rformance and speed across all your locations. hello, mr. deets. every branch running like headquarters. that's how you outmaneuver. ♪ >> sterling strength pushes forecasters to rip up scripts as connie repeats his rate hike rhetoric. our markets finally buying what the boss is selling? president trump is set to call on world leaders to confront north korea and iran when he addresses the u.n. later. how will he fair at his biggest diplomatic moment to date and the u.s. -- u.k. prepares for the exit, will the policy that

saves the world become the regular path of every central bank toolkit? i'm mark barton. out what is happening to european equity markets one hour into the tuesday session. we are lower by about .1%. falling for a second day after rising yesterday. the highest since august. sterling continue his -- continues its climb. we temporarily crossed 136 yesterday, the post-brexit median forecast for the fourth quarter. according to the analysts we 1.29, a bit of a gap. ..44%, marginally higher today fell yesterday to the lowest big news is friday when snp global ratings raised the rating to investment grade.

the yield on the 10 year yesterday following a whopping 36 basis points. the biggest one-day move since 2000 and 10 -- 2010. ahead of trump's u.n. speech, the fed two-day meeting, that kicks off today, gold is inching higher by .1%, rising after falling to the lowest since august of 2015. yesterday it rose to a one-year high on september the seventh. let's get the first word news. here is nejra cehic. nejra: president trump will today use his address to the united nations general assembly to call on world leaders to confront more free and iran. trump has been critical of the u.n. in the pass and will need to build a broad alliance against the two countries his administration continues the -- considers the world's greatest threat. speaking yesterday, he said red tape and mismanagement have held the organization back. in recent years, the united

nations has not reached its full potential. because of bureaucracy and mismanagement. while the united nations on a regular budget has increased by 140% and its staff has more than doubled since 2000. we are not seeing the results in line with this investment. hurricane mary has weakened to a category four. island nations still recovering from irma are bracing for the third storms right in two weeks. separately, the u.s. northeast is expected to take a glancing shot from hurricane jose. already the second costly hurricane season since 1980. theresa may and boris johnson face a reunion in york later after the u.k. foreign secretary appeared to leave open the possibility he might quit in protest at the prime minister's handling of brexit. meanwhile, writing in today's newspaper, william head has warned disunity over brexit

could hand power to jeremy korman's -- corbyn's later part of carried has become the latest british company to call for clarity on brexit negotiations. the automakers, whose cars features in james bond films, to avoideds guidance trade tariffs and recruit skilled laborers after britain leaves the eu. >> we understand there has to be of discussions. i wouldn't like that to go more than six months without starting to get some inkling about where it is going to go, where -- whether tariffs will exist, how are we avoiding non-tariffs and for everyone in our industry, how will we deal with skilled labor? nejra: global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. mark: the bank of england's mark carney says

inflation caused by brexit means -- underminingd the u.k. supply capacity, making it harder for the economy to grow without --'s talks between the eu and the u.k., carney said the banks's monetary policy committee would respond to any changes. there remain considerable risks to the u.k. outlook, which include the response of households and businesses. to developments related to brexit. chief economist at commerce bank, thanks for joining us. is that the fear right now? >> it is the fear, but i don't think it is. what we're seeing is a pass-through from sterling's

collapse last year. there is no evidence at the moment inflation is picking up. as mark carney pointed out yesterday, there was a fear it might. what the bank of england is telling us is that maybe we would like to put in place a precautionary rate hike, take back what we gained last year and we will take a from there. mark: this is what my favorite charts of the day. it is like look at post-brexit. the assessment was there was not going to be a rate hike for 17 months. is november looking more likely? >> your point about november and whatnot, as you look about the transitory effects, that is taken place with the pound, that have gone obn. we have the same thing going on in the u.s., which is that traders in the markets are

quickly going to a fed rate hike, from almost not even being there one month ago. these effects and what is going on in the interstate market, let's call a spade a space. if economic growth is strong in the united states, they will have to follow. and that is what is happening. mark carney is having to play political game. nobody has a clue. >> let's have a look at another chart. this shows the analyst forecast for sterling for the fourth quarter, versus pound-dollar rate. we are at 1.29. there's a gap, which one needs to come closer to the other. shock.ling is in more than the bank of england seems to be prepared to deliver. >> there would probably have to

0 over the next3 few months to balance these out. >> are you a sterling bull? thatthink the thing works here is there is a tight housing supply. that is a very good factor in the economy. lot floating around the united kingdom as well. >> doesn't matter whether boris johnson and theresa may are at odds with each other over their differing visions. does it matter whether johnson loses his job?

the big event is friday. is johnson a distraction, or doesn't matter to the markets? part of thet's game, people are positioning themselves depending on what kind of brexit they want, where they were before the referendum. i think the danger from the market perspective is, this tells a story. at some point not far down the track, negotiations with the eu will take a turn for the worst. >> and there is another conservative party speech coming up in a few weeks. peter dixon stays with us. the u.k. rate debate continues, including an interview with adam bus.

the former u.k. prime minister, tony blair. stay with+++ mark: let's get to the bloomberg

business flash. nejra: toys "r" us has filed for bankruptcy after the retailer failed to keep consumers from abandoning its doorstores for online shopping. the chain has secured $3 million

in financing while it restructures. bnp paribas is exploring. according people close to the matter, france's largest bank is combining the money management unit with managers. bloomberg reported last week that axa is reviewing its unit and has reached out to competitors. that's the bloomberg business flash. mark: donald will call upon leaders today to confront north korea and iran during his address to the general assembly later. the president is critical of the u.n., but will need to build a broad alliance amongst the two countries. yesterday he told the organization that mismanagement was holding it back, as well as

red tape. president trump: in recent years, the netted nations has not reached its full potential because of bureaucracy and mismanagement. the united nations on a regular budget has increased by 140% and its staff has more than doubled since 2000. we are not seeing the results in line with this investment. mark: let's get more with kathleen hunter. peter dixon, still here. it was not long ago that trump was deriding the u.n. has a c lub, the tone though, has shifted? >> it has. he has walked back his criticism. he's viewing the u.n. not as a post-world war ii institution of goodl renown, but as a investment for the u.s., in terms of the money we are spending and dedicating to this.

he is looking at it as a management perspective. mark: you wonder how that is going to go down. >> from only understand, heading into the speech, an official told reporters that his remarks are going to be given in the context of his america first perspective, his america first global foreign-policy doctrine, which whice hear a lot about during the inaugural address. i think that would be a fairly surprising and usual type of town to take in front of the u.n. mark: i did enjoy your notes today because you brought that wonderful billy joel song, "we didn't start the fire." well could be learned from 1989? draw parallels from the lyrics of that song and what is happening today. >> these things have been going on since the beginning of time. in the trump conversation, let's

and saymarkets look that will not be much of anything. muhammad ali would play rope -a-dope to tire out his politics. at the same time, the markets have not really cared. most domestic businesses in the u.s. are using retailers in this environment. they benefit from tax reform and they are the cheapest stocks in the market. there is not optimism tied to anything the president is doing in these markets. mark: where's the biggest hope when it comes to the trump presidency? >> the market has been on a tear since november, just after the election result was made known. i think what markets are looking for is, can he deliver on his taxes? the likelihood right now is he

probably will not be able to. he's tied up with legislation. if that is the case, frankly, most of the good news might have to come out. mark: kathleen, there's iran, there's korea. when it comes to iran, there is the nuclear deal. that is a big question mark. is trump going to pull out of this nuclear deal? >> there is a deadline coming up, at the time the ministration has to certify that iran is in compliance with the nuclear agreement. that is widely viewed as the potential next opportunity for the restoration to walk away from the deal, if they so choose. that is the big question out there ahead of the october 15 deadline. mark: they are calling this is biggest moment yet on the global diplomatic stage. what opportunities are therefore president trump to go offscript

and maybe cause some offense wi th his comments? >> that will be the thing to watch. we are hearing the speech should be 30 to 45 minutes. his arizona speech last month, which was intended to be about immigration, went on for 75 minutes, and the first 2/3 have very little to do with immigration. this would be a moment when trump's antlers and advisers would advise him strongly tuesday on script because of the global import of this moment, but you know, it's trump. so, we will have to wait and see. you, kathleen turner. the fed is expected to announce the beginning of the end of the qe era. will we see get resurrected during the next recession, or will it be reserved for only the most dire of downturns?

we discuss that next. this is bloomberg. ♪ mark: you are watching

"bloomberg surveillance." i'm mark barton. a decade after the financial crisis first occurred, the fed announce the start of the balance sheet runoff when he gives the latest decision tomorrow. will we see qe becoming a trusted part of the fed's toolkit? or, will it be relegated to a rarely used instrument that we

only turn to during the deepest of crises? me, peter dixon. what doe w we get the fed? what is the message on the balance sheet and when the next rate hike is? >> they are going to move forward, even though the market continues to try to catch up. to put it in british terms, it is keep calm and carry on. are worried about some things like equity market prices might get a comment like they did during the last 12 months, etc. that we have a very unbalanced economy. we have employment being a factor in the fed's conversations. we have housing data that argues we are at 50 year lows in housing. low forve we seen the the 10 year yield for now? we flirted with 2%.

him gone up -- we have gone up to 2.2%. is this the moment that bond yields start to rise? >> as you look at the fed rate hike chances, the bond market is very much on this idea that hey, rates are going higher and we begin to need to think about how to protect our clients. is the fed even credible in the economy? that is a completely different conversation. hit 5% one going to the 10 year treasury, someday, is how we think about it. at the same time, how much of that is priced into the bond market? nobody thinks economic growth can be better than expected. the biggest risk is the economy will do too well in the u.s., and rates rise faster than expected. that will not help the stocks. mark: is that your biggest risk?

banks rising faster than expected? some economists worry that rates rise faster than expect it. i don't think monetary policy is the risk for the economy. the question is, how does qe impact upon bond markets? we thnink we know. mark: this is a great chart. that shows the three areas of buying. it's pretty amazing. during the buying of bonds during these three periods, yields rose. it was after each period stopped that the yields declined. so, what is the lesson for normalization? economy,annot hurt the in our opinion. i say that, it can hurt the font market and stock market, but it

is great for the economy. there are quite a few people in the retiree world in the u.s. that would say, i can collect bank, and that makes me more confident. the strength of the u.s. economy will be a complete attachment. mark: any final words on the fed? >> if the fed stops buying, yields go down. but i don't buy that. we're in an environment where yields will go up slowly, very slowly. mark: cole smead and peter dixon, stay with us. we looking ahead to the german election next. this is bloomberg. ♪

♪ mark: this is bloomberg surveillance. president trump will use his

address to the united nations general assembly to call on world leaders to confront north korea and iran. president trump will need to build a broad alliance. speaking yesterday to a committee on u.n. reforms he said red tape and mismanagement have held the organization back. the unitedt years nations has not reached its full potential because of bureaucracy and mismanagement. while the united nations on a regular budget has increased, by 140 percent and it's a staff has more than doubled since 2000, we are not seeing the results in line with this investment. hurricane maria has weakened , separatelyy four the u.s. northeast is expected to take a glancing shot from hurricane jose.

theresa may and boris johnson face an awkward reunion at the u.n. in new york later. the possibility, he might quit in protest at the prime minister's handling of brexit. former tory leader william hague could lendthat this power to the labour party. the automaker, whose cars feature in james bond films, says they must be able to recruit skilled labor after the united kingdom leaves the european union. >> i would not like the discussion to go more than six months without starting to get some inkling of where it will go , where the tariffs are going to

exist, how are we avoiding non-tariffs? how are we going to deal with skilled labor? norway's of sovereign wealth fund has hit $1 trillion for the first time. it was reached in the early hours of this morning. by climbingn higher stock markets and a weaker u.s. dollar. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am nejra cehic, this is bloomberg. mark: just a couple days away from the german of election. is in thekel's party lead, it could be a good thing for investors. the acts is up more than 8% this year. we are joined from berlin -- the dax is up more than 8% this year.

what is looking most likely when it comes to coalitions and what is best for investors in the economy? crapshoot. it sounds trite but it depends at so much on the outcome of the election. germany has always been run by coalitions, almost always i should say since world war ii. this will be no exception. , it may bee polling the most difficult election cycle yet for forming a coalition. that said, if you are looking at /business friendly scenario, you would probably be rooting for angela merkel to hook up as she did in her second term with the free democratic a lot of thoseks boxes. there is another chance you may

repeat the current coalition with the social democrats which is a centrist, broad-based has given germany center-left policies over the last four years. mark: do the social democrats have any appetite for another stint as a partner of angela merkel's bloc? >> that will be one of the big p.m., sunday6 evening in germany. poorly, if they get a result as you were just referencing from the polls, that may be difficult to sell to their base. is, we helpedere angela merkel stay in power and at the same time we haven't got

anything in terms of our own support out of it. the short answer is there will surely be a lot of oversearching and haggling any social democrat coalition deal with angela merkel. if the two sides decide after the votes rn to go for that, which is not a given. mark: tony, thanks for that. still with us, peter dixon. bloc, the jamaica coalition when you throw in the green party. democrats, what does this mean for the markets? >> from a market point of view not a huge amount at this stage. is thatlihood

negotiations will go on for sometime. markets will probably say, gray, angela merkel reelected, let's carry on as before. is what kindtion of coalition we get. one of the issues is, what is the position of the liberals? they were kicked out of parliament last time around and they are now set to come back. they have traditionally done well in coalitions. mark: financial transfers, that is the topic isn't it? peter: that is the killer because if they adopt a hard-line, effectively put a big spoke in angela merkel's wheel, which is to manage the european crisis under the radar, she is facing a difficult choice. whether she wants to partner or with the spd. mark: are we close to the end of

the european crisis? i ask because of the german upgrade. you saw a massive move in the yield on the 10 year yesterday. greece persists. are we closer to the end than the beginning and how close? peter: what crisis, you could reasonably ask? apart from greece, we're seeing economies gaining traction. we are starting to see economies perform more strongly. greece is another issue we will have to discuss separately. equally, the worst of the crisis is over but a lot of questions still have to be asked about germany's role. that is increasingly a topic of discussion in the markets, among

policymakers, and even in the european commission. mark: that topic, what is the best solution for everyone involved? is there a compromise on that topic given the wide reaching viewpoint on the surplus? peter: there will have to be. frenchlook at where the are coming from, they are more interested in a european solution. more burden sharing. that means more burden sharing on the part of germany too. noises from the german government, when push comes to shove, they will find it difficult to accept that having supported the eurozone they are now on the hook for reducing services as well. there are a lot of interesting issues. it is incumbent upon other european economies to grow more quickly for a start.

that helps. the german surplus is more stabler. it is not widening. maybe a lot of discussion in germany is being had, particularly from the left, maybe we need to do reforms -- redo the reforms that were put in place, which would help to reduce the surplus. mark: the ecb has legroom because of the growing economy to take the foot off? peter: for sure. mark: the loosening pedal. peter: we were surprised they did not announce tapering at the september meeting but by october, the likelihood is they will give us some kind of guidelines as to how that will proceed in 2018. that is in tune with what we are hearing from the fed. they are ahead of the ecb in this respect.

the end game for qe is in sight. it is a positive signal that the eurozone probably is turning the corner. mark: peter dixon stays with us. we both have the potential to get brexit wrong. or we can be grown and find a way of making it right. the clarity of a brexit as it tries to navigate the road ahead. the exclusive interview is next. this is bloomberg. ♪

♪ mark: you are watching bloomberg surveillance. let's check on the markets. starting with the

equity markets first if we look first, wen markets are flat over on the stoxx 600. a bit of a mixed picture with industry groups, consumer staples underperforming. you have energy stocks outperforming with crude heading higher. got to focus on sterling. --ound today after a weekend after a weakening following a speech in d.c. ,he generic short sterling fourth generic short sterling contract, richard jones writing about this on the bloomberg saying that three times this year we have seen a spike in the short end of the rate curve. we have seen that spike but the replacement has been less of what we have seen previously. what richard jones is saying is that in order for the rate hikes from the boe to be priced

correctly what we need to see here is a data improving and the brexit negotiations taking a turn for the better. but this two big ifs, is something to keep an eye on. yuan, a bitk at the of a weakness in today's session. a couple weeks ago we had strengthened to beyond 650. a state ownedo enterprises buying dollars to pay dividends but whatever the reason, there has been more volatility in the yuan. what is not helping is the pboc taking away restrictions, probably feeding into the weakness as well. the weakest level this month. looking atining, these curves, the one your curve, you have brent curve in seeingsome oil traders

this as a bullish sign. wantsandy palmer clarity on brexit. exclusively to juliet. if terra barriers go in place, the inevitable point is you get a permanent appreciation of the pound. tarrif barriers go there is a reduction in pound versus tariff barriers. this is something that doesn't keep me awake at night. what keeps me awake is the non-tariff barrier. that is where we will likely to see tricky situations with cars being held at ports in germany and france because there is nothing you can do about that.

you are at the mercy of the customs. that works in the other direction as well. my biggest concern is non-tariff barrier. >> you said before the japan does well -- do you think theresa may can learn from that and support one of britain's best exports? example is an excellent to learn from. it is an island, it trades with neighbors but is not part of a barriers,has tariff it has a powerful manufacturing industry. governments generation upon generation have said that industrialization is important. theresa may, if she follows her industrial strategy, and she puts that at the heart of the government, and in line with that favors a slightly weaker pound, i think as a trading nation, the u.k. can do well. >> is europe less promising

giveing everything uncertain about brexit? confidence, iter is pretty much the same between the u.k. and europe. we have the potential to get brexit wrong. or we can be grown-ups and find a way of making it right. andy palmer there speaking exclusively to bloomberg. latest brickthe and mortar victim of the internet. this is bloomberg. ♪

mark: you are watching bloomberg surveillance. i am mark barton. let's get the bloomberg business flash. nejra: toys "r" us filed for bankruptcy. the chain says it has secured $3 billion in financing to stay open while it restructures. it is the latest blow to a brick and mortar retail industry reeling from the threat of

amazon. companiesncial exploring a tie up with european assets units. of combiningty money-management unit with money managers. , butdeclined to comment are reported to be reviewing the unit and have reached out to competitors. equifax learned about the breach to its computers in march. the u.s. justice department is said to have opened a criminal investigation into whether top officials at the company violated insider trading laws when they sold stocks before being disclosed that they were hacked. that is the bloomberg business flash. you should bewhat watching today ahead of the election in germany. donald trump, he makes his first speech to the u.n. general assembly in new york.

let's get the final thoughts of peter dixon, chief economist at global financial economists. it or's successor, who is is it yellen? peter: she is still very much in play, there are a lot of seats to fill at the fed these days. i am still going with yellen. fishers the part for -- fishers departure tell us something? peter: he might be getting out while he can but given the timing -- there aren that decisions to be made or

approvals to be made, peter, the change. the s omc will what does that mean for policy going forward? let's just speculate. yellenunder the subsequentwe have a recovery from collapse. we are talking about a progressive march toward normalization in monetary policy, running down the balance sheet. overseeing an economy which is very different to the one which previous fed chairman inherited. it is facing up to a more difficult challenge with china's policy. it will be a much lower interest rate environment. mark: what is the long run mutual rate? 3.5%: probably around tops. there was speculation that it would only be 2.5%. earlier, are confident

that the bond market will take it in stride. we would see a gradual move up in yields. why will markets take balance sheet normalization in their strides? peter: admittedly it was something i was worried about what the fed has prepared us for the way, the path toward normalization. so far we have not seen -- i would have thought that they were concerned and we would have seen levels. things could go wrong between now and then. showed, thet converse is there is downward pressure on yields. markets in which inflation remains low, there is no real reason for a spike. mark: you could be talking about japan there. the boj announces the latest decision.

two interesting things, the corona could disappear and there could be an election soon. is japan anywhere close to its goal? of reaching its 2% target? why not and how can it achieve it? peter: i don't think it is or ever will be. at the moment we are looking at a major structural shift in japan driven primarily by demographics. an environment in which we have more retirees. throwing more money at them is not necessarily going to help the economy or boost inflation. that is japan's main problem. through this transition problem it will take a couple decades. the 2% target -- rate in a rising interest environment globally that is holding the 10 year yield 0%. that will have to change? will. i suspect it

it means the boj will have more balance sheet work to do. boosting it further be on the gdp it currently is at. we might start to see ships there. it has done its job but maybe it is time to move on from that policy option. mark: peter dixon, chief economist at global financial economists. bloomberg surveillance continues in the next hour. francine and tom are in new york. we will be talking to this man. talking brexit with the former u.k. prime minister, tony blair. two big interviews you don't want to miss. this is bloomberg. ♪ >> sterling strength.

pushing forecasters to rip up their script as carney repeats

his rate hike rhetoric. urging action. president trump will call on world leaders to confront north korea and iran when he addresses the u.n. how will he fair in his biggest diplomatic moment? a federal reserve meeting is expected to set out a plan for whittling down the crisis. good morning. this is "bloomberg surveillance ." i'm francine lacqua with tom keene. tom has a couple of the favorites he wants to talk about. tom: i went by the ritz on the way to work. they are three deep in limos. what's that about? francine: this plays into the rhetoric also of the german election. remember, it is this coming sunday. angela merkel firmly is in the that estimate is 17%,

instead of 12.5%. tom: this is one of our great themes today and in this hour of "bloomberg surveillance" with adam posen, this is about optimism. francine: let's get straight to the bloomberg first word news. reporter: there is a report that u.s. investigators wiretapped paul manafort before and after the presidential election. according to cnn, some communications prompted concern. meanwhile, the "new york times," have told menanafort they plan tonight him. the president makes his first address to the united nations today. he will emphasize the danger caused by north korea and iran is too great for any country to

remain on the sidelines. boris johnson is not backing down in the dispute over brexit with prime minister theresa may. may refuted johnson for writing an on authorized essay on brexit. johnson is leaving open the possibility that he might quit in protest iof the way may is handling the u.k.'s the burger. china has increased its holdings in u.s. treasuries. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm taylor riggs. this is bloomberg. tom: equities, bonds, currencies and commodities. of course, an extraordinary stock market. i think it's being pushed aside in the news flow. barrel.n, above $50 per futures, up day after day.

the vix, showing that level, 10 .07, showing the complacencyin the market. euro-yen will be the thme on the chart. gold, an important number to get back below 1300. francine: i am looking at japanese shares. i did not put the nikkei, but i should have. it is giving a little bit of a surge after yesterday, which was a holiday. european stocks are movign down. the dollar is edging down before the fed meeting. tom: a little bit of japan right here. i have not done this in a while. this is synthetic euro-yen. here's the boom in japan from the 70's through the 1980's, the advent of the euro. abenomics, which is the

desire of a weaker yen, stronger euro, that worked for a while. here is the recent leg up we ave seen to 1.34 on euro-yen, chart we do not look at too often. it was extraordinary yesterday and they captured in the papers this morning, smile, smile, tr ump, the president not smiling, and the other three smiling. the president this morning will call on world leaders. they will confront north korea and iran, and maybe they will confront the bureaucracy at the u.n. that was the theme yesterday. we will see if he touches on it this morning. stephanie baker, our global correspondent in london. we have heard presidents forever talk about the american taxpayer supporting the u.n., even in manhattan. what is different this time with president trump?

stephanie: it is consistent with what he said on the campaign trail. he's been far more radical during his comments about the u.n. nikki haley has come up with a reform plan, which again, is reminiscent of what has been kicked around for years, but it doesn't seem there is renewed emphasis and trump is serious about trying to push this through. whether or not anything comes of it is another matter. it will be interesting to see what he says during his speech, how much it focuses on the need for reform. he has already said the u.n. has potentiald its full because the bureaucracy and mismanagement. tom: are we going to get any surprises this morning, or is it going to be as you brilliantly quote, "no surprise to anyone?" >> the real question in my min ,

is, does he stick to the speech? script? he go off this is an unusual setting for him. his speech will be translated into many languages. if he goes off script, how will that go down? that's what we need to watch for. francine: i guess it will depend on the tone of the president. talk to me about health care. are we any closer to finding a solution for it? stephanie: i don't know. i think there is renewed emphasis. there are still deep divisions in the republican party on how to tackle this. they have a september 30 deadline. it seems like a very ambitious goal to get something together before then. tom: stephanie, i want to sum up last 24 flow of the hours, which is mind-boggling. you have people at dinner saying the wrong things next to "new york times" reporter.

paul manafort. a and it goes on and on for mayor. how distracted is the president away from a u.n. speech by the immediacy of the robert mueller investigation? stephanie: i think the manafort revelations are hugely significant. the fact they were able to get a warrant to wiretap him meant they had to persuade judges and top justice officials that they had sufficient evidence to show and he was cooperating with acting as a foreign agent. i think that is significant. it must be a huge distraction. it is a constant theme and overhang throughout his presidency. it's something they have to with every day, back and forth about, as we saw, what do they disclose to mueller's team?

what do they hold back? it is hard to imagine behind-the-scenes what is really going on. tom: stephanie baker, thank you for the briefing. this is a real joy. we have an academic and a market economist. dutta is at renaissance macro, and he has been the resilient, resilient of optimism on the american economy. adam posen is that the peterson institute in washington.a adam is in london and gives his perspective on germany come on the fed, of optimism on the american economy. adam on central banks and monetary theory as well. dr. posen, let me start with you. we have a fed meeting coming up. what are the constraints, what are the lack of degrees of freedom that chair yellen has? >> there are several, tom. it is not a free hand. the most important is the

constraint she set herself. the committee has painted everybody into expecting announcement about balance sheet reduction, probably an announcement that will roll off as things mature this meeting. that would be a big surprise if they deviated. the second issue, you were talking with your reporter stephanie about the issue of, when do tax cuts come through and one is health care come through? the fed does not want to mess in with that. it has to hold off until fiscal decisions are made before it reacts. the third is becoming end of her term. i don't think she is going to recant herself, in terms of increasing her own chances of being appointed. tom: this is what we love about "surveillance." we are thrilled you are both with us. you and adam posen are on the same page. everybody, calm down. more than anyone we know you

have been resilient. wey at the run rate -- are at the run rate 3% gdp? >> not during the current quarter. the hurricanes that struck texas and florida came at "the right time" for the u.s. economy. the momentum of the economy going into september was quite strong. looking at the latest data, it looks like the economy is growing above trend. we have sort of a supply shock, a negative supply shock on our hands. productionker data and somewhat higher inflation. that will sort itself out and i think we get somewhat stronger growth in the middle of the fourth quarter. the underlying trends remain intact. we are generating solid jobs growth, which is enough to put downward pressure on the unemployment rate over time, and i think it keeps the pressure on the fed to continue this policy of normalizing interest rates. and of course, to me, the big

story this year has been the continued easing of the financial conditions. you know, stop prices are up, down, mostly because the global economy has gotten better. i think the fed should be normalizing and the markets are pricing that in. francine: adam, what is your take on the u.s. economy? is or something more puzzling than wage growth and u.s. inflation? >> nothing is more puzzling than that, francine. there are people out there, arguing we did not really get full employment until last year. others are saying, no, we have got all of this true unemployment. i think there is a genuine debate and puzzle there. but it want to emphasize what neil said. we are in a global growth cycle. this is as synchronized and as rod of a growth -- and as broad of a growth cycle as we have

seen. people were to bearish on china and japan. that does matter to the u.s., though the trump administration thinks that growth abroad is a problem. growth abroad is a good thing. tom: adam posen and neal dun tta. tomorrow, the bloomberg global business forum. we start strong with "surveillance" at 6:00. major challenges within advertising and david rubenstein on this market, transactions, and conversations. stay with us. this is bloomberg. ♪

reporter: this is "bloomberg

surveillance." toys "r" us has joined the list of retailers who have been crushed by online competition. the chain filed for bankruptcy protection. before the filing, they secured more than $3 billion in financing to pay for restructuring. plasticson in the business today. they have agreed to a nylon fortics business $9 billion. it is a milestone for norway's sovereign fund. the norwegian fund hit $1 trillion for the first time today. it is determined by higher climbing stock markets and a weaker u.s. dollar. francine: thank you. theresa may will renew her efforts to show who is in charge again on thursday with a special cabinet meeting on the eve of her long-awaited break the speech. this comes amid a rift with

foreign secretary boris johnson. the pound's dramatic reversal has left analysts racing to catch up. with us, neil dutta. neil, thank you for being around. adam, let me go to you first because you were the former mpc. what do you make of this political upheaval? boris johnson is going. no, he's staying. does this just confuse the brexit situation? >> it underlines the tension, francine. the british tory party will not be satisfied with anything short of a genuine rupture with the e u, and refused to admit there are economicc costs to doing so. busy trying tos take advantage of that for his own advancement. in the end, if you are at the

bank of england or the european commission, you shrug your shoulders and wait for it to run out. the problem remains this fundamental within the tory party. what's interesting to watch is whether the labour party, which havenly has a see seemed to shifted. they have made some announcements, where there should be an ongoing presence in the single market. if labour does make that shift, something be opposition has seemed reluctant to do, they could make a difference in politics. francine: adam, what does it mean for investors in the country, and what does it mean for ceo's? if you have no clarity on brexit, there is a concern the u.k. crash is out, so you have to prepare yourself. >> you have to prepare yourself for crashing out not just

because of the uncertainty, but because this reflects the desire of many people in the u.k. politics to crash out. we have seen toyota and nissan in the auto sector. there has been great coverage of the loss of jobs in the city. it is just bad. tom: at the peterson institute, the end result of all of this is, kick the can down the road. what is the urgency of brexit? or will this just be one exercise of kicking the can down the road? >> you can't kick the can down the road, tom, the way greece did. a, you have article 50 and the deadline. b, the british are in a weak position negotiating. and the european union does not

have any reason to kick the can down the road. they would rather have it resolved in a friendly fashion, a collaborative fashion, but they cannot have this distracting them from their agenda. do not havetish to the option of kicking the can down the road. francine: adam posen of peter institute, thank you. we will get back with neil dutta as well. coming up tomorrow, we are live from the global business forum. we speak with president macron, bill clinton, and of course, the apple ceo tim cook. this is bloomberg. ♪ tom: it is good to have adam

posen in london and neil dutta with us in new york. neil, we have got, i guess an escape velocity coming in at some point. will it be smooth, or do you worry about jump conditions and shocks to the market> neil: i mean, you worry about shocks, but i think it will be smoother than most appreciate because inflation is a slow-moving process. that is primarily the reason i do not expect a big surge in

rates, kind of like what we saw in the middle of 2013. of course, that had nothing to do with the data. it was a communications issue. tom: let's bring up the two year yield now. we will show this wednesday, tomorrow on our fed coverage as well. you can see as we grind up to 1.5%, where do you see the two year going? >> i think it is going at least up to 2%. the fed is gradually raising rates. i think neutral interest rates on a nominal basis are at least 2%, if not higher. so, let's go to 2% and take it from there. for me, and comes down to the outlook for productivity and labor force growth. for the u.s. economy, things are quietly improving on that front. if you look at productivity, we

have a cyclical improvement now because we appear to be having a rotation. manufacturing and mining tend to be more productive. if you look at labor force growth, there has been a slow recovery in labor force participation. and i think that continues. francine: adam, talk to me about the fed's composition. we have stanley fischer stepping down and possibly a new fed chair by the first quarter of next year. can we really look at what we know about the fed so far as a template? >> we can and we can't. this is unprecedented, how many seats will be turned over in t his short span of time. your colleague craig torres posted last week a reasonable short list of who is likely to succeed yellen if she is not appointed. the four names would be

something of a change. if it were to be one of the showconomists, that would something very different and trump during the campaign did say that was something he would consider. tom: we will continue this conversation at the end of the hour with adam posen and neil dutta. again, coming up tomorrow at 2:00 p.m., the fed decides. a good set of guests to talk about the market, market economics, and the challenges the fed faces. this is bloomberg. ♪

tom: "bloomberg surveillance." tom keene withcam francine lacqua. right now we participate in our first word news. cutest taylor riggs. -- here is taylor riggs. taylor: the caribbean islands bracing for a hurricane. it has caused widespread damage to the island. the hurricane is now headed for the u.s. and revision virgin islands and puerto rico. a court order authorized u.s. wiretaph investigators to trump campaign manager before and after the election according

to cnn. there were concerns that metaphor encouraged russian involvement in the election. "the new york times" said prosecutors have told manna for he will be indicted. tor john mccain may be the last gasp in the fight against obamacare. it may be subject to a filibuster. the trump wit administration withithdrawn a deal turkey's erdogan of weapons. this was after an incident in washington last may. turkish officers were indicted for attacking protesters during erdogan's visit. global news 24 hours a day powered by 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. the japanese prime

minister said he will decide on calling a snap election after he returns from his u.s. trip, confirming reports that he is considering a vote earlier. the nikkei powered higher earlier this morning. and he joins us from tokyo with the latest. abe the said to call a snap election as soon as he is back in town. ndy: we hear he is going to call one on monday as soon as he gets back from new york. francine: we have any idea on the polls and who would likely will win that? abe will win. it just a matter of how much he will win a could possibly put him under pressure internally in

his party. it's a question of how much humans five. or he could become the theresa may of japan. tom: how popular is shinzo abe outside of tokyo? is notrime minister abe particularly popular. dishes no alternative. that's been happening for three or four years. tom: greatly appreciated. there is that president and prime minister think. abe.led him president i was wrong. it's a parliamentary system. francine: still with us as adam pozen. adam, talk to me about japan. you worry about governor kuroda leaving or about the political elections? adam: i worry about the

political elections. governor kuroda is wonderful, but he can be replaced. it's more about the institution. the prime minister, as you said with your analogy theresa may, a week prime minister would be something different. one of the great things about shinzo abe has been has political strength. he may not be popular, but he has been strong within his party. the interesting thing is that we be 3.0, whichward a is the reverse. japan is usually a lot of talk on policy. we are seeing real action and progress. in japan, i'm wondering if we will continue with optimism with continued action and less salesmanship from shinzo abe, which would not be a bad outcome. what kind of report card would you give prime minister abe on that? adam: i would give him a b,

plus.ly of thy a b you have reforms including the tpp, which was pulled out from by trump through no fault of his own. the most important has been the reactivation of women in the japanese workforce. going forward, the reason why he wants the two thirds is for military reasons. he has always wanted to build up and change the constitution and be more aggressive. given activities in china and north korea now and given his

, whichnship with trump has been positive on the military side, that is where his push will be if he wins the election. tom: let me bring up this chart. this is the animal spirit of any given nation. this is nominal topline gdp. what is so sad about japan is that there have been only glimmers toward the 4% nominal gdp. the u.s. runs at that rate and would like to be appear at 5% to 6% nominal. how important is that to japan to look at nominal gdp, to look at the overlay of some kind of inflation or you just have to go to a real gdp analysis? adam: i think you have to go a real gdp analysis at this point. as you chart shows, we're looking at a couple decades. a couple decades of slow growth at nominal terms. the real growth in the last 10 to 15 years is very different from what happened in the 1990's. on inflation, you don't want to ignore, but there is a composition affect their. you covered san francisco in the measure point last month that the composition in each u.s. work force hiding wage increases for u.s. workers. the same thing for japan -- when women come in for sexes reasons

and seniority reasons, their y are being paid less. tom: a beautiful clinic. bring that over to the united states. ,he real gdp is a lot better but the nominal gdp is pretty darn good here. should chair yellen be looking on a real or a controversial ominal animal spirit basis? you think the fed is looking at nominal? >> they're focused on inflation and the breakdown of the phillips curve relationship so clearly inflation is moved up. that's relative to real economic indicators and their reaction function, at least in the near-term. francine: are they trying to fix it or say were not doing anything until we figured out? theoretically there's a

good sort of foundation for why the phillips curve would work. you have pressure on capacity which in time would put pressure on prices. there is no alternative. pooh-poohingple the fed for missing inflation, they have not come up with an alternative model of them. overtime compensation should equal productivity and inflation. you look at what happens with wage growth and what goes on in the labor market. if the labor market continues to do what it's doing this year, i think the fed will get down. we doing economics out of the textbooks you studied in school or are we making it up as we go? adam: we are doing and out of the textbooks. taking up something we'll set is the phillips curve mentality and the theory because with it, anybody who is my age or the generations before was fundamentally affected in the

textbooks of the pos phillips curve and the belief that the real economic linkages through the labor market and the filter. thee i differ from neil is big mystery with a big puzzle is that compensation has not been tracking productivity and inflation all that well. less abilityand for workers particularly in the u.s. and throughout the rich world to get the games that they essentially earned. you can see that the labor economy has been honest in a downtrend from where the decade instead of reverting upward. that is what the fed has to look at and forecasting terms as to how far does that persists. tom: thank you. i want to say thank you to all of those in london on radio for being with us.

i will send that out on social of japan's heartache over the decades. bloomberg daybreak: asia she can wake up in new york and miss moscowst with and mistreatment. mr. moon. this is bloomberg. ♪

francine: this is "bloomberg surveillance." tom and francine in new york this week. according to bloomberg poll tracker, support for angela merkel's christian democrat union stance at 36.5% followed by the 20% for the social democrats. the continuation of merkel's rule could be good for investors.

the dax is up, outpacing the gains of the stoxx 600. we will bring you the outcome and what it means from 4:30 p.m. u.k. time. but get back to adam posen and neil dutta in new york. away from angela merkel and the strong economy, most affably staying put as chancellor, how concerned are you about the far right? we have a poll suggesting that from 8% to 10%, they could muster up to 12% of the. vote. adam: it is disturbing. there are three levels you have to think about. there are that many people in germany when things are going so well economically and they have peace and prosperity and they have angela merkel to leave them that there is that many people who are so angry and racist at least in some way. so that's disturbing.

second, we should keep that in perspective compared to the national front in france and other places. second is the question of going back to what we're talking about earlier with japan and how strong my hand does merkel have. even if she's definitely going to win and she will have the largest block, whether she has an actual majority is another question. it's harder for her to make a deal with is the small parties to get the majority she needs. it may force her back to another red-green coalition -- excuse me, red-black coalition and that's not great. a possible 10% or more for a party which is almost extreme right. this must have an impact on angela merkel's policy for the future or does it not? adam: it's a great test of her leadership, which i'm sure she is up to. the issue is how much does she tack right to try to get these

people into her tent, voters who would go afd, versus how much he stands for principals and say we won't go there. if we get through this election, she is going to be more of the latter. she will be as she has been throughout the campaign, saying no, i did something morally right with the stand on refugees and immigration. germany is doing something morally right by standing up for the eu. once they voted afd, she could write them off and say i'm not listening to you. tom: he took a real shot at us in june. posen write it the peterson institute that the focus is not on europe but it's brexit, trump , may, etc. explained why this german election linked with the french election is so important for the continent of europe. adam: what we tried to say is that the anglophone press is so

obsessed with the anglophone issues. europe has its own destiny. it's an economy that's very large and a market aced economy that is growing in with the german car has been consistently growing. macronue is that blac defeated the front in france and is less popular than it seems and merkel a norse afd in germany that you have the core in europe to actually build something. it may have been reported in bad form in the anglophone press that present youngster had his presidentt forward -- yunker had his plans split forward. i get the european presence confused. that's to build something in europe to make it more viable. a strong europe with france and

germany makes that possible. tom: you not discussed what dr. kissinger called -- i will paraphrase it, which is immigration. on thisan update usually emotional and different issue of migrants and immigrants within europe. and: yes, jacob kierkegaard our staff do a lot of work on this. important to make the distinction between migrants, which is european citizenship who moved for economic reasons or just choice, and immigrants, which is people from outside orope moving to europe people within europe who try to change their citizenship. the economics of it is very simple. at the center of global development and jennifer hunt of rutgers, they have done good work on this.

it's very clear for lunch countries that immigration is a me net win. most people come to europe and provide more paying and then they take out. there is one important caution which is that nordic countries and the netherlands have taken in very large numbers of refugees from somalia, sudan, and syria. those people cannot get right. tom: i have an idea. we have to come back with neal if adamtta to see posen should be the next chair of the fed. francine: you can log onto tv and this is how you can watch tom and myself. you can look at all these really cool charts and interact on social media. you can ask really difficult questions to adam and neil. you can do that just underneath the video screen. this is bloomberg.

♪

taylor: this is "bloomberg surveillance." let's get the bloomberg business flash. aqua faqs learn that about a major breach of its computer

system five months before the date it publicly and knowledge. that's according to people familiar with the situation. the credit reporting company said the breach in march was not related to the one that exposed personal data of 143 million americans. one of the people familiar with the matter says the breach involved the same hackers. it was once ago to toy store for millions of americans. now toys "r" us has filed for protection. is the latest chain to fall victim to debt and online competition. 'twas arrest has cared more than $3 billion for lenders so i can if you keep operating. tom: i'm so glad you did that story. this really resonates with americans. this is not about amazon. this was a train wreck long before jeff bezos sold his first book. this thing was just poorly merchant best. the stores where filthy.

can you believe i actually had to go shop for diapers my youth? francine: let's go back now. the concern is that there's pressures facing a lot of these brick-and-mortar's. it's part amazon in part the fact that when you went in it was like the stray. tom: we will have much more on that across "bloomberg surveillance." duttposen with us and neil a. i asked about trump selecting a n to be a doctor pose vice-chairman of the fed, but the attraction is those dovish is really where the president is. does the president want a hawk as associated with john b taylor and stanford university? neil: i don't know. i think it's going to be interesting to see whether the president draws on sort of the existing republican apparatus for monetary policy. tom: with nancy pelosi and chuck

schumer on the couch. neil: when you look at the names thrown out there like glenn hubbard and jon taylor, these are the typical names that you get coming out of the republican administration. i would say in our meetings that there is a lot of concern that the administration tries to put in someone politically pliant. i don't share that as a risk. if you look at the people nominated up to this point or intention of nomination, they are run-of-the-mill candidates. tom: when you look at this, is it day-to-day running for the chairman or once or twice every six years of more deviation shock.? adam: it's more of the shock. i do want to differ with neil. i am very concerned about the next chair, not me, being very politically suspect in the sense of giving the president what he wants, which is low rates.

reappointing yellen would be the most hawkish thing you could do. everyone else would be the second coming of arthur burns given the way this place operates maybe with russian compromise not joking. neil: how do you square that with who he has nominated so far? martin good for you as a hot marvin is a fee hot sometimes and that of sometimes. adam: he will vote how the chair tells them the vote. marvin is a great guy and public servant, but if you're talking about how the fed reacts to a sharp, the bias will be what the chairman puts in and the other 15 people trump nominates in the next three months. francine: we need the dollar call. what's your call for the dollar from here? neil: i think the highs of the dollar has been put in on most currencies.

i think you will see some consolidation on the dollar. tom: thank you so much. posen andthat is adam neil dutta. coming up, we will speak with former prime minister tony blair. that's at 7:00 a.m. in new york and 12:00 p.m. in london. it's unclear whether he wants to stay or go whether he is championing theresa may. you can make parallels between that and what tony blair had to go through with gordon brown many years ago. we will have plenty more on that and all of your market calls. this is bloomberg. ♪

♪ within the september crush of news, do you know there is a bull market?

seven straight days in a row ever higher. it's like the dreaded yankees chasing the boston red sox. in this hour, and janet yellen and ou dow 25,000. the president speaks at the u.n. today. the american taxpayer paying for all that green marble and democracy. the caribbean, by category five hurricane. this is "bloomberg surveillance." live from world headquarters in new york, i'm tom keene. visiting is francine lacqua. you will be speaking at the forum. francine: we are speaking to lots of heads of state, but you could argue there are two things to watch out for. showdown between theresa may and boris johnson and the implications it has for the brexit and pound. your president is giving the address of the u.n. to the. today.

tom: let's get our briefing right now on first word news. here's taylor riggs. taylor: we are starting with that hurricane you mentioned. for the third time in two weeks, the caribbean islands are bracing to be hit by hurricane. maria has become a category five storm. it has caused widespread damage to the island of dominica. the hurricane is now headed for the u.s. and british virgin islands and puerto rico. there's a report the u.s. investigators wiretapped former trump campaign chairman paul manafort before and after the presidential election. someding to cnn, communications profit concern that paul manafort encouraged russian involvement in the election. said thatork times" robert mueller special prosecutors plan to indict him. ,aul manafort is not, commenting. president trump makes his first address to the amount missions

to the. he will emphasize the danger caused by north korea and abroad is too dangerous for any country does it on the sideline. is not backing down and his dispute over brexit with prime minister theresa may. may rebuke johnson for writing an unauthorized essay that some say undermines her. johnson leaving open the possibility that he may quit in protest over the way that may is handling the u.k. departure. apart news 24 hours a day by 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: let's get right to it with a raging bull market. that and the euro not participating. american oil above $50 a barrel. the risk on curve steepening yield higher. stunning dow jones industrial average. anything under 10 show

significant complacency. the euro-yen i will get to in a minute and gold tries to get to a 1200 handle per ounce. francine: euro stocks a little bit down, but the nikkei is what i'm really looking at because they are searching quite holiday. consistently after i'm looking at the pound because of the theresa may-bastad some showed up. boris johnson showed up. tom: i think the questions will be illuminating to see the least. a quick current to take on here. i will get this out to you on radio as well. forever the strong yen from the 70's down to the 80's, the advent of the euro and a very cyclical euro-yen. euro and abe wanted a

weaker yen. time will tell what we go, but the cyclical euroyen. what have we not talked about? we have not talked about a bull market. it's good time to speak to russ and their fund management and strategy as well. this is the most unloved leg of this most unloved bull market i've ever seen. it's amazing to me day-to-day the lack of interest in the stock market. why is it? >> i think people don't trust it. the fact is that you have had a stronger midseason. rate stay low and the economy is not great, but it's good enough. is a little bit like the low growth and version of the late 90's where you have this nice goldilocks scenario, which has allowed stocks to grind higher despite all the pessimism and the hatred that people have expressed. tom: within that is the thing in the back that this is chair yellen bull market. some agree with that and some don't.

where are you? russ: if you had a different rate environment and there was a more hawkish fed, i don't think the markets pass with how easy it has been. i don't think liv-ex would be at hand 10 if we had tighter monetary conditions. francine: we had investor yesterday saying the fed move before completely priced in the markets. is the fed following the markets and are you nervous about that? russ: i think it has been very cautious to avoid another taper tantrum. this is been the best telegraph tightening cycle in history. the fed has been very careful in terms of telegraphing what they will do with their balance sheet. that does not mean something can't go wrong, but the fed is taking the markets reaction function into consideration. francine: why are they so nervous?

it has been telegraph for such a long time. so they gain credibility by doing what they need to do and not follow the market? russ: the good answer is that the fed is actually trying not to disrupt or unduly disrupt the markets. the thing that gives you more pause is is the fed overly worried about the markets due to the wealth affected the u.s.? we were talking about this the other day that u.s. household wealth has crossed $95 trillion. that is up from where it was in 2011. you think about an environment in which they're still significant people not participating the labor market, which growth is still slow, do we have an economy still unduly dependent? if there's a case, that makes sense why the fed is so concerned about the markets. if you disrupt that, you disrupt the wealth effect. tom: what's interesting is that you have a really interesting path to blackrock. great us this chart which is the idea of trend. we took out the dow and showed three moving averages. this is what i use every day.

i've never seen a chart like this. it is shockingly elegant, shockingly managed as well. it has a path for inertia force like i've never seen. state the case for the bears. i cannot get to it when i see a chart like that. russ: i think the case for the bear starts with valuation. there are two things to keep in mind. stocks in the u.s. are not cheap , certainly not as expensive as back in 2000, but the upper quartile of valuation range. that makes me worry does not that the stock market is so egregiously expensive. last 40 look back the or 50 years, there has never been a time when stocks and bonds have been this expensive at the same time. you think about the quarter cornerstone of most u.s. investors that they are exposed to both markets when they are evaluated extensively. francine: there's a line of

thought same paths of the level signifies something ugly could happen to the economy. has that correlation broken down? russ: bonds continue to be a fairly roo reliable equity risk. putting the reason you have these equity valuations is because interest rates remain where they are. you have this very delicate balancing act. softensconomy somethin coming not get the earnings as expected. it is sustaining was very nice balance that becomes difficult going forward. tom: jeff rosenberg will join us tomorrow. rosenberg have a cappuccino together, when you guys have a cup of coffee together, do you agree that these will be glide paths and we will be able to get out of this conundrum investment fashion or' steel for jump condition?

russ: a lot of things have to go right for things to remain smooth indefinitely. i mentioned valuations. valuations are not an effective short-term time at this point. the fact that bonds are expensive does not tell me much about the next quarter. what does tell me is that if i'm looking at long-term returns, i have to recalibrate my expectations for something very different in the last seven or eight years, which has been unusually smooth. tom: interesting. wonderful to have you with us today. we will do the fed show tomorrow. scarlet fu has been screaming for days at people to get some guests that will give us important perspective. i mentioned jeff rosenberg from blackrock and joining us is william gross from janice henderson. we are thrilled to bring you the linkage from janet yellen's world, the former vice chairman of the fed and founder of the congressional budget office. that is awesome.

that's 2:00 p.m. tomorrow. this is bloomberg. ♪

taylor: "bloomberg surveillance." this is "bloomberg surveillance. -- this "bloomberg surveillance." there's an acquisition in the plastic business. they have agreed to acquire and my long producer -- a nylon

producer. it's a milestone for norway sovereign fund. the norwegian fund hit $1 trillion in assets for the first time today. the fund has been driven by climbing stock markets and the weaker u.s. dollar. that is your bloomberg business flash. tom: thank you so much. right now, martin shanker is with us. let's get the yuan out of the way they quickly. are we surprised by the comments by the president? "the new york times" has a great photo. smiling guy -- guess who was not smiling? martin: he had a pretty somber tone. he is giving a pretty tough speech today, citing north korea threats as existential to world peace and calling on nations to get off the sidelines

and do something about it. francine: is this an america first diplomatic speech? it will probably try to do both things to put america's interest at the forefront, but he's also going to strike a global team in the sense that everybody has to unite against these threats of terrorism, north korea, and iran. tom: who does he represent in america when he speaks to these institutions like the u.n. and imf and others? who does president trump represent in america. marty: himself. tom: he doesn't represent his constituents? marty: i really wonder if his constituents recognize globalism and how interconnected the world is. they really believe in donald trump. in a sense they do, but intellectually i don't believe they are there. tom: you and kevin's really have to be overwhelmed by the news flow the last one of four hours in washington. i have to believe every free moment that the president is wound up in these distractions

with mr. mueller or mr. manna afort. it's not even watergate. it's different than watergate. marty: it is. i think the times used this analogy and we have used it before. it is more like an organized crime investigation rather than a political one. mueller has made it clear that he wants answers and he wants the truth. ,his kind of shock and horror if that strikes fear in the it is of washington, then a thing that will help them get the evidence he needs. i've lost count how may times republican lawmakers have try to repeal the affordable care act. are they going to succeed this time? marty: they are dispatching mike pence. he is pulling out of the lead for part of the day to return to washington to try to garner support. i don't think they are going to get there and it's actually not

a great thing to make this last-ditch attempt and fail again, but it's going to be very difficult. tom: i want you to explain why "a new york times" is eating at a blt steak house. you are at the palm on 19 street. not that i would know where the palm is. have you ever sat in a restaurant with your experience in washington or new york and listened to somebody blathering that should not be blathering? marty: bosa the time people realize you should not be doing that in a public place. it was quite extraordinary that speak to doors away from "the new york times" so openly. tom: what are they doing out of blt steak house? marty: $28 hamburgers. tom: marty shanker, thank you so much.

many times eat that a blt steak house and at the palm as well. where is the budget going? you are former director of the cbo. the vice chairman will join us tomorrow on the fed show. are we going to 6%-7% deficit to gdp? >> we are on track to get over 5% the next years if we stay on autopilot and the looks like we will have another chilean dollars in a tax bill. we could easily get there if we do not get changes. tom: are these rockefeller republicans? is this even more than nelson rockefeller and we will get more than 7% and the entire dialogue changes? doug: i think we have a big division we were public and party. -- in the republican party. the present is not interested in anything that is the traditional conservative agenda.

you have traditional conservatives in the house and senate who don't want that but what to pass cuts. there's only one way to go and that is south. francine: are we seeing a softening of tone? doug: i would not call it a softening of tone. the president is looking for allies on any particular deal anyway he can get them. he will do a tactical delay in the debt limit with democrats, but on big things, they will be constrained by their base and not give a victory to president trump. francine: what's the most dangerous part of the policy or negotiations that you see for the american people? doug: the dangerous part would be to get a big hole in the deficit but not good tax policy as a result. you don't get a lot of growth in the make the situation worse and who we are in the year or to try to fix the deficit problem. tom: in a year or two, but you know the cycles are longer. there's no question about that.

debt cycle out to 7% to gdp, you don't fix that in congressional terms, do you? doug: no, the real casualty of the whole health care debacle has been the budget. that was an effort that was going to reform to major entitlement programs. that is absolutely necessary the long-term. people don't like to talk about it. you put that off and now you have got another three or four years before you take a look at it and it all gets harder. francine: when you look at the hurricane devastation, how does that change? i don't know if it's the language or where the money is being put to. doug: the fiscal consequences of these disasters are the big picture not really consequential. i think the real loss here is human life and property. this is a tragedy for individuals.

we have had big disasters. superstorm sandy, hurricane katrina down in new orleans and neither turned out to be a big microeconomic event. you don't get recessions out of these things but anything but property loss in human tragedy. francine: doug, thank you for joining us. coming up tomorrow, we're live from the bloomberg global business forum. we speak with a manual, bill clinton, and apple ceo tim cook. this is bloomberg. ♪

tom: "bloomberg surveillance." nobody does charts like we do charts. storming on the deficit moments ago. douglas holtz eakin telling us about a 6%-7% deficit to gdp. russes with us from blackrock. investors -- the vectors in the right direction. russ: the bond market sickly doesn't care. tom: why? russ: the bond market is looking at the experience of other countries like japan where the overall growth status is more than twice what it is in the u.s. they are seeing a was zero for tenure rates -- almost a zero for 10 year rates. the theory is that as long as long-term growth stays muted and

nominal gdp stays muted, you're not going to overly worry about the deficit from our. for now. francine: unless something happens. what is that something? russ: is a little a circular argument. the bond market has the force the government. if you look at the case for reform the last .5 years, canada, sweden, ireland, all of which went through a fiscal crisis. none of them went through reform until their hand was forced. the bond market is not fulfilling that role. tom: 3% 2019. nearigilantes are nowhere the dot plots are they. like they've come back to years. the: they have decided that fed is aggressive in their forecast and they will fade the fed. no one is perfectly worried about inflation or breakevens.

tom: would you acquire bonds this morning? kenny by bonds this morning for buykey part -- can you bonds this morning for the coupon? russ: that is the one thing they are still doing reliably well. tom: russ, thank you so much. francine: we will get back with russ from blackrock. coming back tomorrow, we are at the bloomberg global business forum. the be speaking to martin sorrell's and david rubenstein of the carlyle group. that is 11:00 a.m. in ne london and 6:00 a.m. in new york. this is bloomberg. ♪

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♪\ surveillance, francine lacqua and tom keene. let's get to first word news. here is taylor riggs. taylor: caribbean islands are bracing to be hit by hurricane. maria has once again become a powerful category five storm. it is already caused widespread damage to the island of dominica. the hurricane is now headed towards the u.s. and british virgin islands and puerto rico. a secret court order authorized a wiretap of trump campaign manager before and after the election. that is according to cnn. concernstions led to of russians involved in the election with paul manafort. sources have told amanpour he will be indicted. john mccain may be the deciding

factor as republicans try a last effort to repeal obamacare. mccain says as of now he is not backing the bill. republicans have until the end of the month to pass the bill or it could be subject to democratic filibuster. congress raised objections to the sale after incident in washington last may. 15 turkish security officers were indicted for attacking protesters during the turkey presidents visit. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i had taylor riggs. this is bloomberg. francine: thank you. the brexit row deepens after boris johnson gave an interview where he openly discusses leaving office. theresa may called a special cabinet meeting on thursday.

she is expected to deliver a key speech in florence. with get to all of this our u.k. politics reporter. i'm so confused. boris johnson is against a prime minister, but he is not, she he comes upm, now saying he will not be resigned but will be relieved if he leaves office. >> this is a not-so-subtle game of political maneuvering. she cannot sack him. in thehad one a majority election, i don't think boris johnson would be foreign secretary. this is a fragile government. it is hanging by a thread. it is carrying on. theresa may is trying her best to keep this show on the road. it takes very little for the ole effort to be rattled. boris johnson's vision is not

envision that unites the cabinet. he has a lot of supporters from backbenchers that were really pro-brexit, but does he have any support within the british public? >> i would argue he has quite a lot of support with some of the british public. what his support within the tory party is remains doubtful. i have spoken to sources, and it seems his space has waned. this is him trying to appeal to the hardline brexiteers in the tory party. there are certainly a lot of tories who feel as if there has been too much maneuvering and are quite scared that this maneuvering may cause another election, which jeremy corbyn could win. francine: do you think theresa may can actually sack boris

johnson? this unique to change her speech in florence to reflect a harder brexit -- does she need to change her speech in florence to reflect a harder brexit? what borist write johnson did without preparation and strategy behind it. he clearly has some backing in the cabinet. himaw some sort of support publicly. i think this will expose the tensions within the cabinet, and him speaking out is going to bring him to the fore. i have heard what she is going to say in this speech is up in the air. tom: health our global audience and the ugly american with something i am intrigued by, which is this chart. this is negative wage growth off of brexit. brexit in this vicinity, down we go.

is, actually? who within this mixture of people is talking about negative wage growth or the elites of london wining and dining, do they not care? >> i think this is the corbyn effect. managed toyn has rally a lot of the anti-austerity, inequality voices behind him. to beis certainly going an effort to make the most of it. i think the concern within the conservative party is there is so much infighting there is a fear they lose sight of the bigger picture. soughte in june, which theresa may lose the majority, was not so much about brexit, it was also because a lot of people in britain feel this government is not addressing negative wage no oneor the fact that

can get on the housing ladder. tom: let's take it one step further. we have tony blair coming on at 7:00. blair-brown contrast with a new guy in labor. >> this is a completely different vision in politics. corbyn is bringing it back to the 1970's. it is proper socialism if you like. people are very tired of the which theyron era, see as the elite center ruling the political ground. i think corbyn, for many people, although this is a man in his 60's, is offering a fresh vision, what people see as a fresh vision in politics, and it is dangerous for theresa may. francine: thank you. let's get back to black rock

global allocation manager, people think the u.k. has gone nuts at the moment because they cannot figure out what they want out of brexit, and it is this internal machinations of politics and party. >> i think soanya nailed it, which is the fact that six months ago no one took jeremy corbyn seriously. the election suggested, as we have seen in other countries, there is support on the hard left and hard right that was not there two or three years ago. that is a different dynamic and how this might have played out in 2005. tom: that is so important. we look to hear from dr. mohamed el-erian who is watching. ofments on the finance politics we see. is the populism wave over? when you look at geopolitics and bring it into your world, is there less angst about populism?

>> there has been some temporary relief. a lot of that was centered on the french election. that has pushed the euro rally. gone?s the macron effect is the populism and revolution gone? francine: let's remember 25% of the people voted for extreme right or extreme left parties. to think he could unite the country in three months is a little wishful thinking. we will get back to that end talking about politics. a great interview coming up. let's get to bloomberg daybreak with david westin, alix steel, jonathan ferro. you have a former prime minister to talk to. jonathan: we do. we are going to lean on him for the inner workings of the un's security council and how best to deal with nuclear north korea and how to deal with an unruly

cabinet member. tony blair famously refused to sack mr. brown. whether theresa may should sack boris johnson is a discussion for us as we navigate brexit. tom: thank you. greatly appreciate it this morning. an important and timely interview. bloomberg daybreak, they really go for what happened overnight. you need to wake up to bloomberg daybreak, their important conversation. francine lacqua and tom keene in new york. stay with us. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." let's get to the bloomberg business flash.

equifax learned about a major breach of its data five months before it the day publicly that knowledge. they have said the bridge in march was not related to the one that exposed data for 143 million americans. one person familiar with the matter said the breaches involved the same hacker. approved foren treating lung disease. glaxo.uld help sales for selling $3 billion worth of sales in heineken, this will allow the selling company to take advantage of favorable tax law in mexico. tom: shot out to our team. it is not just me and francine

and david gura. we have a team of 30 to 50 people, 60 or 70 people excuse me. surveillance correction coming up soon. it has been a wild week. record stockg at a market. let me go to a chart right now that i think is critical. this massive divide between cleveland cpi, my favorite, service sector cpi up by cleveland in this shocking picture of goods inflation. i'm going to put this chart out. this is maybe my chart of the year. goods inflation is not only deflation, but the vector is down. is it technology? how do you synthesize this? you cannot blame it on just amazon. >> it is not just amazon. it is technology. this is important because what it points to is the growing heterogeneity of inflation.

we tried to boil this down to one number. that number encapsulates less information than it did 10 or 20 years ago when he did not get this divergence between goods and services. tom: i look at heterogeneity, i can pronounce that. heterogeneity. there it is. heterogeneity. about -- janete yellen doesn't care about heterogeneity. she cares about the politics in washington. how does this fit into her decision? >> it makes her job harder. that in particular makes it more ambiguous to talk about inflation when that one number is not encapsulate inflation as well as it did, and there are these countervailing forces. you have got cyclical factors, which should be pushing it up, but structural factors are bringing it down.

tom: did you know originating is 14th-century latin? francine: it is probably 12th-century, the we don't have the manuscripts. there is concern about how you measure inflation in this new world. i don't know if it is a benchmark or if we need to stop worrying about 2% inflation in bringing it to 1.6% or 1.7%. >> one thing, how orthodox you want to be about that 2% inflation, maybe if you cannot measure that accurately, this should be taken into consideration. another critical point, the notion of no blueprint. not only is there not any blueprint about how to deal with beverages -- divergence in inflation, but there is no blueprint on how you unwind a $2.5 trillion balance sheet. francine: what does this entail, is at the balance sheet unwinding or hiking too soon? >> right now hiking too soon given the fact that you don't

have this inflation rate pressure. having said that, long-term there is this question about what is going to happen as you try to normalize monetary policy. that is something they are very concerned about because there is no playbook. tom: thank you so much. this has been brilliant. i am going to steal about three ideas from you. he will continue with us on bloomberg radio. how about tv , brilliant on this correlation of bonds, housewife they are -- how tight they are. as always you can click on a previous idea and steal our deficit to gdp chart. stay with us. this is bloomberg. ♪

♪ tom: "bloomberg surveillance." relieved that toys "r" us after years and years of struggle, way back, merchandising struggle, technology struggle, finally amazon struggle, toys "r" us

finally down for the count. no other symbol then toys "r" us not selling enough barbies this morning. bloomberg surveillance from new york. bloomberg global forum tomorrow with a lot of important guests there. former prime minister tony blair will be with us in the next hour. a wonderful chart today, 12.2% of the audience knew who ann and nancy were. it was an extraordinary event for women, and it was chronicled nowhere better than rolling stone magazine. porter bibb invented rolling stone. i am on a to have you with us today. porter: let me correct you. jann winter invented rolling stone.

i did was keep it alive. tom: don't give me that. you were involved with hunter thompson. out of louisville, you come to new york and to the yale and harvard thing. you are having a cup of coffee with this guy, how does this get started? porter: it is a complicated story. i was working with the meisel brothers. we were shooting news clips on college campuses, which were dicey and dangerous for the professional news crews because the kids were throwing rocks and bottles. we kept ourselves alive during that. in my travels, i was at berkeley, and i ran into this young guy who had just started rolling stone. we stayed in touch. over the next couple years, i tried to put together something that ultimately became saturday night live, but it was the rolling stone hour.

when they said i want a pilot, aid, i have a cash flow problem. tom: within that was a culture, and i think our older audience understands that language of politics and music and industry, that has evacuated. -- evaporated. can it be rekindled? sell a this decision to controlling interest in rolling stone is not the end, but it is a new beginning. the media industry has radically changed, as you know. rolling stone is an iconic brand that has really never realized its global potential. and jan'sner 28-year-old son will take us to new heights. tom: i am going to push this back a little bit. iconic is not good for your financial health now.

any number of properties are going for the proverbial one dollar. the new york daily news. iconic is a dangerous world. if you don'tn be have vision. son, he hasres unlimited funds. the already has a very serious -- he already has a very serious enterprise attacking the largest market in the world. from another time, i am trying to get them to listen to michelle branch, breathe, that is something ancient. good morning, miss branch, you are not ancient. the new industry, do they want the new rolling stone? porter: we're talking about a multibillion audience that has

never had the opportunity to express itself and enjoy. tom: do they want to be a music audience? i don't see it. do you? porter: absolutely. i think it will be a huge no opportunity for rolling stone and the new owners. tom: is this a digital only product, or do we see the image, of course the classic image of john yen -- john lennon with your gonna? porter: rolling stone only has a couple hundred thousand print copies now, but they had 60 million digital visitors coming to the rolling stone website. that is where the future lies. tom: why can't this be bought up by someone with a vision of a major company who can say this is a project, we will do this? beould think mr. bezos would a good choice. porter: it could be.

he is doing great with the washington post. and the 20e cassini photos in the post, they do excellent. what is your vision of excellent acquire rolling stone? porter: my vision is despite what potus is saying, globalization is going to reduce success. rolling stone is primed to take advantage of a multibillion audience market that is untouched now. tom: this is great. glen campbell, what a loss. porter: yes. tom: porter bibb on when campbell and rolling stone. let me talk to you about the next few days on bloomberg news and "bloomberg surveillance," we have a terrific lineup. let me go through some of our bloomberg global business forum. mr. macron, president clinton,

and mr. cook of apple are just a gloss of some of the excellence you will see tomorrow. as well you will hear from governor kaine, martin sorrell. looking forward to that as well. looking forward to that in new york. over to the plaza hotel. michael mckee at the press conference in washington. the fed decides. thrilled that you are with us. it is a new york waking up to the lumber global business forum ♪

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jonathan: the present of the united states is poised to call on world leaders for north korea and iran. the federal reserve against its two day meeting. the financial community looks relaxed. another retail victim, toys "r" us files for bankruptcy. bloomberg, to our viewers worldwide, good morning. i'm jonathan ferro alongside david westin and alix steel. stocks closing yesterday's session for two days of all-time highs. futures are up 0.1%. with ay cash a bid single basis point on the 10-year. 2.22 is your yield. alix: it is a sleepy market except for oil. the dax still down 0.1%. the