin's 100 day moving average. 2877 is a line in the sand. the bulls will want to see this. francine: to many the follow from the uk's vote to leave the european union is one of the worst crises to hit britain both politically and economically. my guest, norman lamont, was the chancellor of the exchequer when similar things were being said 25 years ago. of september, 1992, the pound fell 4% against the dollar. the day became known as black

wednesday. also with us is the former u.k. chancellor of the exchequer norman lamont. sir, what was the one thing you remember from that day visibly?was there a specific time when you realized what was happening? lord lamont: well, i think the most vivid memory i have is just when we put interest rates up from 10% to 12%. how it had absolutely zero effect. i remember looking at the computer and seeing an absolutely straight line. the currency had not moved at all. i felt just like a surgeon looking at a heart graph of a patient and realizing the patient was dead. francine: what did you think then, i have to do more? first?did you speak to lord lamont: the issue was getting out and getting out quickly. and unfortunately, because of those things within whitehall, that took a long time. can i just make one point?

you talk about britain leaving the erm? this terminology has always been used. but actually what happened was the breakdown of a system, and it's often, always ignores the fact that 8 other countries went through the identical experience to britain. britain was not the first country to devalue. italy devalued, three scandinavian countries devalued before. had italy not devalued, i do not think britain't would have been put in the system. it was a breakdown of the system. we talk about a specific british event, it was a european event. francine: yeah, but people to remember the u.k. more. why do you think that is? lord lamont: well, how much money mr. soros made, who knows? not in that sense is really important. i think people remember the pound falling out because the

pound was the most traded currency in the erm. it is a fact that almost every currency connected with erm other than the danish or the deutsche mark and the luxembourg currency and the belgian did not, but everyone else exhausted their reserves as well. francine: what is the most difficult decision you had to take at the time? lord lamont: well, actually it was partly obvious we ought to get out. i mean, i personally had been urging we suspended our approached i'd twice the prime minister about that before because i thought that the policy was becoming inappropriate. let me make one other point about it. i don't think our period in the erm, contrary to what most people think, and i cannot suppose i will convince people of this, but actually i think we benefited from getting out. it was a good thing we got out.

and i think it was a good thing we had a period in, because we had a very, very strong counter inflation measure. and inflation went from 11% to under 2% in a quite short period. that was very painful but it put the british economy in a very competitive position in the decade that followed. now, the chief beneficiary of that was tony blair, but that is what happened and we had a type fiscal policy as well. way for aned the upturn in the economy, having cured the problem we had a big inflation. francine: are there parallels? this is basically charts the trade weight of sterling. you can see the for circle on the left is black wednesday and this is the one here. a similar move for the pound. what are the parallels? lord lamont: i think the conditions are very different. i think the devaluation in 1992,

i'm not saying it was planned like this, i am not trying to take any credit but i think it works very well in a textbook sense because the economy was depressed because of high interest rate bearing down on inflation which move resources with the devaluation into the external sector. that was absolutely a textbook way in which to devalue a currency and to move resources into exports. we're in a, perhaps more comfortable position but it makes the devaluation today likely to be less effective. the economy continues to grow. the economy has been in something of a bubble in many areas. and, therefore, resources are not moving quickly into the external sector. maybe this devaluation in time will work more effectively but so far, the effects have been relatively minor. francine: at the time, you raise interest rates from 10% to 12%

and ended up at 15%. you spent him a lot of money trying to buy sterling. did you ever think about the consumer? lord lamont: the 15% never happen. the 50% was announced but it never happened. another thing that is embedded in the mythology. when you say that we spent money, we did not intervene massively. i know there were huge exits from the reserves. franc, lira, the everybody was in the same position. it was not that we were spending money to try to support the pound, the pound was outside its bounds. and one side you are your bounds, under the terms of the erm, you had to convert money into whatever currency was demanded. and so, you know, a license to print money. he do not have to be a genius to make money. it was a license to print money because of the way in which the system was set up. the bank of england had no option but to pay people who

turned up at the bank of england and wanted to be paid. and so that was where the reserves -- the same thing was happening in italy, in france, and in the scandinavian countries, all abroad in theory, on paper exhausted their reserves. when i say exhausted reserves, -- francine: thank you so much for now. we will be back with norman lamont. coming up, more on the events leading up to black wednesday with the author of a new book looking into the crisis. this is the overt. 0--this is bloomberg. ♪

francine: look him back to our weekly brexit show in london. we're just getting breaking news actually out of the boe. when the policymakers regarded as one of the most doishvish supportcity may raising interest rates. on the back of those comments, the pound is at 1.3495. an increase in borrowing costs could be soon. this is where we find the minutes yesterday of governor saying it -- in

increases the chances of a hike. you can see it gives a little bit more of a lift to the pound -- that's cable. let me also bring you over to euro-pound and you can see that 88.289. we saw a sharp leg lower for this in the last couple of minutes. now is david marsh, the co-author of "six days in september's," which describes the events in the week leading up to black wednesday. . we were talking with norman lamont, the chancellor thanks for joining us. what is the one thing that the government, the chesler but also the boe should be looking at -- the chancellor should be looking at. germany and don't underestimate the willingness of help usans to come and out. john major did totally overestimate his leverage over helmut kohl in 1992.

i know that misses may has a good relationship with mrs. merkel. on the other hand, the germans are not going to come writing to our rescue if we make a mess of think. i'm optimistic. it is not like as bad as it has been pretrade. -- portrayed. francine: could black wednesday have happened differently? david: you have to go back in history. 1990nk we did join in under on propitious circumstances because we made huge effort to get on board. people like norman in the cabinet -- it was certainly the wrong time for germany was about to -- interest rates and we should have realized that. i reaather agree with norman's point we got out, a lucky escape. the boss of the bundesbank has apologized for this. he made a mess of communications by telling the wall street journal that we need another

realignment. in fact, it was just a monumental error. they allowed us to get out. losing a lot of money. the guiltyeren't party. the bundesbank lost a lot of credibility after the. francine: do you agree with that? lord lamont: i think the mistaken joining the erm, i was not part of that decision but i think looking back to mistake was that the inflation differential between ourselves and germany was so huge. that had originally been part of the conditions mrs. thatcher had said must be satisfied before we join, the inflation rates converse but they had not. that meant interest rates in germany and britain were wide apart and it was difficult or should've been wide apart, and it was their difficult for britain to maintain its currency without having inappropriately high interest rates.

that was the root of the whole problem. francine: thank you both. too short of a time. author of "six days in september" and norman lamont. bloomberg "surveillance" continues. tom keene joins me. we were also speak to paul donovan, the chief economist at ubs. a little bit upon movement after one of the bank of england policymakers considered to be "the" dovish member of the mpc said he may support raising interest rates in the near future. you can see the pound is 1.3508. this is bloomberg. ♪

♪ francine: north korea's latest missile test ports u.s.

territory in range. investors shrugged. debate, thetes inflation outlook in line with goals. ups -- u.s. cpi pushes up. we are to talk about the boe, but now we really have to talk about the boe. i think the pound against the dollar is at 1.35 or near 1.35. one of the dovish members of the boe saying he would vote for rate hike. tom: this shows the abrupt jump of sterling. that is literally in the last 20 minutes. francine: yes. i just wanted to bring up, if we could, i don't know if we have the graphic, it was at 1.35.

tom: i have got it right here. we are doing this in real-time. it is friday. everyone is hung over on the team. we are trying to get this done. francine in new york on monday. here we go. the search -- surge down. surge tothe recent 1.35. an extraordinary morning. francine: in the meantime, let's taylor: first word news. breaking news from london this morning. on aber of passengers hurt subway train after what was said to be an explosion. this took place in the southwestern part of london. police and emergency personnel are there. we will have more in a few minutes. for the second time in two months, north korea has launched a missile over japan. this did more than that. it flew far enough to put the u.s. territory of guam in range.

to retaliateowed after the united nations imposed new sanctions. it might be a signal about what the trump administration plans to do about iran nuclear deal next month. secretary of state rex tillerson says iran is in default on the agreement. brazil, president michel temer has been hit with a second set of criminal charges. he has been charged with obstruction of justice and criminal conspiracy. he is start with taking $188 million in kickbacks. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thanks so much.

i want to get through the data and get to the discussion on this huge jump condition. equities, bonds, currencies, commodities, risk on dow. 1.19 35. to the next screen. the vix 10.5. look at the dow, closing their that intraday high. the yen near 111. a reaction on the north korean missile. it went the other way. i would suggest that is important. francine: let me bring you my terminal. this is my story of the morning. this happened in the last 20 minutes, and one of the bank of england policymakers regarded as

one of the most dovish members says he would see a rate hike in the future. the rest was for me to see that there was not that much of a bid on the back of these korea tensions. riskw a little decline in assets, showing markets are paying attention, but they have become somewhat immune. let's talk about the bank of england. let's get straight to our guest. when you look at the impact on the pound, it looks quite abrupt. paul donovan from ubs, and huw van steenis from shoulders. thank you for joining us. when you look at this sudden move, are we really going to see a hike on interest rates in the u.k.? huw: i think a case for a hike is strong. i think the bank is behind the curve. i think the cuts were a policy mistake in retrospect.

with unemployment levels and inflation above target, i think the key for limiting the emergency rate hike is strong. actually this is not normalizing rates. if we look at the inflation picture, some of this is sterling and some of this is temporary. we are not trending into some kind of rage price spiral. the economy isnd performing relatively well, and almost about question the honest data is wrong because it is the ons. it will be revised higher. you have reasonable growth, full deployment, inflation above target, what is the central bank going to do? to twoam going to go

different charts here. this is the intraday chart, boe with the red circle two days ago and yesterday, now stability and a new leg to 1.35. now over here, thank you justin are making this work. this is sterling and brexit with a red circle the morning after brexit. i would suggest business has to adapt to that. we're thrilled both of you are with us, huw van steenis and paul donovan. what does 1.35 sterling mean for the city and london? weak sterling is not as strong as policymakers would like to see, so i think a strengthening currency is important to choke off high inflation. i think with the government having caved to inflation

demands for the public sector, that is another trigger the bank of england had to take seriously. this is a net positive. you when youo tell are wrong, paul donovan. it is a good feeling to say you are wrong. unfortunately, i have to say ubs has been right on the fears over sterling not happening. you see that with a recent strong sterling and this new surge up. what are the ramifications if we get to the average price of sterling pre-brexit, which was about 1.42? can you even imagine taking jeff hughes call out to 1.42? the economic think consequences of sterling move are as significant as they used to be. as simplisticot as currency up good for

exports, down bad for exports. companies have invested in overseas operations, and they are a lot more significant. if we go to 1.42, that eats away at the profit margins of exporters. it does not lead to fewer exporters in the u.k., just as we say in profit margins. exporters will complain, but they always complain. that is a fact of life. francine: that is like the weather and brits. you always complain about the weather. parallelslking about 25 years ago. that brings us about. from 10% to 20%, nothing happened. is bank of england policy working correctly this time around? >> i think the bank of england

is doing what it is supposed to be doing. i was just starting my career on black wednesday. knowing about the interest rate increases were credible because it was crippling the homeowner with variable-rate mortgage. you could not possibly expect this to continue. nobody thought the rate increase was credible. that was reflected in the market action. what the bank of england has been doing in the years since the crisis has been trying to assist the process of deleveraging. a rate cut is a transfer of income from people with savings to people with debt. that helps with the leveraging without triggering a credit boom. i don't think the bank is obsessed about where sterling is. they keep an eye on it. it is hardly front and center on their policy. the real economic impact on sterling was not what it was even if 1992. this was a pre-wto environment.

global supply chains were a lot less integrated. huw: i was teaching economics at oxford, and i was looking back at the 1970's, and i remember my don saying, whatever the problem is devaluation is never the answer. weak sterling has not helped. these emergency rate cuts actually weaken the banks. we look at a time when there has been global healing in the banking sector. francine: if you look at the lending dynamics for inflation, banks are here to what? are they lending correctly in the u.k.? >> we are not seeing excessive debt record i think we are in an appropriate position in terms of consumer indebtedness. what you want us to be most of

the time, midcycle in the u.k. by and large. the consumer is being somewhat supported by income growth, which is probably better than average. average earnings data is nonsense. we are seeing a degree of support for the household. it is a little troubling that we saw a decline in savings last year as people work maintaining living standard by cutting back on savings. that is not sustainable. that will weigh on growth going forward. that is about consumers changing behaviors essentially. tom: this is wonderful. we are honored to have both of you as we see a world jump condition. stronger pound sterling this morning. we will continue with huw van steenis and paul donovan of ubs. the fed decides to :00 p.m., --

2:00 p.m. michael mckee will be in the front row of the press conference. we are thrilled to bring you tomorrow on fiscal america, a possible budget deficit. the former vice chairman of the fed will join us. stay with us. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." i am taylor riggs. a london hedge fund manager known for conservative views is calling it quits. this is after a 13 year run of

losses, down more than 9% this year. the parent company of google invests about $1 billion in two lyft, the ridesharing company. weimo is suing uber over self driving technology. jack ma does not see another bubble on the horizon. alibaba march the 18th anniversary of its founding. >> i think the infrastructure of the internet and technology is much better than 10 or 15 years ago. if you are not that greedy, if you are not that stupid and crazy, it is easy to survive today. taylor: you can watch more of our exclusive access in a special half-hour program later. alibaba, the global destructor

is tonight. -- disruptor is tonight. that is your business flash. tom: thank you. this is an important issue. gordon chang has his critics. he writes book after book after book about asia. one of his latest books is on north korea. it really considers what to do about the missiles as north korea considers what to do with the missiles. chang joins us after the missile launched last evening, which is a missile launch of the length to get to guam. how have things changed with a missile launch last evening? >> what it shows is it is not a technical advance, but it shows north korea's defiance again after the august 29 launch, again over japan. the north koreans are saying they cannot be stopped. right now they have the initiative.

they feel emboldened. it is up to president trump to make the next move. it needs to be more than just words. it needs to be action. tom: your book on north korea, one of the advantages here is your not the public service official, so you can speak your mind. do we have a good knowledge of north korea? do we have the intelligence to know what is going on on the ground in north korea? >> our intelligence in north korea is poor. as they say in the intelligence community, north korea is a hard target. a large part of that is because it is a closed society. it is dominated by the kim regime. if any foreigners have a good insight into what is going on, it is the chinese and perhaps the russian, certainly not us. we think very differently from

the way the north koreans do. that is another inhibition. francine: could japan have actually taken down the missile? >> they could have if they had shipstheir ag -- aegis close to north korea's show. they could have gotten this missile on the boost phase. japan's missile defense is still rudimentary, based on our technology and equipment, but they need more of it. remember, this missile went over uninhabited areas. they do not have the missile defense equipment at that place. that is what they would need in order to take it down. francine: is this a provocation or again trying to preempt any attack on north korea? it is unclear how much different this is to previous launches.

>> i think this one, and it is hard to figure out what kim jong-un is thinking. you probably look at the security council vote on monday and thought the chinese and russians have his back, they watered down this resolution so it had little practical effect. he says, i can show the united states they cannot stop me. he decided to go ahead. this was an act of defiance more than an act of trying to improve the technical components of this missiles. tom: the lead from bloomberg news this morning, the length of this flight in cloth voters -- kilometers, miles gets this missile to guam. how does that change the response from secretary tillerson, what does that mean for washington? >> they have already demonstrated they can reach guam. they have demonstrated they can reach deep into the american heartland.

what has changed as secretary of state tillerson, who has been emphasizing dialogue and the pathway to peace said it is now up to the chinese and russians to take direct action, quot e-unquote. that is a big change in language. the united states is now putting the ball into moscow's and beijing's court in a way that is much more direct. francine: thank you so much. gordon chang, author of nuclear showdown. we have an update on this explosion would hurt about in london. the police are now saying they are trading it as a terror incident. this is after an explosion inside one of the carriages there. there has been a picture circulating on social media. it does not appear to show extensive damage to the inside

of the train carriages. we understand according to eyewitness reports there are a number of injured. we will keep you up-to-date with anything the police tell us. this investigation is ongoing. we'll have more on that and look at central banks. this is bloomberg. ♪

♪ this is "bloomberg surveillance." tom, you must look at the

markets today. there's something funny after we had this missile after north korea. if you look at the havens and how they are moving, a little bit risk off, really a little bit. it seems markets are becoming more immune to that cycle of provocation. let's get back to huw van steenis and paul donovan. is it wrong that markets are largely ignoring geopolitical events? huw: i think investors are trying to run through the scenarios and probabilities against the outcomes. i think as difficult as this is, it is very difficult to hedge a disastrous outcome. in the back of our minds, there is $2 trillion of central bank injections this year, and that supports assets through thick and thin. paul: this is missile firing number 14 this year. the korean won

against the missile firings, and you cannot tell. investors are not going to price in disaster scenarios. we are genetically programmed to be optimistic unless we are scottish. as a result, you do not price in the extreme war in korea. you can price and plausible risks. francine: thank you. stay with us. for more bloomberg stories, read the latest issue of bloomberg businessweek now on newsstands. it is hacker's paradise, the acrobat it off -- what facts data hack. this is bloomberg. ♪

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delivers consistent network performance and speed across all your locations. fast connections everywhere. that's how you outmaneuver. ♪ francine: this is "bloomberg surveillance," common francine in london and new york. we understand there are injuries after this last in southwest

london. officials are treating this incident as terrorism. a number of people have been injured after a fire in what we understand was an explosion in one of the carriages on the outskirts of central london but still within what we call zone of, mainly a home to a lot bankers, investment bankers, a lot of europeans that live in london. we understand that station remains cordoned off as counterterrorism and police continue to investigate. if you travel through central london, i suggest going on the twitter page of the metropolitan police as they give updates. tom: very good, another incident we will follow through the morning. need a newse update. in new york city, taylor riggs. taylor: the latest north korean

missile flew further than any other one the north korean regime has launched. it was the second to fly over japan in two months. it traveled enough distance to put the u.s. territory of guam in range. north korea had vowed to retaliate for new security council sanctions. president trump has said he does not know whether he will nominate janet yellen for another term at the federal reserve, but he likes and respects her. president trump has signed a congressional resolution condemning white supremacists and other hate groups. congress passed the measure after a rally in charlotte that turned violent. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you so much.

the german federal election is 10 days away. week, wolfman sharply, another term as finance minister and angela merkel looking for another term as prime minister. given the implications for the speed of european integration. ofs get back to paul donovan ubs wealth management and huw van steenis of schroders. investors are taking a broad brush, angela merkel will stay put, and europe could significantly change. >> i think so. there is a question about whether he wants to move on to a european role, and with macron

suggesting a european finance minister, that is something the germans would be keen to get therir hand s on. they do not seem to be going much to put forward deep into replace draghi. that could be significant in terms of shaping the nature of european fiscal cooperation in the european union. issues around the banking sector integration are also going to come up depending on how you structure the next government. thisthe key is going to be merkelbetween macron and and whether this could push forward key reforms. the backdrop of a strong and improving trend in the eurozone is very constructive, and what i am struck by when i spend time in germany and paris is how brexit is hardly mentioned these days. it is about what they can do to

improve the economy and the longer-term outcome for the eu. francine: once the elections are over, a lot of negotiations will be on who replaces mario draghi and other board members. who is the candidate now? do you look at it and try to guess who the likely candidate is? huw: draghi is 2019. that is quite a way in the future. we have a little bit more significant issues, the spanish suggesting that finance minister who does not have an economic background or banking background would be ideally qualified for this position. i think there may be some objections to that and questions. we have to consider if the germans decide they want to go for the eurozone finance minister, the idea of the germans running fiscal policy and monetary policy

simultaneously is popular in germany, but unlikely to be popular in paris. there will be likely a lot of negotiations. tom: i want to take a moment, we will do a lot with paul in the next 20 minutes, but huw van steenis has decades at morgan stanley and now at schroders. this chart pains me no end. we have talked about this. the white line is american banking. diversifiedtiful index of american banking right back to where was in 2007. this is the failure of a single bank, yellow line is deutsche bank. gst or urgencyn among all of europe to right european banking? i know john cryan wants to turn it around. it is a great question.

i think the good news is we're coming to the end up a lost decade for eurozone days. eurozone banks are outperforming the broader market for the first time since 2009. i think the german banks still remain deeply problematic. the ecb policy of negative rates is imposing a huge tax on the banking industry. italy,ok across france, bad debts are still high but are coming down quickly. spain is mopping up some of the weaker banks. it is progress. tom: let's waxed. the goal on a friday. onlet's wax philosophical friday. here are the decades huw van steenis is talking about. i go back to cap the university on the difference between german capitalism and the anglo- american model.

can they fix this in a germanic way? do they have to go more london and new york? huw: i think the right solution is global. the strongest banks are globally diversified. the simple problem is the german banking system is deeply problematic. has three different lakes, two of which are subsidized and have significant government intervention. it is difficult for private sector banks to compete on home turf. u.s. banks have much more muscle as you are talking about. tom: i would point out the swiss banking system is absolutely phenomenal. francine: right, but you could also argue that the problem with the time banks -- i see what you did there. i was a little slow to that. clap kind of like you can with paul donovan and ubs.

free advertising. do you need growth for lending to pick up given the level of the euro and qe, is the ecb ready to normalize, or are they normalizing because they are running out of german bonds to buy? paul: i think they are late normalizing. if we are looking at the german banks, they are lending. the italian banks, that is a different issue. even there, things are getting less bad, which is probably the most positive we can be at the moment. you end up with fairly normal think lending. the question is do we need liquidity continually pumped in? we really don't. we haven't really needed it this year to be honest. mr. draghi is addicted to easing, and until we can get him into rehab, we are stuck

with it. francine: is it what euro needs? >> i think rates should be diversified. i think mr. draghi has provided a strong backdrop that he is going to back the euro. five years and whatever it takes, that was one of the importantt events in the last decade. i think we give him a single cheer despite not liking negative rates. tom: we will talk to mr. donovan about the greater economics as we get into the weekend. we will continue. when you launch into the vehicle, bloomberg radio. bloomberg daybreak across the nation, across canada on sirius xm channel 119.

this is bloomberg. ♪

♪ is "bloomberg surveillance." comingndon and new york, up on sunday, we have a special program, a conversation with the chairman of bridgewater associates sitting down with erik schatzker to sit down and talk about his new book. he is not about his sometimes unscrupulous method. i will be tuning in. let's focus on china where worries about rising leverage have been growing. chief economist william lee said

the high level of leverage is an accident waiting to happen. regularly -- announced the end of crypto trading by the end of september. thank you for sticking around. huw van steenis, you wrote a piece about cryptocurrency. are they dead in the water? in the last three weeks, we have heard negative comments about them all of a sudden. huw: i think policymakers have woken up to the fact that they are potentially losing control of currency. they will try to regulate them with securities or even bound due to concerns about money laundering. is it currencies or investment? does it still have the value of cash. it is down 22% this week. i would have sterling over kennedy -- sterling over

bitcoin. can it be used widely? i have been turned down before. it is a security and should be regulated like one. francine: i don't know if it doesn't impact on economies. paul: there is no way this is a currency. if it was a currency, and it is not, the hyper inflation of the line in the last two or three weeks is on par with germany before world war ii. there is no alternative uses for this. what this is showing is government regulations still has a large role to play. the markets sometimes forget and technology sometimes forget, we are subverting technology. you are not. if the government says this

is an asset and it rises, your subject to capital gains taxes. it is not currency. it is not treated as a currency. it does not function as a currency. tom: if you want to be rude and cut in, i will not be upset. this is log bitcoin. i did this just for huw van steenis. here is back to 2010, the original hype. matt miller bought right here. he really had to wait. this is called log contracts -- convex. is this marxist theory gone amok? there is the libertarian confusion, and the theory of value. awry?s marx theory gone >> i think it is not marxist. ers havees bitcoin

remembered is the joy of being a king. is a hugelyencies valuable trick because you basically pocket the difference between the face value of the money and the cost of the paper. n enthusiastscoi have worked out this issue in currencies is as good as being king. it is not big enough for regulators to worry, but as they grow in size, regulators will worry about money laundering, capital controls, and protecting consumers. that is why these will be regulated as securities. francine: should we worried about china in general? we have seen bad data this week, cracking down on out what does this mean for the rest of the world? >> this means it is less than the consensus, and the consensus

is dubious on china. they will have 6.7% growth this year. they're going to be their target. -- beat their target. is anyone surprised? no. the only question you should ask is who do you owe money to? china's debt is owed to china. it is an internal problem. that might be inefficient, but this is something that is self-contained within china. debt levels become a problem when you start owing money to foreigners. when you start owing money to germans, the problems start to build up. china doesn't own money to german yet. you are a bloomberg customer, you can log on to tv and ask questions to huw van steenis and paul donovan directly.

we will talk regulation next. this is bloomberg. ♪

♪ this is "bloomberg surveillance" with tom and

francine from new york and london. betweensten mergers companies. let's talk more about this with huw van steenis of schroders, former managing director of banks at morgan stanley and paul donovan of ubs also here. when you look at method two, how ,ifficult is it to see merge and the guys who will be worse off or better after it? huw: the challenge is to figure out who the winners are. it is evolution rather than revolution. what is going on in the technology space and how you can access information through technology is probably a bigger deal than this change in regulation. on the winners and losers side, the largest banks have a global footprint with high quality products.

ubs and morgan stanley could be net winners. on the other side, it is the boutiques and there is a halloween in the middle. i think it is revolutionary. francine: doesn't accelerate m&a and push away talented young researchers? huw: any uncertainty will dissuade new talent. the signal is talent is moving around. y -- the next two years will get away from this uncertainty. francine: thank you. let's get to the bloomberg business flash. taylor: alibaba co-founder jack ma said the alternative to globalized trade is not pretty. he gave an exclusive interview to bloomberg. alibaba march the 18th anniversary since it's founding. years is enough

for us to improve globalized trade, and when global trade stocks, growth stops. thatr: you can watch tonight at 5:30 p.m. in new york. that is your business flash. francine: thank you so much. let's continue the conversation with paul donovan and huw van steenis. paul, you have interesting research about the impacts technology companies are having on our economy. paul: there is something strange going on. in the last decade, we have seen an explosion in e-commerce, consumer transactions over the internet. companies spending on technology and software has been falling or stable in a share of total investment.

they are cutting back on investing in technology but doing more is this in technology -- business in technology. they are coming to you and saying, we will like you to use a mobile phone app. you now provide the hardware to do your job. this is common. in many instances, people are spending half of their device time doing work stuff but paying for the device themselves. we are seeing a real shift in how we use technology, this merging of business life and consumer life. it is now visible in the data. tom: paul, i look at where we are in your wonderful explanation, and it takes me back to economics 101, are we beginning to blur everything in productivity, luring label into capital?

this sort of change on the surface does not change labor productivity. have a computer provided by work and now provide it myself, i still have a computer. i am as productive as i ever was. capital is more efficiently used. i don't have a computer at work and the computer at home and one of them is sitting idle half the time. my use.reasing the way data is calculated in the states, there are different price methods used for the price of a computer bought by a consumer and the price of an identical computer bought by a company. will we end up with is as we see a shift from the computer being bought by a company to buy a consumer, that will affect real gdp and affect the data. this is miss measurement

basically. this is the fact that gdp is inaccurate as a statistic. we are more efficient in how we use capital, not more efficient in how we use later. tom: this is fascinating. paul donovan, a real value add this hour. we continue to follow the terror attack in london. we are working on this story. a few injured is the report. joining us on economics and finance, kathleen fisher will join us at bernstein. this is bloomberg. ♪

tom: this morning a terror attack in london. at this time there appeared to

be minimal injuries. in finance, pound-sterling surges after brexit levels. missile travels even further. island of guam is in range, how should president trump respond? the president clips, flaps, flips back again before lunch yesterday. dinner with the democrats was a failure. good morning everyone. this is "bloomberg surveillance ." and london.w york i'm tom keene with francine lacqua. francine: you are referring to what the police have said they are trading as a terrorist attack. an explosion. we have seen pictures on social media showing a bag with fire in

it. it is a leafy area. a quiet neighborhood with a lot of bankers, especially from europe there, tom. in thest night we saw it evening of another missile attack in syria. taylor: for the second time in two months north korea launched a missile over japan. further to put the u.s. island of guam in range. theay be a signal on what trump administration plans to do iran -- not sure what to do about certifying iran's compliance. has been, president

hit with the second side of criminal charges. took $188 million in kickbacks. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. tom: thank you. let's get through data checks. kathleen fisher with us of a b bernstein. -- american oil with a 50 dollar print. some of that is of course london and north korea gyrating the vix as well. what you see in sterling? francine: the only story of the

day apart from the fact that our concert reacting quickly. pound-sterling at a post-brexit high. -- wouldat he would vote for a hike. guilt are sliding, my biggest take today. i know francine will have work on this through the hour in we will do this on radio and social as well. four-day chart this is dollars per sterling, not eurosterling. 135.74 level.his we are back the day after the exit, june 24 of last year. francine: this is what i'm looking at a little bit different than what you're seeing. i have reversed it to look at euro pound. it has gone up.

let's stick with the bank of england. this is what we found out over the last couple of minutes. -- one of the most dovish members of the mbc says he wouldn't be against raising a hike. let's get to mark of gadfly. majority people were in favor of the hike. there is a big danger of policy over here. if you look at the wage figures this week there is no way that the british worker is getting any better off. brexit negotiations are fractious. you can see why the bank wants to take back the emergency rate it introduced after brexit, but i think the timing is terrible. the next point the bank could raise rates we will have another

bout of wage figures. if they show a decline from this week than i don't see how the bank can raise rates. and there is a credibility issue. itncine: not even by arguing is just the reversal of this rate cut? worse off whenle their economic future has never been less -- it's not so much that they raise interest rates is that they find themselves unable to carry through on the threat they made yesterday. taxedreliable boyfriend up to mark carney is going to come back with a vengeance. tom: former assistant to governor king, made it through the crisis with mr. bernanke, is there a wait at the bank of england or is this another president of the fed saying the -- neel kashkari a

couple of days ago, is it different in england when a president sounds off than in the united states? much history not of dissent against the governor. it is rare. what is interesting is it means some of the newer members in the mpc, they must be the minority. if he is the most dovish and once to raise rates, someone else must be the minority view that thinks it's too soon. a million years ago in the ecb. are all of these guys on the same page? are they talking this weekend about the many condemned arms -- many conundrums of central banking? -- to the all seem --a that if you have a full

unemployment rate that will lead to price inflation. the fact that this has not been true doesn't seem to have dented their believe that wage inflation is always the beast just around the corner. any minute now it is coming. i think that is a wrong feeling these day. tom: thank you so much. mark gilbert, is nice to have you. look at bloomberg gadfly, it is hugely valuable most on a day-to-day basis. the only reason that kathy fisher is on the death this morning, she loves data. ms. fisher is with a b bernstein . she is head of wealth and investment strategies division. how is wealth going?

sides,we are seeing both g i wish i had not been so conservative in the past three years, but we are also seeing many people saying is this the time to get out with stocks at all-time highs and so many things reflecting at best. i look at morgan stanley, to do something to assuage the fears and risk, what is the do something? it's friday. you're going to be on the soccer field saturday, saying we have to do something by monday. what is the to do? kathy: for private clients usually to do nothing. private clients are long-term .nvestors that's what they need we normally spend enormous time on -- tom: but what i do right now to affect a safer portfolio? kathy: the conundrum people have

is bonds give little return and the opportunity is what other diversifiers can they have and that is a function of people's individual tolerance for liquidity. there are less liquid alternatives that could help people get through bumpy times but people have to a willing to have illiquidity. change inwhat will the markets once central banking starts being normalized? the biggest distorted asset price of the moment? knows rates are going up, yet we assume when they go up there will be volatility. one thing to think about is there have been investments in places normally people wouldn't seeking highey are yields, high yield bonds, high dividend stocks. and if rates go up you may see people moving out of those because they will seek the

higher rates of safer instruments. if the economy is getting stronger, that is actually good for market. francine: can't really even figure out if it's distorted or not. kathy: good point. whenever there is a lengthy there may be the unintended consequences we can't see on the surface and we are looking carefully around the globe to make sure we see any signs of abnormalities we should protect against. tom: what is a correction -- bring up this chart here to this is the bull market. you're not in. i'm not in. how much is the correction now, is it 10% or 18%? have a role ofs thumb, most people look at 20%. early 2016, that's

pretty normal. we just haven't had it in quite a long time. tom: kathleen fisher with us. bank of england yesterday -- on wednesday rounding up good the victims for our fed special. michael mckee will be in washington and he has questions lineup for chair yellen. us, what awill join perfect time to speak to the former vice chairman of the fed. this is bloomberg. ♪

francine: this is -- fundr: london hedge

manager is calling it quits. closing the collector got asset management -- closing eclect ica. we will bring you an exclusive interview with hugh hendry coming up. accordingests in lyft to people familiar with the matter. also google is an investor in uber. over selfs being sued driving technology. must doesn't see another tech bubble on the horizon. alibaba marks the 18th anniversary of its founding. >> the infrastructure of the internet, infrastructure of technology is much better than

10 to 15 years ago. if you are not that greedy, if you're not that stupid and crazy, it is easy to survive today then yesterday. in ar: you can watch special later tonight at private clock -- tonight at 5:30 in new york, "alibaba: the global disruptor." reachingas become to you look at your phone and there has been another missile attack. korean yen stronger than japanese yen. knows the missile to missile display. what is different this time? a month ago they sent one over japan, which they did again today this morning. it wenterence is

further than it would be to get to the american territory of guam. it feels like north korea is showing it has the capability of firing a missile to guam. francine: is there anything that japan at this point could do? : japan at this point is joining in with the rest of the international community and increasing the sanctions, increasing the economic pressure, but it is -- what it's doing for itself is trying to boost missile defenses. there is also consideration about japan doing -- acquiring the capability under the pacifist constitution to do a print of strike or even a counterstrike. francine: thank you so much. andy sharp the joining us from asia. joining us now is chatham house

research fellow, john nelson right. is this any different to what we've seen in the last couple of months? john: it is the characteristic north korean playbook yard i would characterize it as psychological and strategic intimidation. on the back of kim jong un thatical successes to show president trump -- to show president trump that he won't be intimidated here to i think this tryn attempt i pyongyang to to decouple america with its allies. -- not only with korea.to north

francine: our china and russia going to take notice? we sell rex tillerson putting out a statement right away and it was clearly directed at them and not north korea. john: what we need from the chinese and russians is tougher sanctions. u.n. security council voted in a new set of sanctions, but effectively what are considerably from the american proposal going after north korea's textile exports position on labor your none of it will delay north korea from continuing these sorts of provocations. tom: you have a phrase, the heavy history of japan, what is the heavy history of america president trump, secretary tillerson, secretary mattis and the sailors in the pacific, what is the heavy history of america this morning? john: i suppose the recollection

thehe conflict in which united states provided security two asiantee for its allies and also recognition that this has to be challenged, but also the reminder of acute strategic " nation within the white house. think back to the cuban missile crisis and peerless days in october, we need in a administration that has a consistent message. -- american allies be relaxed. tom: always valuable on the northern asia politics and geopolitics as well. continue on bloomberg radio as well. our conversation in an important one with warmer u.s. ambassador

to south korea -- to north korea. kathy fisher will continue on economic investment. stay with us. this is bloomberg. ♪

francine: this is "bloomberg surveillance," with tom and francine from london and new york. a boarday a fire a subway train a tube train has

been under attack. a number people are being treated for burns. this was southwest london and some were also injured in a stampede. hospitalized after the blast, but none are serious serious.-none are we havefortunately you to talk about terror events very often. is there anything we have learned about how they happen or how we can stop them? >> they all seem pretty different. obviously, too soon to be sure. it looks like a fairly attempt at a homemade explosive device. there is footage of it. you can see on twitter what looks like a bucket on fire. it looks like it didn't go off properly, but at the same time,

if it had -- and this happened at the peak of london rush hour, the consequences could of been harangued us. if you're looking for a pattern, there doesn't seem to be that much you'd we have had a snipe attack, than attack, and now this. more than you goes city to city more in europe. how is london unique on terror versus the other terror spots of continental europe? inn: i think it's unique that it's used to it. i was on the west in this morning when this happened, but you wouldn't necessarily -- i saw the alert or my phone, but have --dn't necessarily when you see these reports your first thought is worried about casualties, but the second thought is will there be more attacks. there wasound london

no sense of that. london has a long history of this. i think in europe not so much, people are sort of more on edge there that may are in london right now. tom: very good, john. thank you so much. we will hear more from our london desk through the day. yes --len overreact ask -talks about a president who is loyal to no one. it's a mall to us we can washington, no question about that. stay with us through the hour. kevin cirilli will join us as well.

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delivers consistent network performance and speed across all your locations. hello, mr. deets. every branch running like headquarters. that's how you outmaneuver. tom: good morning, everyone. tom keene in new york, francine lacqua in london. kathy fisher of

ab bernstein. i know it's inappropriate to bek about mr. henry, he will here at the top of the hour and he is saying i can't do it anymore in this bull market. ring up the chart real simply to get it in. talking about a chart that goes they say oh, be afraid. how do you respond to short or sort of short mentality? kathy: the best place to be has been running the coattail of large cap u.s. stocks. it does make sense that at various points in time they have suffered in parts of that. hedge funds have fallen out of favor it is hard to go to this 60's-40 mix.

tom: here's a tip, investment tip for the weekend. axis,ody looks at the y pros look at the x axis. it's the duration of pain for the shorts. kathy: and it has been long. it takes a real conviction among clients to stick with funds that are struggling when the market is relentless. tom: speaking to somebody who amazon, apple, got lucky with blue-chip stocks, how do they maintain conviction when they are buffeted i negative talk. kathy: people are still happy to any i don't think there is unhappiness about those stock in particular, but i think the confidence has waned dramatically. we encourage clients to stick

with hedge funds, because i know they will do their role when markets get -- which they have not been. confidence we have had is unusual. you have to diversify with things that are intended to grow aen the market is --taylor: fire above a subway train is being treated as a terrorist attack. a number of people are being treated for burns and some were injured in a stampede here to it took place at the parsons green underground station in the southwestern part of london. we are expecting a news conference. the latest north korean missile flew further than any other that un johnson -- that kim jong has launched. traveled enough distance to put

the u.s. territory of long in range. president trump says he hasn't decided whether to nominate janet yellen for a second term as chairman of the federal reserve, but he says he likes and respects her. he noted that the economy is doing well. her term ends in february. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: thank you. i thought september started earlier this week. if you asked me in the last week of august when kevin cirilli was i would vacation days, have guessed i had been watching -- you know kevin cirilli did a chili bowl-- ben's

has a great shelflife. what is the shelflife of president trump's love affair with chuck schumer and nancy pelosi? kevin: i would say three months. you couldn't even watch speaker press conference yesterday and not scratch her head and say does this speaker understand that president trump really does hold all the cards at the political grassroots especially with steve bannon out of the white house? i think the president is saying to republican leadership, if you think i'm a relevant and you don't have to do with me, i'll look elsewhere. tom: what does this mean for the paternal white house dynamic? axios posted the president is loyal to no one. is he loyal to general kelly or mr. cohn?

kevin: he is loyal to results. this president is noticing results with the new chief of staff and the acrobatics around him. i spoke with several people who work directly with the chief of staff's team they say it really began with hurricane harvey, the president was satisfied with how state and local officials were able to work with each other and help out with the folks on that and now the big test is whether they can get a legislative agenda accomplished by the end of the year. let's not forget north korea as well. francine: was going to ask about that. what does president trump do today, call the chinese president or the russian president? kevin: i think he calls ambassador nikki haley. againre scheduled to meet

a couple of days before the general assembly mating is convened and it was just a couple of days ago that the un security council passed tough sanctions, oil sanctions, energy sector sanctions for their brazen missile test and now there will be talk of tougher sanctions. the relationship you alluded to definitely under more of a microscope. street atou on u ben's chili bowl. kevin: i'm going to take you up on that. greg valliere is with verizon, i have to go to what you write about not every day, but maybe every few weeks. her republicans giving up congress right now? believe it or not i have a

good chance of republicans keeping the senate. the house is a close call. democrats need 24 seats. i think they have a shot at 18 or 20 yard 24 is not out of the question. tom: the focus has been on republicans, does speaker pelosi, the majority leader, democrats have? their back greg: i thought sure they were in the witness reduction program this summer, but now they have a seat at the table. what a tremendous turnaround. tom: i look at francie now, what are you jump in with a question for mr. greg valliere. this week in washington nobody would've thought of it. francine: is this a trend? i guess we want to be careful of not reading too much into it.

thanks to the president's chief of staff that things seem to be back on track? greg: maybe they are back on track at the white house, but kevin got it right, the disdain toward the white house was palpable yesterday. i think that is a big deal. of these guys going to want to do trump big favors? i don't think so. i think they're going to take their sweet time. francine: how can the e.u. cooperate more to deal with north korea? greg: i think more sanctions. nohink a war scenario is more than 20%, maybe not even that high. tougherthere will be sanctions, maybe even a naval blockade. seeing a presse conference at scotland yard on the terrorist attack this morning in london.

>> we now said that this is a [indiscernible] and -- the investigation continues. in terms of the police response, as you would expect well practice command structures come an operation led by the police working with our colleagues of british transport and others. the investigation is being led by the metropolitan police counterterrorism command and network. there are many urgent inquiries on going there with hundreds of sectors looking at burns at work, -- looking at forensic work.

this is supported by mi5 and bringing experts on to the case. i would emphasize that london could see -- present particularly across transit systems across the day. what i would ask from the public, firstly, anyone in the public with any information about this incident should call us with a matter of urgency. in the matter of emergency call 999. and they can call on the hotline. terrorism -- oftenith images people take photos and film. anybody with images of the incident can contact us. we have a website where they can upload images.

the publicwould ask to remain vigilant across london and to be alert in assisting us, but not to be alarmed. thank you very much. i will take a couple of questions. that is metropolitan police commissioner, this is the fourth or fifth terrorist attack in the uk's of the beginning of the year. this morning several people were injured in an explosion on a rush-hour subway train in southwest london. tom: into the weekend, it is sobering. it never gets calm. it is always something to continue to see terror attacks. we'll continue to monitor across platforms. francine in london and i'm tom keene in new york, this is bloomberg. ♪

francine: this is "bloomberg surveillance," from london and new york. coming up is bloomberg: daybreak america. there is a great interview coming up with hugh hendry. jonathan: and hugh's words it probably wasn't meant to end like this. the journey from glasgow to the city of london, the return 31% in the depth of the financial crisis. they a u m went from billions to millions here at it will be a conversation about how tough it has been to make the transition bear -- bear to

bull. will be interested he left a final trade in there as well to do with bond market volatility. tom: what i thought was remarkable is mr. henry does not -- did not get crushed. it was little losses for a long time, different than the usual hedge fund debacle. jonathan: i think they did mid returns, we will get into that with him. to your point i think that's an individual event. it was a man known to be the big bear turned bullish, but never quite managed to hold onto the aum. people gave him money because they wanted money there for the doomsday scenario. jonathan ferro though,

looking forward to hearing what endry has to hugh h say. when emily says the high level of leverage at chinese companies is an accident waiting to happen as more private capital pours into the market. in law, china notified exchanged rates of cryptocurrencies by the end of september. kong isus now from hong our chief asia economic correspondent. tell me about this accident waiting to happen that we heard about? >> good morning. i guess it is a familiar refrain when it comes to china, right? in flux inout

economy. chinese regulators say they are aware of it and that is why they are taking pains to slow credit growth. overall growth continues to flow smoothly, they are targeting pockets of the sector there. there is a government academic sayingpublishes week that china has a debt problem, but they have assets around $19 trillion worth in terms of fixed asset resources. the warnings around china are real and valid, but officials are sending signals they are aware of the risks. atncine: when you look china, credit expansion, it seems to be robust. these are figures we had today. how they find the fine line? >> exactly right. the numbers work out interestingly, they show a slowdown where they are trying to curb central banking,

slowdown in an unregulated part had data we have pointing to a slowdown, by the end of the year, but i don't think anybody feels it will tighten or put a foot on the credit rate to the point that it threatens overall growth. thank you so much on china and something we have done more on in the last three days, bitcoin. kathy fisher will walk off the set. she's with ab bernstein. this chart is log bitcoin. i did this for kathy fisher. given what pullback bitcoin has done in the last eight years. how do you respond to people on cryptocurrency? i look at it as libertarian,

marxist. how does a pro respond to the dreaded bitcoin? quite taken when ben bernanke said positive things. when it first surfaced i was rather stunned by this evolution, because i have always thought of currency as being government-backed. there are two thisls of thought, one is is an asset class, one is it is a currency. the people who are most bullish believe it will become a currency and you want to buy it. i have a hard time with both of those. i can't see how this has intrinsic value. the currency issue to me is quite indeterminate. goingnot invest in been -- in bitcoin. we understand why it is appealing to look at a new itng, but the process behind

-- is used in various kinds of payment applications versus the currency itself. my: i'm trying to keep opinion out of discussion. let's look at tv . you can see kathleen fisher in the backdrop. the alumni stretch up the hudson river. you can come over here click on a preview of segment and there it is. you can steal a log con backs bitcoin chart and bring it over to your bloomberg. what a great country. ♪

♪ "bloomberg surveillance ," how about a single best function. this is from kathy fisher. the idea look at the data. let's go into the bloomberg here at this is what the pros look at. it is not a chart. go> we call it. you can line up here at ab bernstein all the different

economic data. if i scroll down you can see next week the date of that matters. that's the way this is. there is hard data and soft data. the hard data is pretty good. kathy: we have been watching the connection between sentiment changes and hard data. there are leads and lags. they are starting to converge. the economy has been not robust, but resilient. and as we talk there is this global positive momentum helping all countries. eco, dive into here is housing starts and building permits in the united states. that is just one small part of the data puzzle, isn't it, for you to get a belief on the dow jones industrial average.

kathy: looking across what countries are doing all interest use, we will have a lot of noise ,ut of the two tragic storms the trends are generally pretty good across the board. we look at pockets of weakness as well as pockets of strength. insee growing debt burdens some corporations, but nothing that makes us see any romantic imbalances that makes us think economic recovery is at risk in the near term. can we read into bonds, they have been so depressed it could be looking at something ugly out there? kathy: i don't know if ugly in perhaps term, but slower than some expected years ago. we have been trending in this 2 time, and that better in the past, but

is good enough what were seeing. this is where the fundamental research comes in, what is each company doing to adapt to the changing realities of its own sector, because there is change of foot -- change afoot. tom: thank you so much. coming up, our conversation with hugh hendry, looking forward to that. david gura and i speak to him as well. 's great shorts, throws in the towel on investments. coming up worldwide. this is bloomberg. ♪

jonathan: north korea launches a

second missile days after the united nations approved sanctions. a bank of england dubs joins a hawk this course with high rates of united kingdom and sterling rallied to a 2017 high. hugh hendry, the hedge fund manager known for his contrarian view closes his fund after 15 years. from new york city, good morning. this is bloomberg daybreak. i am jonathan ferro with david westin and alix steel. futures are a little bit softer and you would not describe this session as anything risk off associated with north korea. treasury yields high by two basis points. euro-dollar higher. the real movers in fx and bonds. the gilt yield of eight basis points. sterling at the highest level since brexit with