>> time to unwind. the fed is expected to announce the start date for unwinding its massive balance sheet later. trump's u.n. challenge. the american leader threatens to totally destroy north korea. how did that go down with the rest of the world? and confidence among small british firms. an employer slump as brexit uncertainty deepens. we get the latest u.k. sales numbers. i'm nejra cehic in london. let's get straight to the markets.

european going on in equities today. pray much unchanged on the stoxx index, ever so slightly higher, hitting a record high in this session. sterling, bucking the trend a little bit as other currencies are treading water. the euro hit the 1.20 handle in this session. 1.999, and the 10 year yield, down one basis point ahead of the fed decision and janet yellen's press conference. let's get the bloomberg first word news. 7.2 magnitude earthquake has struck mexican city. it is the country's second major quake this month and came on the anniversary of the earthquake in 1985. this temporarily closed the airports and halted trading on the mexican stock exchange. it plans to open tomorrow.

hurricane maria has strengthened to a category five storm again with top winds reaching, 175 miles per hour, causing at least six deaths on the island of dominica. warnednt trump has north korea of military action. the arab nations are looking at ways to remove the regime. trump is said to have told them that any military action would trigger action over the middle east that would only benefit tehran. secretary discussed the possibility of life after the office. a person familiar with the matter said he will now attend may's speech on friday about exiting the eu. video has emerged showing a russian helicopter firing a missile towards a group of people during a military exercise. a person from the russian

defense ministry said three people were injured in the accident, which happened in leningrad on saturday. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm sebastian salek and this is bloomberg. nejra: thanks. will the federal reserve raise rates again this year? that is one of the big questions investors are up and policymakers will clarify. officials are widely expected to leave rates unchanged as they announced the start date for the unwinding of the balance sheet. petercha w our chatwell and peter toogood. great to have you. let me start with you, peter chat well. it is a highly anticipated

meeting. what specifically in this meeting is likely to move markets most, do you think? reductionance sheet will be so mild when it actually happens. i don't think that should be the mover. what i think is going to be moving the market is that i expect the fed to reappraise the inflation risks. this could become less uncertain and therefore, a bit more hawkish. i think this will translate into the market repricing expectations of hikes in 2018. that is what will have an impact on the treasury curve. nejra: i will come back to your thoughts on the, but i want to showinghis chart, 10 year treasury yields have gone up in bond buying and come down when the unwind has happened to some extent. obviously not in the way it will happen now. peter too good, what does that

mean for yields? >> inflation has been weirdly constructive. you can come up with a lot of ideas as to why this has happened. it is quite sticky in the u.s. too. the fed will get more hawkish, because it has to. the dotplot is an illusion. in this country and the u.s. we are at full employment. take it at face value. there is evidence we are getting more inflation. issit here as though this not something they need to tdo something about. the point is, they know they need to do this, if nothing else, for the next hike. nejra: so, talking about the reaction function then, you are both on the same page in terms

of attorney more hawkish. peter chatwell, what does this mean for term premium? >> it should mean term premium gets a significant boost. the inflation component is not significant. what is significant is the real rates significant. the market expectation of the volatility around fed funds has dramatically declined. it is almost retraced all of the rises it got after donald trump's election. we don't think that is right because there are a number of factors that have improved since then, but most recently, the dollar's weakening will be stimulative going forward. it will stimulate the manufacturing sector, it is going to make the economy more competitive and i think that is being mispriced by the interest rate curve. that is where there is potential for a move. it will push long-term interest rates higher, but most importantly, most of the

volatility will be about the five-year part of the curve, and that will be under significant upward pressure. nejra: which part of the curve looks cheap to you? >> cheap is difficult to find. [laughter] >> i would suggest on the rates curve, still there will be some opportunities to buy. i think what we are going to see is investors shortening the duration and becoming more concerned about duration in the u.s. market. but where there is opportunity to be selling i think is in the five year. at the moment, it's trading negatively. you'd expected to trade negatively when there -- essentially, this is a benign rates environment. you have got investors buying that sector of the curve for role and carry. this is a new environment when we look at the curve shocked,

when realized volatility will increase, pushing the rates curve up. but it should mean the five-year part of the curve suffers most. nejra: peter toogood, briefly, what does this mean for equities? the second-longest bull run in history for the s&p 500. could it become the longest? move.s a breathtaking most people are in bond fraud proxies. we have all the benefits. it's not real, never has been. if this is the real world we are looking at, where rates are rising, it is going to be a shock to the system. it is an unpleasant shock. i'm not suggesting we go on a massive rates rising them, but we don't have to wear the yield is starting. -- we don't have to where the

yield is starting. that is why energy is trading at virtually 30 year lows. the real economy is very lowly valued compared to the financial momentum economy. people should be focusing on the real economy and their focused on the bond proxy economy. nejra: should they be focused on value? >> that's the truth. if you have somebody looking at relative value, iyou have to $10. oil is that is quite a start. plus, it is $50, not $10. we have a lot of anomalies. everyone thinks the rea l economy is rightly position. nejra: peter chatwell and peter toogood stay with us.

donald trump uses his first address to the u.n. general assembly to take aim at north korea's rocketman. how will the world react to the latest rhetoric? investors keep a close eye on yuan movements after a series of weaker than expected fixed income numbers from china. this is bloomberg. ♪ nejra: let's get the bloomberg

business flash with sebastian salek. reporter: a memorandum of understanding was signed for a 50-50 joint venture. the new company will have 48,000

members and the headquarters will be in the nederland. according to a person familiar with the matter, the consortium includes backing from apple and dell. the iphone maker played a crucial role. deutsche bank might be beyond repair. unless there is a miracle bloom at this once mighty bond trading business. according to economist research, the currency market foundation cannot be counted on. behinde bank is well global rivals, such as jpmorgan. the scandal has tarnished its image. facebook officials will attend a public hearing on russia's alleged use of social media to interfere with the presidential election. the committee chairman says the california-based company has been less than forthcoming on

how facebook would have been used to metal in the election. thesed to meedlddle in election. nejra: donald trump has threatened to destroy north korea in his first speech to the general assembly. he vowed to crush what he called loser terrorists in the middle east and responded to missile tests in pyongyang. donald trump: rocket man is on a suicide mission for himself and for his regime. the united states is ready, willing and able, but hopefully, this will not be necessary. nejra: let's get more with our u.s. congress reporter kathleen hunter. peter chatwell from mizuho and peter toogood from embark are still with us. kathleen, what was the reaction from washington because i was

getting the feeling that though globally there might have been a little shock, washington thought it was unusual. kathleen: i think folks who have watched trump this last year from washington were not that surprised. the script was certainly bombastic and had some colorful language in it. but it definitely -- he did not go off script like he did in the arizona speech last month, when he went on and on about charlottesville in that case and did not talk about the topic he was there to talk about for the first 2/3 of the speech. i think there was a shrug reaction in washington. people were certainly interested in what he had to say and the korea rhetoric got a lot of attention on twitter, but people were not surprised about the tone. nejra: over the next week or few weeks, this beach was obviously important for diplomacy, but tot will be focuthe focus turnd

now? kathleen: the focus in washington is on tax reform. we did see a deal yesterday among some senate republicans -- a tentative deal for a budget that would allow $1.5 trillion in tax cuts. that is a significant development because it is a departure from the republican's past position, naming that tax reform would need to be debt neutral. that went under the radar yesterday, given that the focus has been on the meetings in new york and the u.n. general assembly. there is move on the domestic front. nejra: peter chatwell, how much does all of this matter for the dollar going forward? or will the dollar traded focusing on other things, like europe? >> there are two points, i suppose. firstly, there is a lot of potential that is almost being

unlocked from the u.s. economy from some of these moves. we got less geopolitical risk now that there is evidence north korea has nuclear capabilities. we've got the potential being made on the tax reform side. it is not enormous, but it is a positive move. is goingink that this to translate into, essentially, a selloff for u.s. assets, because it means the fed can move more aggressively on tightening monetary policy. it is something that dollar t raders should be taking into account. what is more important for the dollar at the moment is the strength of the euro area. trade weighted for the dollar, non-u.s. factors are more significant for the trajectory of the dollar than the u.s. factors are. toogood, 2018, peter how much do you think

geopolitical risks are going to factor in there for investors, versus central bank policy? >> he lobs another missile across japan and the market barely blinks. thank congress because it stops donald trump from doing anything that seems too excessive. tax cuts will have to remain neutral, which implies the spending cuts. there could be agreement to get that through, but let's see who will agree to it. they would be substantial a and interesting and different. shortages, there are material shortages. there are problems in the u.s. think there would be implications for rate rises. fiscal spending is not a smart idea normally. nejra: u.s. congress reporter

kathleen hunter and peter chatwell and peter toogood stay with us. up next, the yuan is in the spotlight as investors look to the people's bank of china for signals. this is bloomberg. ♪ nejra: you are watching

"bloomberg surveillance." i'm nejra cehic in london. the yuan is back in the spotlight. the moves come after a year that

saw the chinese currency strengthen against the dollar. currency strategists and economists see the fixes are chinese traders concerned. still with us are peter chatwell and peter toogood. peter toogood, we have a chart showing yuan moves more consistently with the fixing since the 2015 devaluation. how closely do you watch those fixings, in terms of where the yuan should be? >> i still refer to the capital controls. that made a significant difference to the capital p light. from what i can see, there is a big import problem. chinese consumers have been buzzing away again. there is a credit boom going on. theink they could lose

monetary policy, they are loosening again. fiscal deficits, expanding again. the party congress, coming up again. they are slightly easing monetary policy again. nejra: in terms of the tolerance for yuan strength, peter chatwell, where do you see that? >> the precise level, i think you can see on this chart that there does appear to be an importance at that level. you can see as the yuan had been strengthening, the fx reserves, the positioning treasuries that china is holding have increased. be a bit of a to move to stabilize the currency and prevented from getting too strong. quickly,race that move we got the potential for some of , they could bes

sold back into the market. reaso -- another there is another reason, if the dollar continues to recover from here, we could get treasuries selling off from here starting to tighten financial conditions in the u.s. more than is currently being priced. nejra: thank you to peter chatwell and peter toogood. they stay with us. up next, boris backs down ahead of the prime minister's speech. can she restart brexit talks and move on to a trade deal? sterling is a little bit higher in today's session, bucking the trend of currencies treading water. sterling, up 0.2%. the msci all country world index, setting a record high. we have seen european stocks tread water. you can see sterling there.

the euro, back above 1.20, up 0.1%. 10 year treasury yields up ahead of the fomc decision and janet yellen's conference. lots more coming up in the show. we will be talking brexit with peter chatwell and peter toogood. this is bloomberg. ♪

so we need tablets installed... with the menu app ready to roll. in 12 weeks. yeah. ♪ ♪ the world of fast food is being changed by faster networks. ♪ ♪ data, applications, customer experience. ♪ ♪ which is why comcast business delivers consistent network performance and speed across all your locations. fast connections everywhere. that's how you outmaneuver. nejra: you are watching "bloomberg surveillance." i'm nejra cehic. here's sebastian salek. sebastian: a 7.2 magnitude earthquake struck mexico city,

killing at least 216 people. ofcame on the anniversary one that killed 5000 people. they temporary closed the export, halted the metro, and closed the stock exchange. in the caribbean, hurricane maria has strengthened to a category five storm. its wins have reached 175 miles per hour and caused at least six deaths. it is now headed to puerto rico. deniednt trump has warning saudi arabia and the uae offered military action against qatar. people familiar with the discussions said the arab nations were looking at ways to remove the qatari regime. trump is said to have told them that any military action would trigger a crisis across the middle east. the u.k. foreign secretary has backed away from his threat to quit the government over theresa may's brexit strategy.

a day after boris johnson discussed the possibility of life after office, -- [indiscernible] video has emerged showing a russian helicopter firing a missile towards a group of people during a military exercise. three people were injured in the

>> they are extremely important for the overall level of gdp to the economy. if they are spending, that is good, but what are they buying these goods with? it is probably more leverage.

i think that makes it difficult for monetary tightening to have much potential. we've already seen the bank of england tighten their cyclical buffers. lenders have to allocate more capital against the lending they do to the consumer, to the real economy, more broadly. the bank feels there's a risk it is getting overextended. if they tighten monetary policy, my concern would be that it turned out to be too much for the consumer to handle, could cause an economic contraction, which would be more severe than the bank of england is intending. this does make it difficult. we are getting such a reaction in sterling area looking at cable, that is going to be tightening financial conditions. if there was an upside to brexit, it depreciated currency a lot and generates more competitive conditions for the

manufacturing sector. benefitarts to lose the of that depreciation of sterling, then i think the hopes for rebalancing will start to fade as well. you will just be relying on the consumer and the service sector. in the service sector is burdened by the uncertainty of brexit. nejra: peter toogood, has the rights market priced what the boe is going to do? peter t.: it is very difficult to actually be sure about that. wolf a few times on it. you don't really know. the minutes of the meeting are clearly more than dovish. as a practical observation, it looks more likely we tighten than loosen. it is as spending, flatlining around something

above zero. it is not dynamic. but we are a relatively mature economy. we are deeply in debt. something isn't right. going, fine, but you are creating conditions for another downturn. we are not far off now. it doesn't mean there's a magic number, but it does mean one should start worrying. if you combine that with inflation, you have an unpleasant mix. nejra: speaking of an unpleasant bring inect time to brexit and everything going on around that. peter chatwell, i know you are dying to talk about it. what is more important for sterling? is it theresa may or boris? peter c.: theresa may. out ofs going to come this speech and say that we are

willing to pay a bill of 20 thinkn sterling, i don't that is going to be well-received by the european union. we are having difficulty making progress in negotiations. this should highlight the risks that for us to deliver anything on brexit, it either has to be a very soft brexit involving paying a lot to the e.u., or the cliff edge. i don't think there is mandate to deliver the cliff edge. i don't think politically it is possible to the deliver the cliff edge. all we can move towards is a soft brexit, which is going to involve paying a lot more into the e.u. budget, and is going to become politically more difficult to deliver going forward. nejra: thank you so much peter chatwell. and peter toogood, chief

investment officer at embark group. up next, we hear from the man nicknamed bitcoin jesus and why he thinks the currency is set for a split. this is bloomberg. ♪

nejra: you are watching "bloomberg surveillance." by nejra cehic. let's give you a quick recap on those retail sales out of the u.k. it was a strong beat month on month and year on year, including auto and excluding. sterling spiking 0.6%. 1.3587. the u.k. 10-year yield up one basis point. that is the ftse 100 weaker a 0.3%. airbus has launched its first

wide-body jet facility outside europe in tianjin near beijing. it puts the company in a strong position to chase potential orders from a market that is forecast to become the world's biggest within a decade. tom mackenzie caught up with the ceo and president of airbus, and asked about the pivot to china. >> it is the second big investment. in 2008, we opened the assembly line. since then, our market share moved from about 20% to 50%. there is a direct connection between your investments, your capability to demonstrate that you care about chinese industry, and your market access. we have to do that with product. see this investment we have ordernd we have got an for 75 a330's.

>> and it is the narrow body that will be popular for chinese airlines. there is of course this crunch when it comes to slots at the airport. does that mean the wide-body planes are going to see greater demand? are you seeing evidence of that? >> absolutely. the market will continue to grow, but there is a limit linked to the slots availability. progressively, the chinese allies will have to operate bigger aircraft, including for the domestic market. the international traffic from china or to china is growing at 20%, 30% per year. i think it is the right time to invest. a sense of the order numbers you might be seeing by the end of the year. where are you going to be positioned by the end of the year? >> difficult to know.

the mechanisms are a bit different. which wereaircraft blessed by the chinese authorities when the president of china visited germany. the timing might be different, but the trend is that china needs 6000 new aircraft for the next 20 years, and we expect to get 50% of this market share, and we will grow to the chinese customers. >> you may see demand for as 's.y as 60, more than 60 a380 have you had conversations with your clients? have you got orders lined up? >> it will take a little more time, but i'm convinced that a country like china will create big airports internationally and a280.ill need the

the potential is much beyond what dubai managed to do. at the end of the month, we will deliver 100 a380 to emirates. >> nejra: that was nejra: tom mackenzie speaking to the airbus ceo in china. the chief executive officer of bitcoin.com, a man dubbed bitcoin jesus, says he thinks there will be another splintering. roger ver told bloomberg's stephen engle that china's crackdown will have little effect. roger: probably another split. from my point of view, that just gives me more coins that i can sell for the bitcoin cash version. it has limited supply, but you can move it faster and cheaper than the other ones. i'm a fan of bitcoin cash. >> where our prices heading? september 1, it hit a record. dipped back down after this china ban.

roger: i've been involved in bitcoin for about seven years now. the volatility today is much less than it used to be. bitcoin would go from two dollars to $10, back down to three dollars in the course of a couple hours. the percentage swings we are seeing today compared to the traditional markets, that is huge, but if you've been in bitcoin in a while, that is nothing. >> where will it be in 80 years? roger: the trend is up. if you can send and receive and you don't have to beg for permission, and you have traditional legacy forms, where you have to ask politicians, it is clear which one people are going to start to use. >> when is the network effect going to kick in, when you get the large enterprises and it has critical mass which will probably tame some of that volatility and spike gains and price drops?

where is the real critical mass application going to be? roger: i think the critical mass application is money. the bigger the market cap is, the smaller the volatility will be. we are still a few years away from that, but it is coming. >> one year from now, the price is? roger: at least double. nejra: that was the chief executive officer of bitcoin.com speaking to bloomberg's stephen engle. more "surveillance" coming up. this is bloomberg. ♪

nejra: you are watching "bloomberg surveillance." i'm nejra cehic. let's check on the markets. european stocks kind of treading water. the msci index up by 0.2%. it hit a record high in this session. we've seen sterling spike following retail sales data out of the u.k. 1.3583 is where we are on cable. the euro holding above 1.20.

the 10-year treasury yield down one basis point ahead of the fomc decision and janet yellen's press conference. here's sebastian salek. sebastian: thyssenkrupp and carter have signed a memorandum of understanding for a joint venture. the new company will have about 48,000 employees and be headquartered in the netherlands. chievo's board has agreed to sell its flash memory unit. according to a person familiar tter, theya say the iphone maker made a crucial offer. fallen to the lowest level since the aftermath of the brexit vote. that is according to two separate surveys. rising labor costs, taxation, and rent are driving up costs. firms areound that concerned about filling vacancies in the future.

deutsche bank is being described as beyond repair and needing a miracle to recover. research says the faltering fixed income and currency operations could no longer be counted on to drive earnings. it is reckoned that more than a decade of underinvestment has left the job lagging behind rivals. scandals have tarnished its image. into tax has missed analyst estimates. 9%rating profit rose about to 1.7 4 billion euros. the strong euro eroded the value of clothing sales from abroad. the senate intelligence committee expects facebook officials to be called to a public hearing on russia's alleged use of social media to influence the presidential election. facebook has admitted to taking ad spending connected to fake accounts probably run from russia. the chairman says the company has been less than forthcoming on how that could have been used in the election.

that is the bloomberg business flash. nejra: this is what you should be watching today. u.s. secretary of state rex tillerson meets his iranian counterpart and the foreign ministers of the five other countries that worked on the nuclear deal. at 7:00 u.k. time, the federal reserve do to make its policy announcement. later, janet yellen will hold a news conference. michael bloomberg, the founder and majority of bloomberg lp, the parent company of bloomberg news, says the increasing pace of automation and artificial intelligence is presenting the world with many challenges, including how to make sure everyone has a job. he spoke to francine lacqua in new york. >> we are replacing human beings with ai, robots, whatever the euphemism is. hard to see that stopping. the public doesn't want it to stop because it gives the public

better quality products at lower prices quicker. the trouble is, we have income inequality, which you can fix by taxing the rich and giving to the poor. it is the top 20% that pays virtually all the taxes. the problem is, people want the dignity of a job. they want to have the satisfaction of being able to support their families. how you create jobs for people downstream, if you will, where automation is easier to implement, that is the great challenge. there's no easy answer. to say, we will teach everybody coding, it makes no sense whatsoever. coding is going to be automated if it is at a level where uri can learn how to code. that is going to be automated. if it is the level of some of the engineers that work at bloomberg and other companies, where they were winning national competitions at age six, that is

different. those people will have a job for a long time. francine: do you retrain people? >> that is the conundrum. to do some of the top level things that i talked about, you and i, almost everybody else, we don't have the brainpower. you can't retrain them to do that. one of the things bloomberg philanthropy is working on is trying to retrain coal miners. they can become installers for solar panels, or they can become carpenters. there's a lot of things they can do. coal miners had a physical job. they are strong. a lot of them have lung problems and that is a real problem. we talk about the dangers of pollution. people that work in a coal mine, in west virginia or wyoming, they have worse health then uri do.

climate change and the environmental stuff is even more important for them. francine: when you talk about innovation and technology, do you think the next 10 years will bring the same amount of change? >> all the estimates are that you will see more new technology in the next 10 years than from thomas edison to today. think about that. let's assume they are off by 50% , 70%, so what? still an enormous change. you don't notice the change every day. it is outrageous, my iphone only had 10 gigabytes of upload capacity. we didn't have cell phones 20 years ago. of the stuffe any that we take for granted. you don't notice the change. most of the change is presented in a way you are comfortable with. you still have your phone. you still hit a few buttons. it just does more. but you don't have to learn much more.

that is when technology gets adopted easily. nejra: let's take a look at the markets now. quick check across the assets, starting with equities. we are seeing european equities trading water. the ftse 100 pretty much flat after u.k. retail sales data not taking a jump. perhaps stronger sterling having something to do with that. the dax higher by 0.2%. the 10-year yield unchanged now at 1.33%. brent crude higher as well, along with wti, after inventories, expectations, and moving on quickly to look at the fx markets, we are seeing a stronger sterling. spiking after that retail sales beat. 1.20, up 0.1%bove against the dollar. 111.35,en,

strengthening yen. the dollar also weaker against the yuan. the yuan strengthening after some weakness yesterday. 6.5745. "bloomberg surveillance" continues in the next hour. francine lacqua and tom keene are in new york. they will be speaking to michael fuchs and former bank of england have and. this is bloomberg. ♪

nejra: the fed is expected to announce a starte date for

unwinding the balance sheet. the american president vowed to destroy north korea in his first address to the general assembly. how did that go down with the rest of the world? and hundreds die as a 7.2 magnitude earthquake struck in mexico city. francine and tom, for the rest of the week. it is a busy day because of the fed and the u.n. general assembly. tom: it is not only a busy day, but the busiest day of the year. we migrate to the global business forum later on. first, let's get straight to the bloomberg first word news with taylor riggs. reporter: hurricane maria has picked up steam and is taking aim at puerto rico. it is a category five storm with winds of 175 miles per hour.

it is on track to hit puerto rico today, two weeks after the commonwealth was struck by hurricane irma. crisis in the british government has been averted. boris johnson has backed off his threat to quit become it over the brexit strategy. that allows theresa may to make an appeal to the british community on friday. hundreds of people were killed in the second devastating earthquake to hit the country this month. magnitude,ad a 7.2 collapsing buildings and leaving millions without power. hundreds could be trapped in the rubble. 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: thank you. eric martin is in mexico city and we speak to him now about

this difficult event for the mexican government and people. what have you learned in the last few hours? reporter: good morning, tom. we have seen the death toll rise to 217 at this point. it appears that is likely to climb higher as rescue efforts continue. just a horrific scene yesterday of theco city, in terms devastation of buildings, particularly around the .loomberg office a lot of collapsed buildings, but also a lot of people running, literally, to help citizens, people from all walks of life, volunteering throughout the night, forming human chains water, along, supplies, flashlights -- anything rescuers needed. an overwhelming outpouring of aid. tom: how is the government responding to this? mexico has always been on top of their many earthquakes.

how is the government responding to the capital city? president enrique pin yoniento was on television. he had been in flight to another state when the earthquake happened and immediately turned around. this is something where the irony here cannot be missed. of a 32 years to the day earthquake that killed thousands of people. the government was largely criticized for a slow response and covering up facts. the government has certainly learned from that period of time, much more responsive this time around. tom: eric martin, you mentioned the bloomberg offices. tell us about the financial district for our global wall street audience. how is the financial district this morning of mexico city? reporter: we are still in darkness at this point, but certainly yesterday, we felt the quake keenly, we felt it

strongly in the office. we were shaking. everyone was extremely worried. then we looked around at the skyscrapers and all of the buildings surrounding us and we saw plumes of smoke rising from across the street, which is one of the ways we could detect earliest the impact of this thing. there was a building that had collapsed nearby. that was just the beginning. some believe 44 buildings in the mexico city area that authorities say were destroyed yesterday. tom: eric martin, stay safe in mexico city. let us continue our coverage with a data check on the fed day. the ideas of futures flattened. i would note oil at $50 per barrel, migrating up. we will show you a number of charts with mervyn king in our next hour to describe where we are in the different economies.

i want to get to francine's screen. not much going on, though equities grind higher. francine: most major currencies are trying to feel their way over the fed. they are mixed, as investors tread water in the countdown. the yuan is looking a little more decisive, oil rising. looking at brent, 55.45. day. fed decision while the federal bank is not likely to lift rates until december, it is expected to confirm a start date for it balance sheet w wind down. the school of finance professor is with us for tehe hour. luigi, what is the biggest question for the fed right now?

are emerging markets at risk of a temper tantrum? >> no, i don't think so. i think the biggest question is, why don't we see more wage inflation. why wages are not rising in that is the big puzzle. if they were rising, cutting that more would be a natural thing to do. low level ofehe unemployment, we do not see which pressure. that brings us back to the phillips curve, whether it is dead or dormant. why do we care so much? should we focus on general growth, instead of 2% inflation? >> i think it is useful to have a predictive level of inflation. i think it is an important question, whether there is a structural break. in particular, the phillips curve and the pressure on

unemployment, i think is not there. should the fed not tighten because we don't see that pressure? that's a good question. tom: i want to bring a chart here that touches on technology. i named this chart after matt bassler, our wonderful fed reporter. the idea of service sector inflation being high and sustained near 3%. and very separate from the and this is just critical since 2011, this true deflation in goods, prices, and the second derivative here. is that the technology chart? is this the impulse of technology upon the american capitalism?new >> it is not just technology, i think foreign input, especially from china, could put downward pressure on prices. i think whatever can be traded can tend to be at a lower level

of inflation. for services, that is not the case. tom: everybody falls back to a traditional phillips curve kind of analysis. do those models work anymore for chair yellen, or does she have to find a new model that focuses on em, deflation into the united states and is interesting technology mystery we have? >> the fact that you tend to have a high level inflation in services is an old idea in economics. i don't think it's new. maybe the magnitude is new and t hat's what yellen should look at. francine: let me bring you over to the chief economist, who says that even if you hike by 25 or 50 basis points, it will not make that much of a difference for investment decisions. >> i am looking for 25 basis

points, actually. and continued on with a very clear pattern of how they plan to change the size of the balance sheet, allow things to mature and not reinvest. francine: i any truth -- any truth in that? >> absolutely. economists have known for a long time the 25 basis points will not change dramatically investment decisions. what does change the investment decisions is growth overall and the ability to make money with those investments, thanks to a high growth rate. tom: we will continue with professor zingales in chicago. our global forum at the plaza hotel. governor king will join us. 2:00 p.m. this afternoon. michael mckee in washington. he will be in the press conference with chair yellen. what a great lineup. the fed decides.

jeffrey rosenberg will join us. looking forward to that. stay with us. this is bloomberg. ♪

reporter: this is "bloomberg surveillance." a new deal will create the second-largest dealmaker in europe. thyssenkrupp has agreed to merge

its business with tata. it is likely to result in job losses. a battle over who would purchase toshiba's memory chip unit appears to have ended. toshiba's board has agreed to sell the unit to a group led by bain capital. they had previously offered $19 billion. the group has backing from apple. the spanish owner of the clohtinothing chain posted first-quarter earnings. the company says revenue picked up 12% at the start of the third quarter. the founder is the world's second richest person. that is you bloomberg business flash. tom: thank you. you are on script, or maybe you go off script. anywhere leader could do that. president trump is known to do that. here's the president yesterday at the united nations. president trump: rocket man is

on a suicide mission for himself and for his regime. the united states is ready, willing, and able, but hopefully, this will not be necessary. tom: love what the atlantic said yesterday, calling him elton don, a classic elton john song. you can't make this up. we saw general kelly holding his head at one point. this is the risk of a president all script, isn't it? >> yeah, i guess it is. but our reporting said the speech was fully vetted and he did not diverge from his script and his aides were fully on board with his use of rocket man. tom: his aides were on board with the idea of destroying north korea? >> past administrations have taken a conciliatory tone with north korea and gotten the results we see, a nuclear rise north korea. donald trump has decided to take a different approach to see if

he gets different results. francine: are we going to get more sanctions against north korea? >> i don't know if there are anything to left, besides oil. even there, there are many of many avenues for north korea to get oil through smuggling and other places. i don't think sna sanctions aren the cards. it is now the unpredictable north korea leader, his turn to do something in response to what donald trump has threatened. francine: he also talked a lot about iran. he said, we need to keep this deal. >> one of the things people, some people forget is the u.s. is not the only person involved in the iran deal. there are other european nations. the u.s. can unilaterally say it's not complying, but there's evidence they are complying. it's hard to see how donald trump will make that argument to our allies. tom: professor zingales, you are

in the oddest position. you are in the crucible of the midwest, which has been isolationist, going back to macarthur republicans. is trump a traditional isolationist republican, or is there a different mix here? >> i think he is a different mix. is exactly is a bit obligated. when trump was running for president, it was a mix of more populist and traditional republican. running as a president, he's less populist and more a traditional republican and less of an issn isolationist. bad as italian is as your english, so it works out -- no, my italian is worse. barnburner out today.

the smaller people in the administration are crushed. they are taking money out for the russia investigation. this is not just about the trumps and billionaires. >> that is right and some of these tangential people in the campaign that have been asked to testify before congress are finding huge legal bills, even if they are just casually involved in the white house. in this case, michael caputo, the communications director for the white house for just a few months, has exhausted his college fund for his kids to pay his legal bills. francine: we have never seen anything like it. tom: we have seen it before, but not on this scale. sean spicer can dash in at the end. are those speaking fees nothing more than a conduit for his attorneys? >> that might very well be, for instance, as shannon's piece

points out, if you are called before a grand jury, just to prepare yourself, the legal bills can exceed $100,000. many in the administration of to figure out how they will pay those bills. tom: has there been a rex tillerson sighting? >> no, actually, i have not seen rex tillerson, but he is still secretary of state. he went out afterwards and talked about revisiting the iran accord. we're not sure what that means. francine: luigi, is there an assumption that the more political troubles that go on, the more they will refocus on bipartisanship and doing taxes and delivering real reform? >> i am not sure if there is any consensus. there is a puzzle about why the market is so bullish. there is a large set of research about political uncertainty being bad for the economy, for

the stock market. we have a huge amount of political uncertainty in the market is doing well. marty there and luigi zingales, stay with us. we will be speaking with mervyn king. we also talk about inflation versus wage growth. and then, martin zarrella. that starts at 6:00 in new york. this is bloomberg. ♪

francine: tom and francine from new york this week. this has to do with the global business forum. we spoke with bloomberg lp founder and our big boss, majority owner michael bloomberg. we discussed the global business forum, which brings together a collection of world leaders, business executives and top investors. odd leaders, captains of industry, if you will. they will get ideas, they will build relationships. i do know if there will be a deal -- hey, i want to buy your company or i will make a bid for your whole country. no, that's not going to happen. but you can go to one place and see a lot of people you would not otherwise see. i have always said, i don't need

to do that, i will pick up the phone and call them. although, a lot of the time i do not know who to call. i don't know if there is somebody interesting, but if i hear them speak or somebody introduces me, "you should meet this guy or this woman," then i start something. the fact they are all willing to come tells you they are interesting. there is an opening here. dabos has gone on for a long time. there is a place for it. there's also a place for a one day conference, particularly in new york, sort of the center of the world in many senses, not all, but many. the u.n. is here, government leaders are here. new york represents the world in a way no other city does. london may be comes close. but america, remember, it is a

funny country. we have more embassies in new york than washington dc because there are a lot of groups that don't have relationships with america, but they are all in the united nations. the traffic is bad, but if you go two blocks, you can meet anybody. if you are going to build products for the world, you have to talk to the world. francine: do you think a lot of these world leaders share the same concerns? that there is more commonality now? michael bloomberg: fundamentally, people have to provide services for their citizens or they don't stay in government. everybody has got security concerns, not just big war, but small, cyber and terrorist attacks. they can kill a lot of people and destroy a lot of industry. they all have health issues. we are all dealing with, how do you pay for health care? health care gets better, but more expensive all the time. that's probably going to continue. there are no easy answers.

theyou retrain people, public has to learn more today than ever before. francine: that was of course, michael bloomberg, the founder and now one of the co's of bloomberg philanthropies. we will be hearing from bill clinton. we will be hearing from the french president, emmanuel macr on and of course, tim cook. we will be hearing about china and from some of the main speakers about where the country is going. this is bloomberg. ♪ tom: good morning, everyone.

," aomberg surveillance special day. the next hour, governor king will join us and also richard

house. here is taylor riggs. taylor: for the second time this month, mexico has been hit by a killer earthquake. an earthquake measuring 7.2 struck outside mexico city here at at least 248 people are dead. 32nduake hit on the anniversary of another one that .illed thousands of people just two weeks after hurricane irma caused billions of dollars in damage, puerto rico is get hit by another storm. maria has weakened, but it is still a category four storm. warns the iran nuclear deal must be changed for the u.s. to remain a part of it. there's a countdown as to when

iran will get nuclear weapons. president had to decide whether the u.s. will stay in the deal. londonre suspects in the subway attack. some suspects were arrested in wales. 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. francine: thank you. days away from the german --eral election, joh spokellor angela merkel in a televised interview ahead of the election. that thiseveryone election is not yet decided. cbelieve the policy of the .ymbolizestu the center

i hope for a high turnout of voters so the policies will be at least -- joining us this sunday we will bring you the outcome and what it means for market. with grouppeak leader of the christian strong allynion, a of chancellor merkel. a little for giving me bit of your time. how worried should markets be and what could it mean for cdo -- csu policies? >> we have to see the outcome appeared i think it will be in the parliament, but i think that is not unavoidable already. i think we are not keen to work with them at all. they are pretty much alone and we have to see how they are

performing in the parliament. i'm afraid there will be big discussions, but on the other hand there is a big possibility that they are split apart. part of the party is very some of themand are really -- it's going to be a difficult time. the various polls i have been looking at, the latest polls, and i don't know if i should believe them gave around 10 to 12 are sent here it if they had what -- if they had 10 to 12%, they would be difficult to ignore. michael: we can ignore them, because we have a government by our party, the liberals, and the queens. then we have to see what they

are going to do. if we have a grand coalition, there may be the biggest opposition party, but i have my doubts whether it will be good for us. we go into frankfurt, berlin, rarely into dresden, czech republic, and poland. afd isve that is where strongest. it's not just about nazis at all, is it simply a proxy for immigration and migrants? michael: not only immigration and migrants, there is a lot of discussion going on in germany. there are many people who don't like these kind of discussions. on the other hand, we cannot avoid it. there are people which are not right wing at all, but conservative and don't want to have this kind of discussion we

have on gender and -- there is some homophobia, things like that. not our policy at all, but -- tom: give us an update on the separation of west germany from east germany. i mentioned dresden, parts of the old east germany. give us updates on that divide 20 years on. years, germanyny has been divided into two parts. if you go to the city of beautifult is most cities in the whole of germany. many people are going there. visit dresden.o it has to grow together, and it is two generations at least until we are one germany.

francine: i wanted to come back to the idea of a jamaican coalition. groups of the various and their colors, it makes the jamaican flag, which is why you call it the jamaican coalition. you think it's ecological things to overhaul the economy, but also more integration into europe? also different parties. are prettyple inferent from the cdu people some respects. i can imagine it is taking a lot of time until we form a new government, i am not -- i am quite sure it will be december, if not later. it's important we do have

discussions with the queens, because they are pro-ecological anti-industry. we need our industry and make sure industry is performing well, so we have to calm them down on this topic, which will be difficult. in interior policies, we do have -- you can see in london howard works perfectly, the balance you have on the tube and things like that. liberals don't like it. there will be a lot of discussions going on. professoralso here is zingales, and he has a question. >> what is going to happen vis-a-vis you in the german election, will there be a change depending on the: iceland -- on the coalition?

michael: i think there will be not at egg change. -- not a big change. onela merkel is the handling the european consul, i'm sure she's going to do it the same way as she has over the last 12 years. is very respected in europe and she will definitely handle it the same way that she did perfectly over the last few years. scriptu are reading my here. is angela merkel respected in italy? as a: she is respected great leader for germany, i'm not sure she is respected as a great leader for europe. i am worried when i hear michael say she's going to do the perfect job that she did in the last 12 years, but in the last

12 years she was fantastic -- alive, but a li always on the brink. francine: i know a lot of the plans are from your city, do you see any job losses? michael: and don't think so. of course with the easing, announced there are going to be 2000 job losses -- you mean the steel merger, right? francine: exactly. jobael: there will be 2000 losses in germany, but over a period of time. we have a low unemployment rate at the moment, these people are skilled laborers. i am quite sure they are absorbed by the market

immediately, so it won't be a big difficulty. on the other hand we have in overcapacity of steel all over the world including china. it is necessary that some change is to safeguard all of the other -- if you don't react with something, something will happen with all the companies. tom: mervyn king will join us in council hour with the on foreign relations. getting your day started, we thank you. onoomberg surveillance" television. before that, your briefing on bloomberg radio worldwide. from new york, francine lacqua and tom keene. this is bloomberg. ♪

tom: "bloomberg surveillance" matt bressler is killing it with the best ller chart. thousands of viewers this morning asking for this partition in service sector near goods.d down goods is really -- this is the challenge that chair yellen has. we have the code where going to bring up here of this chart, and then you can always go -- if you have a terminal to tv , import the brilliance. francine: the brilliance at your

fingertips. tom: full disclosure, i steal from everyone including luigi zynga lists -- luigi zingales. francine: italian banks are moving on to a trickier category of debt, the industry has had -- with dealing with bad loans. they are still viable, but -- luigi,o meet their when you look at italy. we have elections next year, it is unclear at the moment who would win because of various things. we have the budget, the let -- the banks, the electoral law. now?is the good news right luigi: it is. i think there is a bit of a

different mood. when you go there the highways and that means the economy is picking up. there is better made in the business sector. sector is still lagging behind. i think that creates a problem moving forward. francine: what happens when they start unwinding the balance sheet? even in the banking sector, i think it is dangerous to say the worst is behind us in raised $30hat -- billion in the marketplace, they succeeded. and i am not particularly fond , bute way they resolved it this is behind them.

now the question is, the smaller banks that are very important for the current economy, so i think the crucial thing there is not how viable these banks are, -- because many of them are not viable, but how do you resolve the situation without killing more enterprise which are the backbone of italy. tom: i want to show you in observation on a better italy, this is an optimistic chart. this is nominal gdp in italy and it is really improved over the last two years, the moving average coming up nicely. is itt a positive chart, a new capitalism in italy? china-like, can it coalesce into a new italian

capitalism that is perhaps more anglo american or uniquely italian? luigi: there is nothing new there. the challenge was it is more difficult in a global world to compete with more businesses. i think the newest small businesses created tend to be more global in nature, at least in thinking. so, we hope they can survive and thrive. tom: coming here, please. we are thrilled to have dr. fuchs with us. what euro does the bundesbank need to do but -- need to deliver? linked to what southern europe needs right now. michael: the euro has decreased against the euro dollar quite a lot and that means we are not as competitive as we used to be at the beginning of the year in export sales. i think the level we reach right

now, like 120, is a reasonable level and we should not complain too much, because a level of one or 105 that we had at the beginning of the year is definitely too low. i think we are pretty ok with the level we are now. i even think most italians can live on that and most other countries can do. francine: what worries you the now,about europe right trying to figure out the german position of the greek banks, where are we now? are we too optimistic about the future of europe? michael: not too optimistic, we have done a lot of work. -- although the situation isn't stable yet, they overall debt is far too much in comparison to gdp, but the other

countries, in particular spain also has been a -- and italy seems to be on the right way, the right track. i hope that macron is able to make all of the necessary reforms we are talking about. if he is doing that then france's definitely also picking up. germany is in good shape at the moment. we will have a growth rate of 2%, for a big economy like germany, that is quite a lot. i am a little more positive for europe than i used to be a couple of years ago. thanks so much. what a great thing to have you join us. luigi zynga -- luigi zingales stays with us. we speak with a powerful panel on world business leaders here richest man.s

when they have in common? a purposeful commonality. this is bloomberg. ♪

taylor: this is "bloomberg

has cut its," fedex profit forecast because of a cyber attack in europe last -- it cost them $300 million in lost sales, technology investments in recovery cost. retail sales are expected to pick up in the u.s. during the holiday season. sales may rise as much as 4.5%, that would outpace last year's increase a sign consumers are more comfortable with spending than they were last year in the aftermath of the residential election. that is the bloomberg business flash. let me show you a chart here, what an honor to have mervyn king following on with professor zingales. use on the fed special this afternoon, what is

historic about the chart looking at the work of the fight's chairman, stanley fischer, is the writing, grinding move higher that you see in two-year yield out over the last year. this gets into the physics of the fed, and inertial force, and inertial momentum, stan fischer not moving from altra accommodative to normal or restricted state faster? why is he struggling with the inertia momentum that helps things out? it is not there. luigi: i think going back to what we were saying earlier, we don't see a huge change in wage inflation. fed is a mandate to keeping inflation around 2%. if you don't see this target reached anytime soon, why should you -- the monetary policy? does that mean

for china, doesn't it spur other big central banks into action? luigi: i think it depends on what would be the global economy if the global economy is picking up momentum, and it seems from europe it is, then there would be no need of continuities in other parts of the world. if it does, maybe we will have quantitative easing somewhere else. the heritage of chicago is free market, can tax reform be the be-all-end-all solution that republican speak of? it depends which tax reform and for what. i think unfortunately the republican party seems divided in what they want to achieve. taxt was an overhaul of the system eliminating deductions, reducing the rate in making this more credible, i think that

would be great, but it seems it is going to be just a little twinkling of around the edges, not a significant change. tom: thank you so much for starting our day so strong. andtarted in september august, that is the news flow we have seen it will culminate in the bloomberg global business form. we have a traffic line up a bill gates, we believe it -- we begin in the 6:00 hour. richard haass on president trump in the u.n., this is bloomberg. ♪

tom: it is a sad day and with it

a yellen press conference, and in two-part labor economy this hour for the entire hour, mervyn king the former governor of the bank of england. left and bluster from the tussle at the u.n., boris johnson goes rogue in new york. in this hour, richard haass on a disunited kingdom. and sir martin sorrell holds court on the speed of change toward 2018. morning everyone. this is "bloomberg surveillance ," we are live from our indquarters in new york and london with francine lacqua. it is an important day. francine: it is an important day. insightgreat what the challenges are. the fed is a lot like the boe looking at technology. tom: do you think that, france

-- the conference will go we will destroy this. doubt abouthave no that. it will be interesting to see if he speaks with jack ma or not. tom: we will see that with the panel this afternoon, mr. gates among others. news anderg first word difficult news from mexico, here is taylor riggs. taylor: for the second time this month, mexico has been hit by a killer earthquake, and earthquake of 7.2 struck mexico city. the quake hit on the anniversary of another one that told thousands of people. hurricane maria has lost some steam as it takes aim at puerto rico, but it is still a dangerous category four storm with top winds of 155 miles per already has

battered dominica. a crisis in the british government has been averted. foreign secretary boris johnson has backed off his threat to put theresa may's cabinet over a brexit strategy. that clears away for the may to make a pitch to the rest of the union on friday. 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. much, equities, bonds, currencies, commodities, let's remember it has been a huge bull market for the last week for equities. elevated to $50 a barrel, the vix at nine yesterday, still an extraordinary 22,000 plus on the doubt. -- on the dow. waterne: it is treading

in the countdown to the fed's rate decision, most major currencies a little mixed. commodities looking a little more decisive. tom: yesterday, the drama at the united nations as president trump gives an important speech, some would say his most important speech of the presidency, here is the president on north korea. it is an outrage that some nations would not only trade with such a region, but would arm, supply, and financially support a country that imperils the world with nuclear conflict. tom: we will discuss this at the moment. mervyn king is a former governor of the bank of england. book a true must-read, "the end of alchemy."

a world in disarray" it had no idea how dead on that title would be a. richard haass, i'm going to be ide and go to your first -- have seen you everywhere. your world is above -- every kid out there right now wants to be in the world of international relations. how is the president doing at international relations? ichard: i don't think yesterday was the day that advanced his cause too much. last i checked we still have a veto at the united nations and american sovereignty doesn't seem to be in peril, but based on sovereignty alone will not do it in a global world. we need collective effort. even doing a lot to advance the cause of collected effort

vis-a-vis -- tom: have you spoken to secretary tillerson in the last few days? i have not spoken to him in the last several months. the taxis taken to his job at a time when demands on diplomacy are arguably greater than they have ever been. it seems to be a distraction, but worse than that, an absolute negative. i think he is hurting his ability to do his job. francine: we'll talk about monetary policy and economics shortly, but how should world leaders react to that speech of the u.n. yesterday? do they rally or remain cautious? i think they will rally on the sentiment that countries that cooperate with north korea should be ones we have the serious reservations about.

and is a volatile unpredictable world like richard said, and if world leaders are thinking about economic applications, the big contrast they will see is financial markets remarkably kong, stock markets rising, measures of volatility at lows, and yet, we live in a world where there are enormous risks which may not yet be evident on the financial front, but will materialized. the bond especially market, are there checks and balances for politicians? it certainly means that markets are not looking at the right measures of risk, but if you look at the united states you see the u.s. government is paying more in interest to borrow in 10 years than any other g7 country. that tells us a lot about how financial markets are being sanguine about other countries. i think markets know how to

react what the fed does, interest rates, etc., but they don't know how to price geopolitical risk. they discounted until the day it happens and then they overreact to it. tom: the definition of everything we will here at the bloomberg global form, your father retrained. he was in the railway business and became a teacher? richard: yes. tom: are you optimistic we can have a better global relations and better domestic relations, is it achievable? >> my father was trained in a special program to train soldiers, it was put there because the soldiers were returning from the war. for too much both in financial markets and in politics is wait

until it's too late and then you have to do something. tom: this goes to the heart of your book, richard, you have been a leader in saying domestic solution is the first order of business if we are going to destroy north korea. are you optimistic this idea of retraining and a better domestic economy can occur? richard: we tend to blame trade and immigration when we should undertaking a massive program. we are seeing some of that at the company level, watch what at&t is doing with its workers, they're getting them ready for the next job your needs to become a national priority from robotics to ai, we can see this one coming. we have to prepare the society that is animating donald trump, that populism will grow. francine: what are we retraining for? it seems there has been so much technological advances in the

last 10 years, what will the next decade bring? mervyn: i don't think it's a question of training people for particular skills, it is a question of giving them the skills themselves to be able to take advantage of new opportunities. it is motivation, aptitude. i think the problems may be deeper than richard suggested. the opioid epidemic in the united states suggests -- and i think the same will be true in europe, it is concealed, but it is there. there are many people who seem to have lost hope, aspiration, and opportunities and education to prepare themselves or a new world -- for a new world. that doesis a country it better than anyone else? of the nordic countries are a better, with training, but i don't think anyone gets it exactly right.

we go to school, university, it is all fronts ended here it nobody will get enough education to get them to the next 50 years. francine: all right. but how should we deal with iran? enthusiasm for the agreement is finite, but it's the only agreement we have. the real threat is not in the nuclear sphere, it is everything else. it is remaking the map of the middle east here at what the united states needs to do rather than isolate itself is built coalitions with other countries that push back against iran. onto the next get discussion on the federal reserve system of the united states of america. mr. king, i believe you're not on the short list to be the next chairman here it mervyn: i hope

not. yellen,t would be chair mario draghi, do you need a monetary pro to run the ship? someoneit helps to have who is comfortable in discussing the range of monetary issues. i don't think you need a phd, but you do need experience. experience of a central bank helps, either in it or being close to it, watching it. coming from outside is too big of an ask, because then you are dependent on a small number of unaccountable people around you. the role of the chair is actually crucial. francine: we are talking more fed next, mervyn king and richard haass staying with us. coming up, we are live from the bloomberg is his forums. we speak to tim cook, bill

clinton, this is bloomberg. ♪

tom: good morning, everyone. francine lacqua and tom keene, a special day across all of bloomberg are global business forum. avoiding traffic in new york is michael mckee, our economics correspondent. he will hold court at a press conference. i believe chair yellen will show up as well. will you ask chair yellen today? michael: everybody wants to know what the fed reaction is going forward, when they will raise rates and what will drive the decision. era.e at the end of an

it has been since 2008 since we have had the government and fed buying up bonds and distorting as debt -- asset markets. what then? where do they go from here? do they look at inflation falling and say we have room to raise rates, because nothing is really happening, but we should put a floor underneath it, but do they say we should continue the process of normalizing rates? francine: we spoke with the leader of -- and she is expecting a hike. what would that do to markets? michael: that within the market into a tizzy. they tell us while in advance these days when i want to move. it is something you can ask dr. king about, markets do better if

they are prepared and can price it in. tom: think you for joining our coverage this afternoon. mervyn king is with us, former governor of the bank of england and also richard haass author of "america it in disarray congo disarray."in lately we have seen the burgeoning deficit, of actor moving in the wrong direction, do we have a set of rockefeller republicans. ago,nd i know from ages are the republican party that donald trump is running, are they going to be rockefeller republicans trying to do a good job for the fed? >> the fed is focused on reducing qe. what we are seeing is a essentially off the table, entitlements. those are the biggest driver of

debt. defenses increasing. we could see infrastructure. i think we are seeing an administration that doesn't seem to care much about the size and scale of the federal debt. francine: if you are in charge of the fed right now, would you tread carefully, stick to the 2% target, or would you have more room? mervyn: i wouldn't dare give advice to the veterans serve, but i would try to create more certainty in terms of the reaction function. not in telling the markets what were going to do, that taking it clear what the response of the fed would be if the various parts of the economy moved in different ways. that has become a difficult because inflation has stayed low despite signs of recovery. i think it has made it more difficult for them to know what to do and has made the reaction function less predictable. tom: i saw you mentioned eight

crisis for financial bankers talking to much, are we talking to much today? have a if you don't clear understanding of where you're going, it is unwise to talk to much. to do isreally want create certainty about the reaction function. none of us know what the future holds, say can't get it what interest rates we will want to set in the future, but you can say this is how i will respond to events as they unfold. guests have two esteemed with us. there is no forward guidance, what do we need to see and stateal mcmaster as two examples? how do we get more visibility of foreign affairs? good point.t's a

i cannot sit here and give you with any confidence what were going to do about north korea, what were going to do or not do about you ra -- about iran. i don't know what's going to happen with the third round of nafta talks, there is greater uncertainty about america's role in the world since the post-world war ii era. francine: is there concern that certain central banks will only move if the market is pricing in something they are doing and how do you sever that link? mervyn: this is circular, of course. they used to say it was happy that markets understood where they were going because largely in the previous meeting they had code words, strongly vigilant -- in other words which would tell the market what they would do next time. not is holy circular and

important. what is important is people feel you have a stable and coherent reaction function to data as they come in. francine: how can you do that given what we have seen the last 10 years? for what weextbook have done and what central banks will happen next? mervyn: i think they need to be rewritten somewhat since we have had this deep period of low growth. still are well below the path we werewth happily on. i see no reason we can't get back to that, but that may take a long while. john: -- tom: one final question, destroy conservatives

within foreign policy that you represent, the council on foreign relations, how do we get back to a grace in our language about other nations? how to we migrate back to a certain grace even if we have disagreements? >> good point. destroying north korea, that is probably the kind of language that will reinforce korea's amendment and their attention -- free a's commitment in its intention. i thought yesterday was too much we playing to the domestic base rather than the international audience. don't think we have built enough support for what we want to achieve. it is a means to anand, not an end in itself. tom: thank you so much. sat in trafficss

for three hours yesterday. thank you. mervyn: let me recommend a subway to you. [laughter] tom: thank you so much. we will continue with mervyn king, former governor of bank of england. too much to talk about, ass'book "the end of alchemy." the fed decides, we will do that today and of course an important press conference. stay tuned. this is bloomberg. ♪

>> a beautiful london city overlooking the london bridge, st. paul's cathedral. and in new york this week, as much traffic here as most days in london. it is beautiful. predicting that the bank of england will hike interest rates in november, -- the move would be a mistake. rate hike addictions after the said it is making it harder to move without

pressures. when you look at concerns in the u.k. economy, do we underestimate the burden of consumer debt? certainly the low interest rate for long periods have led debt at that wouldn't otherwise be the case. there are concerns that when interest rates do rise that a number of households will realize servicing their mortgage debt with floating rate is more difficult than they thought. we will see some defaults and we -- from some of the institutions they borrowed. francine: what is your take on wage growth? it is a similar reaction to the phillips curve, are we focusing too much on it? mervyn: i think one aspect is

different, the volatility of exchange rate. it has moved up and down a great deal, today it is close to the same rate as the day i left the bank of england in 2013. in moved up sharply and back down in the last few months. it has been volatile and that means the consumer price massar of inflation has moved -- rice measure of inflation has moved above target, but it may move back below again. the moments that have nothing to do with wage inflation, pretty subdued. and that is something the bank will want to take into account when reaching decisions on interest rates. should they look through to expectations of they go higher -- think they should look

through movements that reflect changes in exchange rate. doing, what the bank is but of course what they want to do is make sure any movements in inflation resulting from the feed through don't two wages or inflation expectations. and that is something, which is probably harder to them now than it was when i was there, because unemployment is much lower. that is something they will keep an eye on. chart on wage growth, driving the story forward of negative wage growth in the united kingdom. we go from brexit, the red circle, plunging into a negative wage growth with higher inflation. i want to go back to you and ben bernanke and office a few years was a greate historian with a respect for history, how can we be confident drivinga one off shift forward inflation and negative

wage growth and things will be fine on the lord king: i do not think we have seen a one-off shift. people tend to focus on the fall in sterling following the brexit referendum at that merely took sterling back to where it was two or three years earlier, so i do not think we have seen a significant substantial fall in sterling relative to where it should be. for a country with a very large current account deficit it should not be looking to an exchange straight -- rate that is wrong -- strong. tom: this is trade weighted pound sterling and as governor king knows, back we go to 1992 and the agony of a different time. good morning, mr. soros. help us out with this across our social media for radio london as well. this is a profoundly important chart. lord king: it is tom:. for are the ramifications

the elites of the nation and prime minister may if we break down to a new trade weighted weakness in pounds sterling? lord king: if you look at that chart you see an extraordinary period of sterling strength, and that i think was a mistake because it was a period in which we were building up consumer spending, debt was rising, and we were creating a large current account deficit. sterling strength was not sustainable and it had to fall, theid fall sharply in financial crisis to a level that gave us an opportunity to rebalance the u.k. economy. it rose sharply in 2014 and 2015 and has fallen back to where it was after the financial crisis. i do not think that is a significant downward mood. it is a recognition of reality that the u.k. economy has to spend less on itself and shift to exports and investment. tom: john lithgow just won an

oscar for playing when chilled -- winston churchill. he would be screaming this is a valuation of the nation. is this a wealth reduction? lord king: it is a recognition of the reality that real wages were probably too high in order to sustain full employment and we had to lower the real effective wage to shift resources to the export sector, as a price of which countries abroad would be willing to buy you it.uk -- u.k. exports. francine: if there were to be a hike of the boe would it be a reversal of the cut from last august and with the markets be nuanced enough to understand that? lord king: i think the bank would make clear whether they were unwinding what they introduced last year or beginning a process of going further. i do not know what they will do but when they do it will make quite clear what they are doing.

tom: imagine how you stand up and everyone goes to the queen, and it speaks to another time of the empire of the united kingdom . how do you respond to the people who say trade has to look out internationally to take away from the challenges of europe? can the u.k. reinvent global trade? our king: we are looking at current position of the commonwealth which has evolved out of the old empire. u.k. has a long tradition of being outward looking. i do not think people need to be persuaded of the importance of trade and the need to boost our exports. of newrd king with us york university, former governor of the bank of england. our bloomberg global business form, conversations with lloyd blankfein, david rubenstein, laurence fink. now to our first word news. taylor: for the second time this

month, mexico has been hit by a killer earthquake. a quake measuring 7.2 struck outside mexico city and 217 people are dead. authorities fear many more may be trapped. this hit on the 32nd anniversary of another that killed thousands of people. just does go weeks after hurricane irma caused a billion islars in damage, order rico just puerto rico is looking -- maria has weekend to a category four storm that has top wind approaching 155 miles per hour. maria hit the island of guadeloupe they and dominica -- and dominica. at least six people were killed. fort is calling on the justice department to release wiretaps of him speaking with non-americans, and wants an

inspector general to investigate the leaks. this is after cnn reported the fbi tapped his phone before and after the election. retail sales are expected to pick up in the u.s. during the holiday season. according to deloitte, sales may rise as much as 4.5%. that would outpace last year. it is a sign consumers may be more comfortable with spending than they were last year in the aftermath of the presidential election. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i and taylor riggs. -- i am taylor riggs. this is bloomberg. the u.k. prime minister and her foreign secretary appear to have papered over their differences over brexit. boris johnson is planning to attend her keynote speech after challenging her plan to leave the european union in a too soft way. martin sarao joins us this morning.

chairs?can you get new lord king also with us. there was so much talk about british politics. it has been quite a week. what will the end game be? lord king: the united kingdom voted to leave the european union. i do not think that can be reversed without having another referendum. everyone who took part in it said they would accept the results and as theresa may said, brexit means brexit. a lot of people i fear are trying to find a way of reversing it by saying, are we going to stay in the single market or customs union? the former chancellor of the exchequer made a strong point yesterday when he said that all this talk about a deal and negotiation is beside the point. when i go to the continent when i find is people say, what

negotiation? you must accept the consequences and i think that is right. the idea of sitting down and having a long, complex negotiation is one over which the u.k. has no control so the u.k. has to be ready to leave and trade on wto arrangements as the u.s. and china do rather than pretend that somehow there is a magic sundown at the end of the rainbow, we will get down there and find some splendid deal. the european union is a political construct with political objectives. the u.k. has never shared those. the idea that we will get soft treatment from the rest of the e.u., we made our decision and we have to learn to stick with it. martin: the problem is if you are trying to run a business, the uncertainty makes life extremely difficult. i think we are all anticipating moments saying there has to be a plan b or a plan a and a plan be

given the negotiations or lack of negotiations. ,our of our top 10 markets france, germany, italy, and 4, 6, 9,ey are number and 10, are crucially important markets for us. brussels is a crucial market. a lot of major multinationals based in europe. the uncertainty makes life extremely difficult. the u.k. in india are probably the two strongest markets around the world. why is the u.k. so strong for us? probably because companies are willing to commit to fix capital investment so they are looking at variable markets to waive the top line. francine: what the united cabinet help you? martin: united cabinet? it would help personal, political motivation if it did

not seem to motivate politicians in the way it does. with boris johnson we have seen this twice, once around the referendum and out in the middle of the negotiations. i am not sure it does much good. tom: what do you want out of boris johnson? martin: he is quite popular. a lot of people say around the country, he is not as popular. i disagree with that. if you look at the surveys you see, i think he is quite popular . if there was a leadership contest i think he would do better than people think. in the middle of all this crucial stuff -- and i'm not quite in agreement with mervyn about the way we should go or your personal,ut political ambition above the interest of the country is lacking. francine: what should be the blueprint for the government for brexit?

maybe except the consequences and we are planning for the worse case scenario but hoping for the best? martin: you say it is a worst-case scenario. having decided to leave, the best thing is to take the advantages resulting from leaving. it does not make sense to say we are going to leave but stay in the single market and customs union. you give up all the advantages of leaving, so the u.k. needs to say we would like a free trade agreement with the rest of europe but that is not within our power to deliver. it depends whether the other side will cooperate. they have economic reasons for doing so but political reasons for not doing it. we have to have a plan b, and this is where i think the uncertainty that faces businesses is important. i'm sure the question mr. allen would ask you, what do you need from president trump? we are going to

destroy north korea directly filters into the business spirit that you see worldwide? martin: i think what we would like to see in business is something more transitional because we do not want some cliff edge result or dropping into some void. a transitional agreement, whether it is two or three years , whether we have to pay 20 billion or 30 billion, that seems to be what will come out of the foreign speech on friday. as far as president trump is concerned, i thought his speech was a good speech and signaled one or two commentators talking about a rebranding of president trump. it does signal a sort of change. show his poll will approval rating is up to about 43%, not very far but burton -- better than it was. we are starting to see a shift in policy because of people leaving the white house, a rebranding of president trump.

on the speech about north korea, he hit north korea, iran, venezuela. those issues, tom, are already there. what he said yesterday is what he said before. he did actually say america exhibited a lot of patience in relation to north korea and threatened military action if they did not have a successful negotiation result. what you heard yesterday is classic trump and the classic approach, and i thought his speech was quite good, and signaled a little bit of a change of approach in foreign policy. those uncertainties are all there before his speech yesterday. francine: lord king, you did not quite finish your thought and the previous answer. when you look at world trade and the commonality that a lot of these world leaders had yesterday at the u.n. and the things they do not, how difficult will it be for the

u.k. to enter in turn -- into negotiations? lord king: i see no reason why it should be difficult. we should say to countries which we have an agreement with, let's carry on the agreement we have by virtue of our membership of the e.u. the big part should -- picture that martin was talking about is the contrast between the world economy that is beginning to see signs of economy -- recovery after the deep recession following the financial crisis, that appears to be some economic process. contrast that with the extraordinary degree of political volatility. brexit is deeply divisive in the united kingdom. it is not just the cabinet that is divided, the opposition is, the country is, and i do not think you can expect people to conceal that. the economy is beginning to recover and show healthy signs, and the chaos that people threatened after the referendum

never occurred. martin: this stuff about the world economy improving, what we see is certainly modest growth, low growth, low inflation, little pricing power and therefore clients focused very much on cost. what they are investing in is not capex. i do not think the underlying tone, although commentators reflect what you have just said, we do not see that strength translating into strong enough confidence in terms of capital expenditure and investment. tom: that is right where we will go when we come back with sir martin sorrell and also with us, lord king will continue. there is a hurricane, not harvey, not irma. it is maria and it has just made landfall in puerto rico. these images from san juan,

showing a category four and five hurricane. we will monitor this throughout the day. this is bloomberg. ♪

tom: good morning, everyone, bloomberg "surveillance." i am tom keene with francine lacqua. , livingemed guests creative destruction every day, sir martin sorrell. martin: you made it sound really encouraging. really encouraged by what you just said. tom: there is news flow out of your company. martin: at least you are not

asking me about the royal family. tom: you have said this is the most interesting disruptive time. give us a window in the disruption that is in the challenging headlines of your wpp. martin: our top five clients, maybe one exception, are going through significant change. one is facing tremendous digital disruption in the auto industry. three are facing either activist investors or zero-based budgeting, basically challenging their traditional models. at the same time, they are facing manufacturing disruption in terms of 3-d printing like techniques. retail distribution disruption or distribution with amazon or alibaba, and disruption in media because of what is happening in digital media with google, facebook, etc. tom: where are we in 2023?

you have great ability to look out five years and guess it. what is the sorrell guests? martin: if i look at our business, there are three things that i think sing out. fast growth markets, although the brit markets where the next 11 markets are markets which have lost their luster maybe with the exception of india, and there is some question marks about india in the short to medium-term, that is where they will come from. that is where our plans are focused on. it will not come from the u.s. or western europe. the second is digital is about 40% of our business, 30% of the worldwide market and it clearly is going to penetrate everything . you can argue in five years time it is going to be 100% of our business. data or control of data is critically important.

data is about 25% of our business and is not showing the top line growth i would like to thein the custom business, syndicated business, but the battleground between the fearsome five, apple, microsoft, etc., thatbaba, battleground is going to be very severe and intense when you have ai developing. the most recent form of it is voice activated devices. all of the fierce and five plus alibaba -- fearsome five plus alibaba have these voice activated devices. who controls them and influences them? penetrated the battery category in the u.s. by 30%. amazon baby wipes are still 30%. tom: sir martin, i hope you have a cup of coffee with tim cook today at our forum. francine: or jack ma.

martin: thank you. francine: martin sorrell making his way to the global business forum and we will be back with mervyn king. michaelwe spoke with bloomberg about the event that brings together world leaders, corporate executives, and top investors. we got his take on the u.s. and china. michael: we buy an enormous amount of goods from them. they buy an enormous amount of services and technology from us. we are both in this together. i do not think you should think that the chinese have gone from making low-quality products that depended on cheap labor, baseball caps and t-shirts in a enormous quantities. then as their labor force became more sophisticated and demanded

more money, they were priced out of that market. that went to bangladesh and indonesia, and they started making more sophisticated progress. it was a joke when it said made in china, it went to made in china means quality stuff. your iphone is made in china so if you think they cannot make quality products, that is not true. they went from copying everything we did. now they are inventing their own stuff. we have just got to -- there is nothing that can stop that progression. we just have to make sure we do not fall back, and we can fall back very easily if we do not innovate, improve our public school system which is getting worse, if we have immigration policies that keep the best and the brightest who get educated here from going elsewhere, not allowing them to work year, not allowing people who want to start businesses to come here, so we can screw it up but that

does not mean we have to. no much -- no matter how much of a threat china is we have a great hand to play. tom: michael bloomberg speaking before his forum today and we will be the at that -- we will be at that. king,st chart with lord when you were a professor at london school of economics i believe textbooks were used. this chart is service sector deflation and goods deflation we see. does chair yellen have a unique economy, calculus that is not in the textbooks? lord king: i think this has been developing for several years, and the gap between services inflation and goods trading inflation is something central banks have been looking at. they are concerned with looking at the underlying inflation generated at home which tends to be reflected more in services and wage inflation. those are the indicators that

will make central banks around the world worry about whether they should start to raise interest rates. to the extent they benefit from deflation from imported goods which are falling in price, that is an advantage that boosts living standards but not a direct measure of underlying inflationary pressure. francine: what will it take for ceos to start spending their cash and reinvestment, can he say the economy is healthy? lord king: no, you cannot. for the past 10 years we have seen very weak investment and that reflects great uncertainty about future exchange rates, terms in which one country can trade with another. i think the underlying problems which led to the crisis in the world economy are still in many ways there. the imbalances between countries. china and the european union, they had a trade surplus of $600 and the unitedar

states and united kingdom had a trade deficit of around $600 billion. until we can find a way to make these less consequential than i think we are going to see growth, yes, but still relatively modest. francine: how can we find a way to make it less inconsequential? lord king: exchange rate policies need to change. china has been edging its way there, but i think the monetary union, the biggest currency blo the world has created extraordinary imbalances in europe. germany is exporting deflation to the rest of the world. tom: you were at new york university. are we robust in our belief on economic uncertainties right now? do we have a robust feelings of -- belief question mark beliefs? lord king: i see a desperate

effort between the central banks to boost results. saying,n sorrell was change in technology and the way companies operate are bound to increase productivity. we have a bright future, we are just finding it difficult to get there. claimed end of alchemy is a great effort of where we have been over the past 9, 10 years and a few forward as well. our bloomberg global forum, per spiting -- providing perspective on where we go to 2018. it is fed day. ♪ who knew that phones would start doing everything?

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guidance from chair yellen on whether another hike is in store . trump keeps the focus on foreign policy in new york and in d.c., republicans push forward plans for tax reform and the bloomberg business form begins with interviews from tim cook and emmanuel macron. from new york city, good morning. i am jonathan ferro alongside david westin and alix steel. to get you set up for the market action, stocks at all time highs at the close once again across the board. today we are pretty much dead flat if futures are anything to go by. euro-dollar punches back through , 1.20. treasuries finally find a bid, about two basis points. alix: you take a look at sterling, up after retail sales rose at the fastest pace in four months. the curve in th