countermeasure in history. prime minister may has an offer for the eu. a landmark right to speech today. angela merkel, the german elections take place weekend. from new york city, good morning. along alixan ferro steel and david westin. we have a slight risk and a bit of a haven bid. are 225. in the equity market, we snap that run of record gains on the s&p 500. we pulled back just a touch. futures are softer this morning. alix: we are talking about the safety board. off the lows we saw earlier in the session with faced slide down on the north korea

headlines, we have come back to matt or it the vix goes nowhere. i am looking at sterling ahead of theresa may's speech. david: that is part of the morning brief. we are going to have all eyes on lawrence as recement outlines her new brexit strategy. we will hear from esther george at 9:30 a.m. we are going to get manufacturing. at 1:30 p.m., we will hear from the dallas fed president. overnight, the world reacted to the escalation rhetoric between north korea and president trump. it started with the presidents speech to the general assembly on it tuesday. >> the united states has great strength and patience. if it is forced to defend itself or its allies, we will have no choice but to totally destroy

north korea. >> it only impacts those to continue to do business with north korea. if china does business with north korea, it will impact them. new measures.he i would like to offer my support. >> we are on notice that going forward, they can choose to do business with united states or with north korea, but not both. >> continued threats against us, and now the entire local community will not create safety for the regime, but stiffen our resolve. cease making reckless choices that could lead to its own and choose the path of dialogue and. david: kim john kuhn told his

news agency. the foreign ministry explains what he may have said it, saying it could include the strongest ever hydrogen bomb detonated above ground in the pacific the president tweeted this morning. joining us now from hong kong is our chief asian correspondent. , what is question is the reaction in your part of the world to this really extraordinary rhetoric? forcefule had a very

reaction. ofcalled the u.s. president being deranged. the chinese government called for restraint. that's in of orton intervention. the standoff is about economic sanctions. teen successful as china implemented in them. they make it clear that they are in the middle of both sides. they are happy to go along with the u.n. sanctions, they are not coming down illicitly. today asnse from china measured as it was is interesting. david: talk about the sanctions. the united states said nobody can do business with anybody who does with korea. they are trying to hit financial institutions. china said they are going to get back with north korea.

will there be a practical effect? >> it all comes down to whether or not china is serious about implementing these economic sanctions. hasnow that north korea illicit channels for getting hard currency across the border with china. feeling about this today. china will go along to some extent with enforcing the sanctions. they are not going to go as far as implementing sanctions that would threaten the future of the regime. that is not in their interest. they will play along with it, but only up to a point where it david: thank you so much. alix: we will take a look at the market reaction. if you look at dollar-yen, there was a big move lower as you have the risk off feel. joining us from his office is mike l. -- bell.

let me start with you. we have been very accustomed to getting headlines overnight and immediate reactions at the margin. then we recovered. market has to assume that given how dire an event it would be for north korea were to launch an attack, they are unlikely to do so. given if trump or to hit north korea, they would almost certainly retaliate. it's very much in the u.s. interest not to do that. they don't want to start a nuclear war in the region. they are assuming it's all talk and it will lead. david: you said you agree. alix: it is a knee-jerk reaction

and then you recover. when would you need to take some risk off looking ahead? martin: i think we are still in a risk on environment. typically, this kind of environment is very stable as long as the economic conditions are the nine. could be a military escalation in north korea. that would change the volatility regime we are in. this is not very likely to happen. we think that the volatility we see is an opportunity to project risk in the work folio. risker, this raises the that at some point the escalation is there. volatilityhange the regime to something different. we are talking about nothing completely different.

joanathan: how are you doing risk in your portfolio at the .oment western mark -- moment martin: the global economic extension that we see at the same time with very low , it is a very benign environment for your print profits. we can see the cycle is holding on after a six year run. we can see in europe it is now improving. we can see that the profit cycle another part of the world is improving as well. of we believe this is a very benign environment porac me. -- equity. that's why we have a very short-term risk in terms of more any and fixed income exposure. fact that the vix

hasn't picked up, it has on the most since 2012. the volume changing hands in the u.s. is low. no one wants to sell, everyone wants to buy. martin: there are temporary spikes in volatility that provide the opportunity. the longer-term trajectory, you are absolutely right here in there is too much liquidity out there chasing yield. as long as this environment persist, that is very likely to persist. even what we have been talking about, this will continue to be the case. joanathan: it's great to catch up with you. we will be sticking with us. the u.s. commerce secretary will be weighing in on all things china. later, we will head to florence to hear from theresa may.

the scene of the speech is set to be a church where galileo was first accused of heresy. that's according to the telegraph. from new york, this is bloomberg. ♪

joanathan: theresa may will try to reboot her brexit plan. in a landmark speech in florence this afternoon, the prime minister does it propose the time-limited phase to help give certainty to is this is worried about a looming split. she will kickstart the brexit negotiations. we have more. good morning to you.

let's hear what we can expect from the prime minister today. it is linked to the u.k. press. >> good afternoon. what we expect today is a rate west for two-year transition and some suggestion to pay for that. that will bridge the eu budget gap. we will look to see if she goes are the that are it the only mother money on the table -- other money on the table. that is one of the three priorities the eu wants to fix before the conversation can move on to trade. she wants to move this on to trade. she cannot do that unless she has proven more progress on the stalled talks. we will be listening for that. what else will she say about the future relationship? joanathan: it looks beautiful. let's deal with the money.

that's what matters to the eu at the moment. she will outline pre-existing commitments to the eu budget, 10 billion euros a year. that's not the complete brexit bill. >> it seems to be. she may or may not mentioned the number of 20 billion total. of that's a people are talking about. that is when the eu budget expires. separate to that, there is another money question. it is an exercise between negotiators going through the line by line bill. she is unlikely to get into the details of that. it is interesting to see if she actually sing test if there is a bill to settle on that front. if she opens up the conversation in that direction, that will be interesting.

it will be significant and she has not been very open to that area she has brought members of her cabinet with her in a champ -- an attempt to show a united front about what written want. -- britain once. joanathan: inside the church, it's going to be boris johnson. we can only conclude that she has a hard job and she has a tough job to keep everyone happy within that church today. boris johnson or chancellor hammond, who is going to be most happy? >> both of them could declare victory on the leaked details we have so far. johnson did not what a long transition. philip hammond did not want a cliff edge. if there is a transition of two years, maybe he claims victory. wanting the to be u.k. press to not make

connections with this being the birth lace of machiavellian. she wants to remind people of the relationship exist between britain and european countries that predate the eu. she wants to be here in florence, a trading city, a place looks outward and not inward. it is a renaissance city. she wants to make those links with brexit. joanathan: thank you very much. the telegraph is fantastic. alix: there is so much. david: it sounds like the managing. joanathan: they really do right now. with more on the outlook of brexit, let's begin with you. chancellor merkel is expected to on mondaylor merkel morning and secure another term

in germany. will we see another emphatic chancellor merkel, will she be more forceful once she secures the selection western mark martin: it looks very likely indeed that she will remain chancellor in germany. what i think is she will not go into a fourth term. that means she will start looking for her place in the history books. she does not want to go down in history as the woman who destroyed europe by too much austerity or too much focus on physical discipline. she wants to keep europe together. she was to continue the work started by helmut kohl. i think if she remains in power, will is very likely, she probably be more lenient, especially with regard to southern europe.

that would be good news for europe as a whole. david: as we look forward to brexit, is it possible that the leaving of the u.k. will enable chancellor merkel with the new leader of france to move forward with reform in europe or quickly western mark -- quickly? expect muchuld not on that. it is certainly possible. if you look back through history, through any attempt to move forward, the u.k. has been a stumbling block. with the u.k. out, we will see how long it takes for the u.k. to act really leave. i still think there are many in germany who would all caps the idea of eurozone government bonds, which is what we need to get to for the eurozone to make.

david: do you agree with that? will we have an alliance that moves forward? martin: yes. i totally agree on that one. without strengths, without some way of debt neutralization, it will be necessary to the euro together. however, i do not take the brexit will make a huge difference. europe is already in place. britain has been out of that for quite some time. the crucial point is france being back on track with macron as a reliable leader. europe has only worked in the past when france and germany were moving in the right direction. this is very likely to be the case again. continuingbe brexit

to be a divide between the inner circle and europe and the outer circle. alix: this was the story a year and a half ago. it was going to be very scary with lots of volatility, things were going to change. all of that died. is the italian election now the geopolitical risk? mike: italy has always in a big risk in europe. support the euro, it only country where support for the euro is low. support thego, eurozone in italy was only 53%. the good news is that when you look at the latest survey, support the euro in italy has been increasing. 58% support it. that is low compared to other countries where it is much higher rate of i think that

trend is encouraging. if you look at spain and go back to 2013, it was only 52%. now it is over 70%. as the economy improves, support for the euro tends to improve as well. that is positive for italy. david: thank you very much for being with us. coming up, we are counting down to the german election this week in. we are joined by rudy dempsey right here on bloomberg. ♪

joanathan: regulators in london have denied right serving license for the city. not fitcy said uber is and proper to hold a license. hoover planned to appeal. joining us is adamant. people, can we just deal with the legal procedure and get to the idea that uber will remain operating in london the time being and for quite a while after that western mark adam: they have 21 days to appeal. the license is coming to an end. that is very sudden. it will be interesting to see what happens. at some point, you have 3 million people use the app in london. it's one of the biggest markets.

imagine there will be some sort of compromise. at this point, you have the government coming pretty forcefully against uber, saying it will not be allowed to operate in the city going forward. joanathan: once they have appealed, many people think they will, you have a long drawn out eagle process through which they can carry on operating. is there a chance that are out the long process there will be a series of negotiations to get the standards up to where they want them western mark -- them western mark adam: they are exerting some leverage right now. uber has leverage on its side. it has millions of people who use it and find it more convenient and less expensive than the black cabs.

along with putting pressure on the government to come up with tougher rules for uber, the lack cabs are very well-known, but the drivers have to go through much tougher regulations to get a license. uber drivers have a much simpler process. the process will be threading the needle between drivers. adam, have you ever heard of the test? you literally by memory have to know london by heart and tell them how to get there. david: the results are profound. joanathan: this is bloomberg. ♪

joanathan: the story as follows, a little bit of mild risk off following the north korea tensions escalating. you know the story.

futures are softer on the dow. the s&p 500 snap that run of record highs. four straight days and it yesterday, a little bit softer again, down by 10. the treasury out is off. yields are little bit lower by two basis points. 225 is the story. landmarkgoing into the brexit speech. trades are weaker. we are down .1%. let's get you some headlines. emma: north korea is striking back at president trump's threat destroyed. kim john kuhn warns of what he calls the highest level of hardline countermeasures. the country could test a hydrogen bomb in the pacific. the president has ordered new sanctions on banks that do business with north korea. in italy, theresa may will outline a new plan for brexit

area. she will have ties to the biggest market so businesses will have time to adjust. the bbc says the transition the last four two years after frexit takes effect in 2019. she is trying to reboot her strategy. in puerto rico, hurricane maria has -- the chance of the financial crisis. the entire island has lost power and the total bill for damage could hit $30 billion. this comes after order rico fromt protection insolvency. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. i am emma chandra. david: we are looking ahead to another busy week in washington. on the agenda, they are ramping up tax reform and health care with promises to come out with a

more detailed plan on taxes. mitch mcconnell will have a new plan for repealing and replacing obamacare. wilbur ross will be joining us on this program. he will travel to asia next week. twitter will talk about the role russia played on social media in the election. joining us now is the former chairman of the council of economic it iser's did he is a professor at the harvard kennedy school. it's good to have you here. i want to focus on the economic effects on tax reform and health care. the big news today is north korea. you're not a geopolitical expert, you are an economist. detonated aea hydrogen bomb above ground in the pacific, what would be the likely effect on the economy? not good for the

economy. it's a source of uncertainty. this is the least of the problems i would be worried about. i would take a look at how this affect our trading relationship with china, are most important on trading relationships. it's important to our production and asked boards did. david: we will be talking with wilbur ross on that subject. we don't know what sort of details we are owing to get, there are various things being said it. republicans are coming to an agreement to have as much as true trillion dollars in tax cuts. what does that do in this economy? there is not much weight -- wage pressure and close to full employment. jason: that is the wrong approach. they started in the right place. they wanted to do revenue

neutral tax cuts. the budget was revenue neutral. that's what we need to do. our rates are too high, but we have too many loopholes and we want to deal with those problems at the same time. we don't need a big stimulus right now. we don't need a increment to our that when the debt to p/e ratio is already 70% during i worry the strategy is going to take one problem and make it better but take another problem and make it worse, our debt is too high. that would be bad or the meat. into chew gum at the same time? can they have this north korea issue and issues with china and trade as well as iran and europe , at the same time deal with ager tax reform?

-- tax reform? those committees are the committees responsible for health care. so much of this year has been devoted to health care really did slow down the tax issue. i think that's a shame because the tax issue is more economically important. those committees can focus on the issue well north korea is going on. david: let's talk about the deficit. we talked to some conservative people on the deficit. they say you are only going to address the aderholt deficit. you're never going to cut your way into getting the deficit under control. the only way to have growth is to have some short-term deficit. jason: i agree. we need more rows. that needs to be part of the strategy. have moref let's

revenue but at it from cutting back on tax expenditures and not from higher rates and have entitlement reform and bring down ending and do those in a balanced way is the key to go. the problem is people have done that. help the they don't debt. they hurt. they lead to less investment because the government is borrowing more. our economy is slower as a result of that. i don't take this will help our economy. it will hurt our economy. david: just on the narrow western, corporate tax cut versus tax cuts to families, which is more likely to give you real growth? corporate tax cuts were our biggest economic problem is.

corporations operate in a mobile environment. they can go wherever they want in the world. rates, not a lot of people are moving to other countries. you don't move for that reason. there are not a lot of other countries we can go to that would tax you less. most is on the corporate side. i would love to see a revenue neutral business only tax reform. me press you on that. warren buffett said if you look at it taxes as a percent of gdp since 1950, it's gone from 5% down to 2%. if you look at health care costs, they have gone from 5% to 17%. costs not health care -- taxes.

jason: we face a lot of different issues around the fact is healthe costs since 2010 have earned the slowest rate in the last years. we are making some progress on that. the administration has a lot of tools to deal with health costs. out,ain for wally and rather than input from executive care. that is something they have the of 40 to do. we can make progress on health as we you with the tax issue. at thejason furman harvard kennedy school will stay with us. you can go over to radio and hear tom keene on bloomberg surveillance every day. you can hear them in washington and new york and across the united states on serious xm radio.

next, the high cost of homes and knowledge debt and what it means for millennials we will discuss that with jason furman next. this is bloomberg. ♪

emma: this is the feeling packard greenroom. wilbur ross will be talking trade and china and north korea. this is bloomberg. your business flash, order fromlanded an turkish airlines. the agreement has a list price of $11 billion before the usual this cap for large orders. turkish airlines is rebounding

after the terrorist attack last year. assetave been the main and that will give both carriers the chance to rapidly expanded in germany. wasmain investor withdrawing. goldman sachs has its worst performance and commodities since going public in 1999. australia's macquarie group will be the commodities leader this year. they are better known for infrastructure investing. they have a dominance in national resources. that is your bloomberg business flash. david: with two thirds of the economy driven by household spending, economies look at why consumers aren't ending more. it may be the burden of student debt. the national association of realtors report student debt is

greater than the median income of millennial's. only 1/5 of them on a home. they say it is because they have too much debt area still with us is jason furman. dr. fuhrman, explain to us the effect of this huge overhang. jason: it depends on the question. allou take a person and say things being equal, would you rather have more debt or less that? answer is less that. if you have more debt, you are like to have a harder time buying things. the reason you get student debt is because you pay for college. college raises your earnings a lot. the typical person with two that also has more education and has higher earnings area of those higher earnings or than make up for the cost of interest.

you have $500,000 in extra earnings when you go to college. you incur 25,000 in debt. that's a really good deal the what you in a better position. analysis, we found that if you want to college and had student debt, you were more likely to own a home then if you did not the college and did not have student debt. david: you are very careful to say net present al you. a lot of that is going to be owned -- earned in the out years. thate not getting a lot of $500,000 up front. jason: that's right. when you look at the earnings difference between college graduates and non-college graduates, they are similar and then they increasingly diverge throughout a career.

you look less at the total quantity and some of the risk of it. if your income is low, you don't have to repay as much of your student debt or it we have expanded that in the united states. we can make it easier. the main thing that is going to make it hard for you to afford a home and hard for you to start a business is if you're not earning a lot. the biggest solution is going to college and having student debt. we don't want to lose sight of the big picture while making student debt work better for people. alix: how much college debt to do have? jason: i did not have any. alix: that's easy for you to say. you have a good education and a good job. it just doesn't work out like that. i had a really hard time and millennial's are having a worse

time and before. jason: there are things we need to do. the issue is if simply goes to college, they are getting a large benefit here it -- benefit? we have a hard time making college free for everyone. that's what bernie sanders wanted to do. i think something like the australian system where in your early years when you're not earning a lot, you don't have to pay your student that and later on when you are earning more you can repay it. if you don't ever have those earnings, it gets forgiven and extinguish. i think a system like that would make sense. i don't think telling people don't the college is the right answer. you're going to have a harder time affording a home that if you do go to college. joanathan: i'm not sure that is the message at this point. i don't think that people iv

bernie sanders version. massive generational wealth happening. people of a certain age go out and vote and another age do not go out and vote. do you protect the electorate when that is people of a higher age group? what are they going to address this issue. it's going to blow a time. debt is ahink student real issue for a lot of people. we have seen some types of that like credit card debt go down. we've seen student that go up. the net there is not trending up. is centraling that to it. i would worry about this from the student perspective. i have not seen a big macro

impact. joanathan: i'm not worried about it on the macro side. what they are witnessing is a massive intergenerational wealth transfer. the economy is protecting pensioners and not the youth. that is happening repeatedly. the pensions and the rights and benefits the pensioners get while taking it away from the youth the youth do not vote. it's the elderly that votes. that is happening in the nights rates as well. -- united states as well. >> i would look at that as less than college debt and more in terms of what we are spending on children at the earliest years, whether it preschool, child care, housing vouchers for families with children and the like. i think those are areas where we

are under investing. isot of student debt somebody getting higher earnings and they have to figure out how to finance it and figure out how to spread it out. i don't think college financing is what i would look for to make your argument. thank you so much for being with us. alix: let's talk about those preschool rices. -- prices. you can watch us on line and interact with us directly. go to tv on your terminal. you can watch anything you may have missed. this is bloomberg. ♪

alix: opec ministers and allies will be discussing their raiment billion -- agreement.

our us from vienna is correspondent. they are halfway to hearing level that. they've got to finish the job. that rid how you put they've got to focus and finish the job. they can't sit back. that is one of the key takeaways we got. this time, the drop in inventory , they have to look for in terms of how this agreement will be better and or's. they are looking at improving compliant. they are talking about what comes after that. what is the future look like? nigeria in libya will be likely heart of the question. take a quick look at how libya and nigeria has rebounded since

the agreement came into effect. battling their own demons from within. compliance,e better you have more out there. that is a process they are .2 look into with more detail. more polish positions are coming in. goldman sachs and morgan stanley are two of them. .lix: thank you so much the market debates whether or not opec should cut production again. they announced they will be buying back stock a year after it sold $2 billion of new stock. joining us is the asset manager. it it's good to see you. how do you understand the buyback? opec cuts and the u.s. are going to pump like crazy. this is different.

>> i think that's the fear, that the u.s. is going to swap the world in crude. when you look at any company with 20% of the market cap, they have a lot of flexibility. the market wants more discipline from the u.s. and opec. that's what we are starting to see. you can see the underperformance of the stock. it was supposed to be good for the micro. that did not play out. that pink line is the oil and gas. all of them are underperforming route the last year. is this going to continue to be the trend? he is still in. it looks like he's not willing to do a buyback. >> they have an advantageous cost perspective. you're going to see investment in the u.s.

i don't think there is going to be enough capital spent around the world to hurt oil prices. it feels like oil prices have found a bottom. if the international projects are going to turn on, that will take some time. the u.s. is in the driver seat to the next years. alix: the curve for brent is extraordinary. basically, the prices today are more expensive than they will be in about a year and a half. how'd you play this? ofthat is an indicator tightness. that is what you would expect strong demand on a global basis and opec has cut and we see underinvestment in the majors. the long injury. it has underperformed and we think that underperformance is coming to an end. being involved is the highest conviction out there right now. david: thank you very much.

i know i am a nerd and i find it really interesting. so are you. it's a very interesting shift in the psychology. it will be interesting to see if investors fall in. joanathan: coming up up next, the commerce secretary will be joining us in york city. that is just around order. as we count down to the market open, it is one hour and 34 minutes away. a day of losses yesterday after a string of record highs. you are watching bloomberg. ♪

joanathan: the tension escalates with north korea.

prime minister may will unveil an offer to the eu. the landmark speech in florence today. angela merkel looks set to win her or term. the german election is this week and. good morning, it morning. a warm welcome to bloomberg daybreak. --'s get use that up for the set up for the market action. we had all time highs and snap that yesterday. it was a little bit softer. we are looking at s&p 500 futures. the fx market, the yen gets the bid here it the euro dollar is higher. -- .2%.to 10th market, you see it there on the screen.

there is a mild risk off with deals lower two basis points. alix: i like it. i've never heard it. let's take a look at what happening with those eighth haven bids. dollar-yen is down .4%. you also have gold getting a bit of a bit. i want to take a look at sterling. we are about one hour 15 minutes away from recent me outlining her new brexit strategy. will that catapults sterling higher? are we in for a selloff? david: wilbur ross may be the most influential secretary of commerce, working for a president who has put traded the center of his agenda. we want to talk with him about trade. he has a new piece on nafta in

the washington post. we have to turn first to north korea after we have had a response from kim jong in. he has said he is going to take you most severe countermeasures ever. that could include a hydrogen bomb in the acidic. welcome very much to the program. let's start with north korea. how seriously should we take the hydrogen bomb test? wilbur: i'm not in the department of national security. i think we should take seriously the new sanctions. the are unprecedented. i think they will work. i think they will have a big impact. china came out with a very strong statement that their central bank is going to cut off

the chinese banks from dealing with north korea. china has been the main trade partner for north korea followed by russia and some small ones. if you cut off the currency flows, shooting off these a very, that is expensive hobby. the parts must the imported. china is key to having leverage on north korea. you have an agenda as the secretary of commerce with china. how much is that complicating what you can accomplish in the trade area. we need their help in the geopolitical area. the number one priority is to protect the american people. everything has to be focused on that. i am going over to china this weekend. we will see where we are.

david: where are we. after the mar-a-lago meeting, there was a process put in place. there were meetings in washington that were affected on steel. that did not happen. what is the process? is it stalled western mark -- stalled? the first 100 days were low hanging fruit. it had been kicked around for 14 years. making that into a reality was simpler than some of the bigger issues like global overcapacity in basic metals and intellectual property rights. it shouldn't be too surprising that as you get to harder and more obligated issues and a

bigger ones, it takes longer. did beijing offer to cut? the president rejected the deal you endorsed. wilbur: it's more copper in the net we were thinking through the of roach to the trade relations with china. he very weekly followed that up with the treo one initiatives on intellectual property rights. it was a question of timing and priorities. let's deal with the intellectual property rights later. the president said he wants tariffs. of why has he not getting the tariffs? wilbur: you're talking about room is -- rumors of what went on. i'm not owing to comment on those areas on steel, he has announced publicly he wants that

to 32 report. you don't want to interfere with the legislative agenda. the tax thing is the most important thing on our plate. reform is what will drive jobs back in job creation here. jonathan: the president is not asking for tariffs? are commenting on a leak. jonathan: as the president asking for tariffs or not western mark wilbur: i don't comment on allegedly the information. alix: aside from that, what kind of tariffs would be acceptable to the white house? wilbur: the report has not then

issued and that would provide some options. once he has had a chance to digest the report, we will know it what it is he comes up with. david: we are talking with wilbur ross. let's talk about those preceding that are pending at the moment area -- moment. frankly, we've been expecting some action for this. should we wait until tax reform --enacted where we see before we see project on these matters? 232, it has been postponed until the tax ill. the three of one is a different kind of thing. -- 301 is a different kind of thing are in its different to deal with the intellectual robert he issue -- property issue than the steel issue. i would not put that in the same allegory.

that's in the early stages. the president just direct it. it is a hugely important issue. ands also very complex figuring out. alix: let's move to nafta. what percentage do you want to see from the rules of origin? the rules of origin, what percentage would you be happy with? wilbur: it's more complicated than that. one of the problems with existing rules of origin, they listed exact parts to which the percentages applied area at the time, that added like a very precise thing. automotive thick elegy has moved on. a lot of those parts aren't used anymore. a lot of electronic part that did not exist when nafta started

are now very important to the mix of the car. in the washington post today the u.s. content has gone down appreciably and the non-us canada component has gone up quite early. jonathan: you mentioned that taxes are front and center to the agenda. alix: you are not a maker in the u.s. and you get a tax rate that is better, but you have to make more products in the u.s. with u.s. made steel and it hurts your margins are in i don't understand how you square those things are it -- things. wilbur: u.s. industry encompasses more than just automakers. we think that if we get the kind of tax relief we want and we get another 1% increase in the

growth rate of the gdp, that as -- is $10 trillion to the economy over 10 years and $3 trillion in tax revenue. that warps anything on trade. jonathan: i want to get a handle on how you think about economics. do you believe in the comparative advantage? we are defining relationships with the prism of a trade deficit or trade surplus. wire we looking at it that way western mark wilbur: i think that's an oversimplification. there are some trade deficits we don't mind. we still are not energy independent. we have to import oil. $165 billion a year on the negative side of trade area of that isn't

anybody's fault. if we choose to buy it from canada hearses somewhere else -- jonathan: is there a trade deficit right now that you think is justify? wilbur: i think we will end up with a trade deficit. jonathan: with an individual country? wilbur: i don't think any of them is 100% justified. all of the other countries have highly protectionist measures. --s not part of can edited competitive advantage of a $.25 tariff barrier on cars and that's not a fundamental entity. that is protectionism. the u.s. is actually the least protectionist of the major countries. we haven't done a very good job with the rhetoric. china, japan, and europe do a wonderful job talking free

trade. jonathan: most people would define it as an open country. is mexico protectionist? basic tariff structure is high. the structural disadvantages we haven't going to a new free trade agreement with europe or with japan. we have given away so much on a unilateral basis. there is not much give them. europe tried this 10% tariff on autos. we charge 2.5%. how are we going to get them to drop a 10% tariff just to get --ief from 2.5% western mark 2.5%? impediment need an

to making trade for your globally. we don't have that much ability to trade down tariffs are in -- tariffs. when do you expect we will see a new deal? wilbur: that needs to be somewhere close to year-end. the mexican presidential election is july next year, canadian provincial elections are around the same time. mid term elections here are in november. our trade promotion authority expires in july. given the nature of congress nowadays, we don't know if that's even going to be renewed. as we move into 2018, it will get more difficult to get a deal. timing is no magic silver bullet. more or less, around the end of the year. david: if you get what you can

expect, how many jobs will it out? the maybe 100,000. david: what will be the increased cost to automakers? wilbur: autos are not the only one. it is an important one. there are other things that can help reduce the deficit. some from to import us. importing lng would be a help. import -- mexico imports a lot of food products from us. that would help the trade deficit. alix: wouldn't the wall hurt that? wilbur: it's a separate topic. toreported -- relates more wilbur -- border security. very interesting thing, with all of the enhanced search

procedures on the airlines, tourist him is actually up. there are naysayers who said if you put in all of these new screenings it would kill tourism. terrorism is up 4%. -- tourism is up 4%. jonathan: steve shannon says we are in an economic war with china. do you think we are in an economic war with china? wilbur: we have been in economic battles with them or a while. the difference is now we are trying to read rested. in there areit are trade battles going on where you draw the line between the individual titles in a war, i don't get is terribly important. what is important is we feel the deficit with them is too big. of our trade deficit has two

components, one geographic and one product. we fix those two and you fix a lot of the trade deficit. david: you're going to asia next week. what do you hope to come back with? wilbur: i don't want to anticipate an announcement from a single trip. david: what do you hope to come back with? wilbur: i am also going to thailand and laos. we want to talk about the specifics with those countries and to make clear the message we are not forsaking asia. others haveand some been advancing the theory that we are having up on asia, we are not. david: thank you very much for

being with us. jonathan: he comes with a much bigger entourage then he used to. there are so many of them. it's great to catch up with you. the committee member will be joining us as well. we are counting down to prime minister may going to florence to deliver a landmark speech. we will bring you that speech in full player in -- full. is bloomberg. ♪

jonathan: from new york city, let's look at the markets.

softer on futures, down .1%. the s&p is down .2%. softerry is as follows, by .1%. europe will be firmly fixed on florence as theresa may lives landmark speech on brexit. hopefully it will push forward the stalled talks before negotiators meet again next week here in they want to give markets time to adjust to the change. walk us through what we can expect on the prime minister. >> in about an hour, she speaks here in florence. re-bootingg to be the negotiations. they have not really agreed very much yet. she is trying to reboot that.

she's got to convince the european union that she is able to make enough progress on the citizens to enable the conversation to move on to other matters. that's where she was things go. she is going to talk about testing a transition from two years. she is going to offer some money. go or other on the money or talk about a willingness to pay a divorce bill. alix: who is she talking to? home, she talking to at who is her target or this speech? >> there were so many different audiences. this comes a couple of weeks be or the conservative party conference. you might think she's got a difference in mind. she probably was to talk to the

head of the countries and go around the brussels negotiating machine and talk to the heads of government who are going to make decisions on this she is talking to the people back home. the city is a symbol of the renaissance. it's a place where britain's like to think they have a connection to. there is a certain type she wants to tempt act to the conservative party fold. she is trying to show that her cabinet, they have all flown over to the here, they are united area. david: we hear a lot about the divorce bill. i don't hear so much lately about the treatment of eu citizens after brexit. has that been resolved? entirely not been

resolved. one of the key sticking points is who is going to protect the rights of eu citizens after exit. there are 3 million living in the u.k.. what will the court of justice have with protecting the rights. for negotiation. asresa may would go so far suggested will be some sort of protection for those 3 million written into the treaty deal signed. that would be protections under you a. jonathan: thank you very much for joining us. this used to be called the short straw. david: it looks terrible there. jonathan: they had to go to florence. by the investment committee member.

you, brexit really mattered. does it matter to you now western mark ness -- now? now, it will right be a lot more important. looking tore really further the eurozone and the european union. that, primethat for designedmay's speeches to refocus the authority on the majority in the u.k.. obviously has some significance from the agenda. jonathan: doesn't just come down to money? >> alex made a point that really

strikes to the heart of this. you just had wilbur ross on. we are talking about trade, economic transfers, doing business with each other. talking have a speaker to multiple audiences all the time, it is new wants and much more difficult. it's not like that policy where we go up .25%. it's a global there to. david: let me take up on david's yout where it -- point." can have one person gaining more than the other is till go up. told it be bad of for the eu really cut off trade or really curtail trade? as a result, won't cooler heads prevail in the end western mark -- and?

good want to remain trading relationships with the remaining eu and the u.k.. strategy,enda and the it's going to go beyond the u.k.. germany has one of the larger surpluses. aat has been historically quality has been an element of vulnerability. china is being so excited. david: you are staying with us. ♪ what did we do before phones?

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jonathan: let me with through the numbers for you. we were dead set on the s&p, of 0.01%. let's look at global equities. mutual price action, equities, a bit of mild risk off. yield on basis points ,2.26. the euro quite strong, stronger, up by .19%. 1.3567 is how we tried going into prime minister may's speech. for more headlines, emma chandra. emma: president trump says kim

does nots a madman who mind starting or killing his people after north korea warned it could test a hydrogen bomb in the pacific. president trump has ordered new sanctions on people, companies, and thanks doing business with north korea. in puerto rico, hurricane maria has dashed the chance to a speedy resolution to the crisis. the total bill for damages could hit $30 billion. all this for months after puerto rico sought protection from creditors and the u.s. role -- u.s. l biggest municipal insolvency ever. the death toll from the mexico 100 33.ke has risen to there are no missing children at the collapsed school where they were searching for a one girl -- for a girl believed to have been trapped.

news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm emma chandra. jonathan: german chancellor continuing on the campaign trail. she is expected to win a fo urth term, but there are many potential coalition members. jean médecin, let's talk about the june election. it is one of the rare elections in europe in that not many of us are paying attention to it. what should we pay attention to? pay: i think you should attention to teacup factors, number one, the weight of the .ain parties these are the smaller parties on the fringes and these are the things that you have to look at are the relative weight of the

smaller policies on the left side versus the smaller parties on the right side. that will be the key elements to understand what kind of leeway chancellor merkel -- which probably will be easily ofollected -- what kind leeway she will have to build a coalition, and more importantly to reengage in negotiations with the eu. her ton: do you expect maintain the status quo in what might be a final term as the german chancellor? jean: we believe the germans are actually a lot more willing to force greater instigation -- integration at the european level. they are very aware that the withtching terms of trade very significant surplus may be a factor of vulnerability going or word. aerefore, coming towards greater integration with the

european union makes a lot of its ownr germany for interests, not just the interests of the european union members. they there is a story that had to move her in a different direction, on the refugee status, more open borders now, a harder line. can that affect german politics? affect the eu integration thesis? it is our to see that there is a big shift. slight marginal shifts may be. hasany for largest economy a good focus, economic and financial strength. members of the eurozone, italy and france on the other side -- you want to track the economics, why is germany's so far up and rising?

so new once ships. i don't see a big deal. david: as an investor, how important is increased european integration in deciding whether europe is a good investment or not? important because you look at europe and say, what have they done? they created a big trade zone. inside they played by one set of rules. outside they played by a different set of rules. now one big members leaving. i think that is what these speeches really all about with theresa may. that is what this election is all about. it is what we talked about for off-camera for a minute. the nuances of trade and exchange are very complex and the speaker speaks to different audiences when they speak in public, so we get a mixed message here is very hard to sort it through. let's go to judy him

berlin. great to have your new program. let's talk about the direction that chancellor merkel could ultimately take this. how important is the election sunday with that in mind? >> could you repeat that question? there's little when interference -- there's a little wind interference. jonathan: of course, judy. how important is the election sunday? >> it's actually very boring. it is crucial, but you cannot ignore north korea. on sundayelection they will have to become much more involved in these key strategic issues outside of europe. this is no shoe when war -- for merkel.

wins, there will be churned up all sorts of issues on policy. it's very important for washington. how important is it for washington? we talk about trade issues. the heart of the imbalances in europe is germany. thed k: judy points of importance of asia and north korea and that is consuming attention in washington. pass that onarlier to defense and said, that's not my department. that's a very good answer for him. but the fact is we have an escalating situation in geopolitical risk and north korea and we do not have a clue how it hurts out. -- how it sorts out. it is starting to impact decisions. ,hen it starts to impact cost risk, war risk, insurance risk,

trade, we will see those impacts and we do not know where it ends up and the worst risk is we get into a war risk. jean, i want to pivot to europe. talking about the italian election. the story a year ago was we were going to freak out about brexit, france, germany. none of that happened. how seriously do we need to take italy? to take italy very seriously. but keep in mind the economic momentum in italy is accelerating quite strongly. there's a lot more positive backdrop for potential policies to fight this election and for italy to commit to building off the european union. avid: i will give you

three-part choice there. in terms of the growth of europe, the election of merkel, macron making good on reforms, and the italian election, which is most important? everything is important because this is obviously europe and everybody has to be on board. yearis unclear, this following the election of president macron we have seen mood inter positive europe. so we have different pieces of the jigsaw coming together, creating a positive backdrop for investors. interestingly so far only the euro has reacted strongly to this momentum in europe. european equities have been less

embraced by investors and i think it will make sense out of investors outside of europe to invest in your portfolio. david k: jean, david kotok. and the european union mario draghi understand the new once you just described which encourages longer ease lower because of the stimulative effect needed to accomplish the description you just gave for your european outcome that is more benign. jean: we have had considerable support by the ecb for years now.

we have had dynamic activity for more than 18 months. what i think has been the game changer for europe this year has been the political mood which has helped to only show most potential of the european union. jonathan: the finance minister is leaving the effort. they exported that through the rest of the eurozone. cannot change after sunday -- can that change after sunday? >> you can't say yes or no. first of all, it depends on the government. what is crucial is who will be the next finance minister. yout will be the cd8, he or differenthe will have pressures. this is absolutely crucial. surrounding that, as one of your people mentioned, the rule of

italy. italy is no pushover. it's just so vital to the stability of the eurozone. these will all come into play next sunday. alix: thank you, judy, for david k: windhe on the roof. beavid kotok you will staying with us. have: on monday we will four guests, peter, thomas, erik nilsson, and jordan kornblum. life in new york, this is bloomberg.

♪

is "bloomberg daybreak." am emma chandra. coming up on monday, peter thomas mayer, erik nilsson, and others. now to bloomberg business flash. amazon will soon be bringing chipotle perrigo's to your door. amazon has teamed up with a company that provides digital order and pay technology to 200 brands with 140 locations in the u.s.. opec and russia say they are deal.half way to

ministers are meeting in the in a producers have implemented their cuts.1 of quarry group is winner for this year. it has become dominant in natural resources. and that is your bloomberg business flash. david? thank you, emma. overnight the world reacted to rising rhetoric between the north korea. and president from: united states has great strength and patience, but if it is forced to defend itself or its allies, we will

have no choice but to totally destroyed north korea. >> i welcome the new sanction measures of the united states and would like to offer my heartfelt support. >> foreign financial institutions are on notice that going forward they can choose to do business with the united states or with north korea, but not both. -- ambassadory: haley: if china does business with north korea, yes, it will impact them. secretary tillerson: continued threats against us and the entire global community will not create safety for the regime, but will rather stiffen our collective resolve. must -- north korea must stop making reckless choices and choose the path of

dialogue. david: north korea responded overnight with kym johnson telling his news agency -- jong-un, telling his news agency -- the north korean foreign minister asleep what his leader may have meant, saying he could include the strongest ever hydrogen bomb detonated a aboveground in the pacific. then this morning, president trump tweeted out -- --jeanith us, jean: médecin and david kotok. we have been experiencing geopolitical shock.

increasingly we have to contemplate the possibility -- i would not say of a war, but a serious hydrogen bomb being exploded. markets be reacting to something that dire? almost impossible to discount the geopolitical tensions we see happening in the north korean peninsula. it's love that you discard the risk attached to it, but it is almost impossible to attach a price to it. the most interesting development i see from the market reaction has been the behavior of the u.s. dollar. the u.s. dollar, which has not of ad its traditional role safe haven currency and i think this is probably the most interesting information we can get from the market right now, which is the status of the dollar as a safe haven currency

is being tested. david: do you agree with that, david? jean said it so well. you would have expected the dollar to be stronger. it did not happen. you would have expected a gold rally. you got some of it. you would not have expected the yen to get stronger. it did. where are the flows taking place? we don't know. but we are seeing market-based prices of things we would not expect from this outcome, and that is a causal. i think john makes a second point. you don't make a portfolio bet on a war. you make a portfolio bet on the avoidance of war. if you made a portfolio bet on a war, you would be 100% in cash right now. fully invested.

for a variety of reasons we watch north korea every minute. portfolio? do with a you raise defense. you put in defensive structures. what you do when you see set errors. q overweight the financial sectors, which are getting support through regulatory relief. you do not go to cash if no one fires the shot and that is a binary decision now. alix: i think the problem is, if that happens everyone will be running for the exits. david k: there is no exit. alix: richard breslau, a macro trader at bloomberg, he wrote yesterday, and i love this --

he goes on to say, we live in a world where we are searching for the coronary -- the caring area in the coal mine. sometimes the bird is singing not to forewarn. i love that. i was looking for those signs? i think it's interesting. what we are headed to into next year is probably the biggest shift in the market environment since 2009. i think we should be focused in terms of where the crux might be coming in terms of the positive market environment right now. youd: -- jonathan: traditionally have a lot of eurozone debt. what have you been doing? we have been looking at the prophets and certain segments of the market where we think we have been complacent, corporate bonds,

which is a segment that is quite vulnerable to tighter monetary conditions. and there is the tendency of investors to abandon equities to embrace safe haven sovereign bonds like the german bonds. next to that, there are things that you need to build a portfolio where you have on one hand, the good momentum grows drivers, and i think technology stocks are great, but on the other hand, there is the energy sector, which i believe is quite attractive. alix: thank you both very much. if you have a bloomberg .erminal, check out tv interact with us directly. go to tv . there is a button that says ask the guest a question. click it and we will do so.

this is bloomberg. ♪

away and 34 minutes some seconds from the opening in new york. futures a little bit softer. .1% on the doubt. we trimmed the gains for the week to pretty much nothing, dead flat after a series of record highs, but very, very muted price gains. in the bond market, here is the story.- here's the risk off on the back of the north korea story. mild risk off move. 3574, aheadflat at 1. of that speech and next hour. we will take you love to florence where theresa may is set to give that landmark speech. this is bloomberg. ♪

withhan: tensions escalate north korea. the rogue nation threatens to respond with what they call the highest hardline measure in history. and a landmark brexit speech very shortly from florence, italy and the iphone 8 hits the streaker the world gets their chance to buy the newest iphone. who is actually buying one? good morning, good morning. one welcome to "bloomberg daybreak." i'm jonathan ferro alongside david westin and alix steel. 30 minutes before the opening bell. before we get to the markets, in 15 minutes time, this speech right here, from the prime minister of the united kingdom. that is coming up in 15 minutes,

for coverage right here on bloomberg. let's get set up for some market action. days four straight of record highs, we are softer by a quarter of 1% on the s&p 500 futures. decent data out of europe herein pmi continues to firm up. euro-dollar continues to firm up as well. if you look at that mild risk off turn, it is captured by the treasury markets. no drama here. let's get you some movers. here is alix steel. alix: no drama when it comes to ge. .2%.stock is up by ceo john fleming making his first big sale. they are trying to organize and the company is selling up, spending off assets. be looking at a revamp of 2.5, three billion

dollars. john flannery was the former m&a chief. no surprise that this would be a make focus for him in the transition. be finish line is revised down by about 8%. ir sales and revenue remind, but the disappointing outlook for august still holds. they say the holiday season profit coming under expectations. more negative news about the athletic wear world when it comes to retail. a selectica talk about this forever. sprint up by almost 4%. t-mobile up by almost 1%. softbank would own 4% of the combined company and deutsche bank would have a majority stake, but will they, won't they question mark it is the best kept deal rumor in the markets. david? david: thanks so much, alix.

major headlines overnight as president trump and north korea traded threats. north korea's kim jong-il responded with warnings of what un calls -- kim jong-i the highest hardline level response ever. wilbur ross: china came out with a strong statement that there central bank will cut off chinese banks from dealing with north korea. main tradingn the partner for north korea. ,ou cut off the currency flows shooting up these rockets, that's a pretty expensive hobby. that was commerce secretary wilbur ross joining us on the program earlier. joining us now, david 10 above.

welcome back. global sanctions leader. that tells us what is going on. respond to what we heard from secretary ross, but these are sanctions cutting off the currency flow. >> secretary ross is right. the sanctions are significant. there is one more step to make them effective in that is ultimately designating institutions. that is the power that secretary -- the president trump has .ranted to secretary mnuchin the next step is to list a specific company that implements the sanctions. david: what do we know about the extent to which china is cooperating in those sanctions? >> i have spent quite a bit of time in beijing and there are a times that they have tried to of the indie for chinese institutions to focus on tougher money laundering

controls. the memo that was sent to the banks in china telling them to -- this isnsactions china --ong region of this is the particular reason of china. flags, theyve these go through different ports. they may go around these. there are circumvention attempts that have happened. it is hard to say what would happen. there have been reports of russian and chinese entity strength you bypass the sanctions. to date, no ages program is foolproof. there will always be some way people will try the around them. to behow do these compare sanctions the u.s. put on iran? >> they are extremely consistent

and that was a very significant effect on bringing iran to the table even though there were only a handful of institutions designated that cut them out of dealings with the u.s., it's identical. the point that the market needs to realize is it took a couple years to bring iran to the negotiating table. the sanctions do not move with any immediacy. jonathan: daniel, the u.s. government is questioning the deal with iran, post-sanctions. does that complicate the deal with north korea? >> the best sanctions packages in the world are multilateral. individual attempts to not generally work too well. the threats of winding back or renegotiating parts of the deal with iran does complicate matters because there are a number of large european companies that have moved to the market, either setting up operations in transacting locally with a ron in the --omotive for aviation space

it does challenge the ability to work on the global stage from a sanctions simply. has missiles.orea now apparently they of a hydrogen bomb. they are well along in the process. signal that sanctions could turn that around? >> it is currently possible. we all hope that. the difference is a ron was not part -- the difference is that iran wanted to become part of the global economy. north korea wants to destroy the west. what you really offer them? jonathan: with the cuban missile crisis, most people say publicly the u.s. said we will not invade cuba. privately they remove the missiles that could reach the ussr from places like turkey. what does the solution look like now? >> i have been out of government for long enough that my focus is on how the markets react to

this. to bring us chance back to a position we were at before mid-august. it is hard to say what the solution will look like. north korea is a very different adversary than any country we have sanctioned before. david: thank you very much. jonathan: the safety trade is back in play just on the margin as a risks and tensions tend to go up between the u.s. and north korea. treasury yields are followed by a couple of basis points. the yen is strengthening against the dollar. that is up by .4%. the vix, look at that. a good sign, alix steel. and we have the codirector of global income, eric -- david asked this this morning. how does the market react if we

wake up monday and the fx market opens up sunday in asia and the north koreans have done what the foreign minister suggested they might do, which is test the hydrogen bomb? would certainly have a risk off market reaction, the treasury yields lower, typical risk of behavior. but it's a very mild risk of treasury. the yen is 40 basis points stronger. that's thomas not thing. a chart for you. we know the average change in the s&p has been super low. what i thought was interesting, in the early 19 60's, you did in-depth having bigger moves within the at witty index. can we draw a scenario to the scenario in the 1960's or are they too different? eric: the markets have certainly evolved.

it's a geopolitical risk. we have been in this low volatility environment for a long time. the market seems relatively complacent about a variety of risks. things really escalated between the u.s. and north korea. we could see the market selloff. if it is just rhetoric, my view is that the market ski -- get desensitized to the same things over and over again and that is why we are seeing less reaction. president trump's first elected in the result a lot of concern that we would be in a trade war with china and increasingly we have to quadrant with china and get them to go on along with us. is it reassuring that maybe the u.s. and china can get along with president trump in the white house? eric: one risks heading into the trump presidency was the u.s.-china relationship.

i think that there is going to be some commonality here. certainly china does not want to see north korea collapse and u.s. soldiers are moving ever closer to the chinese border. i think they are getting increasingly fed up with north korea and i think they are looking forward to working closer with the u.s. jonathan: coming up, we will have another guest and have more as we await that speech by prime minister theresa may. that speech will come live from floors. here's a look inside the room as we expect her to start at 9:15 east coast time and 2:15 u.k.. that is coming up very shortly. this is bloomberg. ♪

prime minister theresa may reboots on brexit. the u.k. prime minister will deliver her landmark speech from that podium any moment now. she is expected to call for a transition that will give businesses time to adjust. according to her office she will say be following -- we share a profound sense of responsibility and while departure from the u.k. is inevitably difficult process, it is in all of our interest to make the negotiations succeed. let's just go one by one, what are we looking for in this speech and the subjects that she needs to take off for the various audiences? anna: as you were suggesting we expect her to talk about it, two years, that is what we have been

reporting today. she might talk about a standard transition as well. we do not know if she will get into all that detail, but that could be one of the themes. she will talk about the money, but maybe not by naming figures. she may open up the conversation and say that the u.k. is willing to talk about the divorce bill. that has been a sticking point. is the divorce bill, the right for eu citizens and the border. it is but you might touch on at least two of those today. -- it is thought she might touch on at least two of those today. they would guarantee the rights of the 3 million eu citizens who live in the u.k., guarantee those in the treaty, will that be enough? will any of this be enough to on ande conversation allow the conversation to move to trade in october. that's the big picture. mightan: the numbers she unveil today, anna, they will be significant, but she will talk about the budget hole.

that is what we have been led to believe. what might they have to agree to? comes in, the money different forms. if you occurred 10 billion euros per year, that's the amount of money that we understand she will pledge to pay in transition and that would be specifically to cover the hole in the budget. will she talk about the divorce bill? more likely she will go through the check as presented to the u.k. and say this will a per this and not that your it will she suggests that the u.k. is open to talking about pensions, those who no longer work for the union institutions? all of those minutiae details,

we may get a hint of, perhaps. beenin the cabinet have going for a very slow transition because they think that that means more money to spend a center back in the u.k. rather than giving it to the european union. the audienceseeing settling down as we wait for theresa may to start speaking. joining us on the phone, jordan, and michael mckee. jordan, sterling had a really nice run, 135. doesn't give up those games today? what a game of expectation management by theresa may? we know pre-much of the contents and even the beginning of it was leaked by number 10. for us it is more about getting some of this brexit strategy. back in january we had similar expectation management. sterling ran it 3%.

so, i do not think it is an event to ignore. they will be looking for any clarity on what the future achievements well achieved. for me, it's not as much what theresa may said today, but how the european markets react. it is a temporary stopgap for the final outcome of brexit. the transition deal means you push out the structural break, two or three years from where we are now. it could be a maybe brexit. thexpect a firmer term on selling trade. i think in the euro it is quite different because the european story is quite positive. , without a mckee doubt it's important what she says. how important is it that she has cabinetmembers -- 4

members with her. until now it has not been clear who europe is going to negotiate with? michael: in theory they negotiate with david davis, but yes, a lot of the pronouncements have been coming from number 10 and she may be setting that straight. she has two audiences. the europeans, who she has to satisfy, and the members of her party and her habit. boris johnson went off the reservation this last weekend. it does not appear she has got the cabinet on her side and their appearance is to signal to europeans the u.k. government is united in what they want to do going forward. edwards, and presumably the chief negotiator for brexit has read what we have read. he will deliver his remarks almost as soon as this speech finishes. what to expect from him? anna: yes. i wonder if he already knows

what theresa may will say. he has said he will issue a --tement pretty soon our the pretty soon after the statement. show me the money. where is the conversation about the bill. although theresa may has perhaps it's the heads of the 27 countries she is trying to address with this approach rather than the negotiator. she recognizes his authority to negotiate, but she says it's the heads of state who will make the decision here. that we should point out theresa may has arrived, i'm told in the maserati, not her usual jag. [laughter] david: -- michael: this is being in florencebey

totally outside the purview of the european governments. you just arranged us on a rome to go to a european territory to ake this speech, maybe to do reset on the political side. theo what anna was saying, british brief to the head of the european commission. they have a pretty good idea what she is going to say which tol allow the eu negotiator come up with her's quickly. they will not negotiate on trade until they settle on a divorce bill. david: make progress. michael: sufficient progress. there is a council meeting. this will probably go into next year. longer this goes on, the worse it is for the british economy. there's an imperative on her part to move this forward. does he think the u.k. has made

enough progress that they could certify and start moving forward on the economic issues? jonathan: with that in mind, for howsterling bulls, important is the sequencing and making progress today? what needsnowledge to be paid to the eu, and he says, we can move on? jordan: he gave a speech last night which i thought was quite of he isc in terms talking about moving on. so, it's not from the european side that you have the stopgap. it's from the u.k. not putting enough down to pay more. papers we've seen so far are just lists of wishes for negotiation steps. what he said last night in his speech was powerful. he said, it's time to begin scoping the future relationship -- and the key hair is in parallel. there is this moment to move on and talk about future trade deals in the coming weeks or

months. in terms of sequencing we have today's reaction. soft,l think it will be a maybe warm welcome, but still not saying it does not go far enough. i doubt the narrative will change because of tone. but we will have negotiations next week. and then there will be more news for the pound and be positive. are, once again, waiting for prime minister theresa may fill speech. this is the link or she will be appearing momentarily. and edwards is there on the spot . give us a sense of where we are now. -- anna edwards is there on the spot. anna: as we have been discussing, we know the things we're looking out for. may really wants to move things on in october. hint at the

relationship today, it will be interesting to see what she said before. she has said this since then as well. it needs to be a bespoke deal for the u.k. she does not want to lift a free-trade model of the shelf, the norway model or the swiss model. we could hear a little bit of thought about that. what will she be allowed to say by the people around her is another key question. and they will be in the room with her. how much are they allowed to put in the speech which windows 10 has been written and rewritten in recent days. david: as we get to this , whatar transition period will happen during the tw's. what does the u.k. need to do during those two years? it means to keep paying

into the budget. the negotiator is made that clear. it's interesting she does talk about a staggered transition for different parts of industry, mainly for the eu at different times. we need to see how that would work in detail. that is something being talked about. we will see where that one goes too. but yes, payment for transition would be one of the key factors. this will be key to be to getting this done and dusted. we will see what the timescale that she puts on it is. alix: they're a been lots of speeches about brexit and lots of walking back when it comes to politics in the u.k..

michael: she has to hope so. she has to hope it she is providing enough detail that they can make progress, if the certification and move forward on trade issues, while at the same time, she has to hope that conservatives do not put more pressure on her to go in the direction of the hard brexit. she seems to be backing off from that. threes only really given speeches to outline what she is doing. there was the lancaster house speech in january. moment a very pivotal for the may government, may cabinet, and what britain was to do going forward. jonathan: this is coming from the telegraph, that theresa may will user speech to lift the possibility that the u.k. could leave early. this is of course not confirmed. this is from "the telegraph."

of the back of the story, sterling's little weaker. jordan, if she raises that possibility, what are your thoughts? jordan: if she's talking about leaving before 2019 is only acceptable if it's talking about leaving the eu, not having to attend all of these meetings, on the political side of things, but if she clarifies as single market access, it's status quo really. as it is not talking about leaving the single market, if she clarifies as leaving the single market, that is huge news. jonathan: you can see that the chancellor is taken a seat and the foreign secretary boris johnson has as well. david basis -- david davis has also taken a secure that speech, we should be expecting imminently, michael.

michael: it's interesting that might be this single from her they might be leaving the single market, but in the lead up to the speech, all we have been told it she would ask for an extension. it does not seem likely she would try to take britain out of the economic relationship right now. it would take a very long time for them to negotiate a new trade deal. they need a new trade deal. the prime minister taking the stage. let's take a listen. [laughter] it is good tomay: be here in this great city of florence today. the evolutionin -- an acquittal to him in the evolution between the u.k. and the european union. it was here, or than anywhere else, that the rene sounds began.-- the renaissance

which in many ways to find what it meant to be european. of history his example shaped the modern world, a period of history that teaches us when we come together in a spirit of ambition and innovation, we have it in ourselves to do great things that shows us -- to do great things. that shows this we can forge a better, brighter future for all of our futures. we are moving through a new and critical period in the history of the 90 kingdom's relationship with the european union. the british people have decided to leave the eu and to be a global, free trading nation. they want to chart our own way in the world. this is an exciting

time, full of promise. for others it is a worrying one. i look ahead with optimism, believing if we use this to. beginningan union is a new chapter in the story of its development. just last week, president junker sat down and laid out his future for the european union. the eu institutions and the direction of the union in the years ahead. we don't want to stand in the way of that. indeed, we want to be your strongest friend and partner, as the eu and the u.k. arrive side-by-side. partnership is

important. for as we look ahead, we shared challenges and opportunities in common. values

that we can only solve in partnership. the weakening growth of global trade, the loss of popular support for the forces of liberalism and free trade that is driving moves toward protectionism. recently, the outrageous proliferation of nuclear weapons by north korea with a threat to use them. here on our own continent we see territorial aggression to the east, and from the south, threats of instability and civil

war. terrorism, crime, and other challenges which respect no borders. the only way for us to respond to this vast array of challenges is for like-minded nations and andles to come together defend the international order that we have worked so hard to create. and the values of liberty, democracy, human rights, and the rule of law by which we stand. britain has always and will always stand with its friends and allies in defense of these values. our decision to leave the european union is in no way a repudiation of this long-standing commitment. we may be leaving the european union, but we are not leaving europe. our resolve to draw on the full weight of our military intelligence, diplomatic, and development resources to lead international action with our partners on the issues that

affect the security and prosperity of our people is unchanged. our commitment to the defense and, indeed, the advance of our shared values is undimmed. defend thenation to stability, security, and prosperity of our european neighbors and friends remains steadfast. and we will do all this as a sovereign nation in which the british people are in control. leave theecision to institution of the european union was an expression of that howre, a statement about they want their democracy to work. they want more direct control of decisions that affect their daily lives, and that means those decisions being made in britain by people directly accountable to them. the strength of feeling that the british people have about this need for control and the direct

accountability of their ,oliticians is one reason why throughout its membership, the united kingdom has never totally felt at home being in the european union. and perhaps because of our history and geography, the european union never felt to us like an integral part of our national story in the way it does to so many elsewhere in europe. it is a matter of choices. of profound pooling sovereignty that is a crucial feature of the european union permits unprecedentedly deep cooperation which brings benefits, but also means that when some are in the minority, they must accept decisions they even affecting domestic matters with no market implications beyond their borders. when such decisions are taken, they can be very hard to change. so the british electorate made a choice, they chose the power of domestic democratic control over

pooling that control, strengthening the role of the u.k. parliament and the scottish parliament, welsh, and northern ireland assembly's, in deciding our laws. that is our choice. it does not mean that we are no longer a proud member of the family of european nations and it does not mean that we are turning our back on europe, or worse, that we do not wish the eu to succeed. the success of the eu is profoundly in our national interest, and that of the wider world. having made this choice, the we then now is whether leaders of britain and eu member states and institutions can demonstrate that creativity, innovation, that ambition that we need to shape a new partnership to the benefit of all our people. i believe we must, and i believe we can. for while the u.k.'s departure

from the eu is inevitably a difficult process, it isn't all of our interest for negotiations to succeed. if we were to fail or be divided, the only beneficiaries would be those who reject our values and oppose our interests. i believe we share a profound sense of responsibility to make this change work smoothly and sensibly, not just for people but for the next generation who will inherit the world we leave them. ,he eyes of the world are on us but if we can be imaginative and creative about the way we establish this new relationship, if we can proceed on the basis of trust with each other, i believe we can be optimistic about the future we can build for the united kingdom and the european union. in my speech at a lancaster house earlier this year, i sent out the u.k.'s negotiation

objectives. those still stand today. since that speech and the triggering of article 50 in march, the u.k. has published 14 papers to address the current issues in the talks and sent out the building blocks of the relationship we would like to see with the eu, both as we leave, and into the future. we have now conducted three rounds of negotiations and while at times negotiations have been tough, it's clear, thanks to the professionalism and diligence of david davis and michel cartier, we have made concrete progress on many important issues. for example, we have recognized from the outset there are unique issues to consider when it comes to northern ireland. the u.k. government, irish government, and the eu as a whole are being clear that our thethe process of

drawl we will protect progress our the drawl we will protect progress made, outlined [inaudible]

ireland and everyone on the island of ireland to see through these commitments. we have also made significant progress on how we look after european nationals living in the u.k. and british nationals living in the 27 member states of the eu.

i know that this whole process has been a cause of great worry and anxiety for them and their ones, but i want to repeat to the 600,000 italians in the u.k. and indeed all eu citizens who have made their lives in our country, that we want you to stay, we value you, and we thank you for your contribution to our national life. it has been and remains one of my first goals in this negotiation to ensure you can carry on living your lives as before. i can clear that the guarantee i'm giving on your rights is anyone withdoubt real experience of the u.k. went down the independence of our courts are of the rigor of which they uphold people's legal rights. i know that our concerns over time, the rights of eu citizens in the u.k. and u.k. citizens overseas will diverge, and i want to incorporate our agreement fully into u.k. law

and make sure the u.k. courts can refer directly to it. and when there is uncertainty around the underlying eu law, i want the u.k. courts to be able to take into account the judgments of the european court of justice with a view to ensuring consistent interpretation. hope ouris basis, i teams can reach firm agreement quickly. at the moment, the negotiations arrangementsn the for the u.k. withdrawal from the arrangements for the u.k. withdrawal from the eu but we need to move on to talk about our future relationship. of course, we recognize we cannot leave the eu and have everything stay the same. of life for us will be different. but what we do want, what we hope that you, our european friends want, too, is to stay on as partners, working for our mutual benefit. in short, we want to work hand-in-hand with the european

union rather than as part of the european union. that is why in my speech at lancaster house i said the united kingdom would seek to secure a new comment date, and special partnership with the european union. a newis should span both economic relationship and a new relationship on security. so let me set out what each of these relationships could look like before turning to the question of how we get there. let me start with the economic partnership. united kingdom is leaving the european union. we will no longer be members of its single market or its customs union. for we understand a single markets for freedoms are indivisible for our european friends. we recognize the single market is built on a balance of rights and obligations, and we do not pretend that you can have all the benefits of membership of a single market without its obligations. so our task is to find a new

framework that allows for a bute economic partnership holds those rights and obligations in a new and different balance. but as we work out together how to do so, we don't start with a blank sheet of paper, like other external partners, negotiating a free trade deal from scratch. in fact, we start from an unprecedented position. for we have the same rules and regulations as the eu and our eu withdrawal bill would ensure they are carried over into our domestic law at the moment we leave the eu. so the question for us now in building a new economic partnership is not how we bring our rules and regulations closer together but what we do when one of us wants to make changes. one way of approaching this question is to put forward a stock and unimaginative choice between two models. either something based on p, orean economic membershi

a free-trade agreement such that the eu has negotiated with canada. i don't believe either of these options would be best for the u.k. or best for the european union. european economic area membership would mean the u.k., having to a dot plot home automatically and in their entirety, new eu rules are rules over which in future we would have little influence and no vote. such a loss of democratic control could not work for the british people. i fear it would inevitably lead to friction and a damaging reopening of the nature of our .elationship in the near future the very last thing that anyone on either side of the channel wants. freer a canadian style trade agreement, we should recognize, this is the most advanced and agreement the eu has yet concluded and they break through trade between canada and the eu, but compared with what exist between britain and the eu

it was nevertheless represent such a restriction on our mutual market access that it would benefit neither of our economies. not only that, it would start from the false premise that there is no pre-existing regulatory relationship between us, and precedent suggests it could take years to negotiate. we can do so much better than this. as i said at lancaster house, let us not seek merely to a dull day model already enjoyed by other countries. instead, let us be created as well as practical in designing an ambitious economic partnership which respects the freedoms and principles of the eu and the wishes of the british people. i believe there are good reasons for this level of optimism and ambition. first of all, the u.k. is the eu's largest trading partner, one of the largest economies in the world, and a market of considerable importance for many

businesses and jobs across the continent. and the eu is our largest trading partner, so it's in all of our interest to find a creative solution. and the eu has shown in the past that creative arrangements can be agreed in other areas. for example, it has developed a diverse array of arrangements with neighboring countries outside of the eu both an economic relations and in justice and home affairs. furthermore, we share the same set of fundamental beliefs. a believe in free trade, rigorous and fair competition, strong consumer rights, and that trying to beat other countries industries by unfairly subsidizing one's own is a serious mistake, so there is no need to impose tariffs where we have not now, and i don't think anyone sensible is contemplating this. as we set out in a future partnership paper, when it comes to trading goods, we will do

everything we can to avoid friction at the border. of course, the regulatory issues are crucial. we share a commitment to higher regulatory standards and people in britain do not want shoddy goods, shoddy services, a poor environment, or exploitative working practices. i can never imagine them thinking those things to be acceptable. the government i lead is committed not only to protecting high standards but strengthening them. so i'm optimistic about what we can achieve by finding a creative solution to a new economic relationship that can support prosperity for all our people's. in any trading relationship, both sides have to agree on a set of rules which govern how each side behaves. so we will need to discuss with our european partners and ways of managing our interdependence and our differences in the context of our shared values. there will be areas of policy

and regulation which are outside the scope of our trade and economic relations. there will be areas which affect our economic relations where we and our european friends may have different goals, or where we share the same goals, but want to achieve them through different means. there will be areas where we want to achieve the same goals in the same ways because it makes sense for our economies. and because rights and obligations thus be held in balance, the decisions we both take would have consequences for the uk's access to european markets, and vice versa. to make this partnership work, because disagreements inevitably arise, we will need a strong and appropriate dispute resolution mechanism. it is of course vital that any agreement reached, it's specific terms and the principles on which it is based, are interpreted in the same way by the european union and the united kingdom. and we want to discuss how we do that. this could not mean that the european court of justice, or

indeed, u.k. courts being the arbiter of disputes about the implementation of the agreement between the u.k. anti-e.u., however. it would not be right for one party's court to have jurisdiction over the other dude i'm confident we can have an appropriate mechanism for resolving disputes. so this new economic partnership would be comprehensive and ambitious. it would be underpinned by high standards and a practical approach to regulation that enables us to continue to work together in bringing shared prosperity to our peoples for generations to come. let me turn to the new security relationship that we want to see it to keep our people safe and secure our values and interests, i believe it's essential that although the u.k. is leaving the eu, the quality of our cooperation on security is maintained. we believe we should be as open-minded as possible about how we continue to work together

on what can be life and death matters. notsecurity cooperation is just vital because our people face the same threats, but also because we share the same historic believe in values, the values of peace, democracy, human rights, and the rule of law. course, there is no pre-existing model for cooperation between the eu and external partners which replicates the full scale and depth of collaboration that currently exists between the eu and u.k. on security, law enforcement, and criminal justice. but as the threats we face evolve faster than ever, i believe it is vital that we work together to design new dynamic arrangements that go beyond the existing arrangements that the eu has in this area, and draw on the legal models the eu has previously used to structure

cooperation with external partners in other fields such as trade. so we are proposing a bold, new strategic agreement that provides a comprehensive framework for future security, law enforcement, and criminal justice cooperation. a treaty between the u.k. anti-e.u.. this would complement the extensive and mature bilateral relationships that we already have with european friends to promote our common security. our ambition would be to build a model that is underpinned by our shared principles including high standards of data protection and human rights. it would be kept sufficiently versatile and dynamic to respond to the ever evolving threats that we face. and it would create an ongoing dialogue in which a law enforcement and criminal justice priorities can be shared, and where appropriate, tackled jointly. and we are also proposing a

far-reaching partnership on how we protect europe together from the threats we face in the world today, how we work together to promote our shared values and interests abroad, whether security, spreading the rule of law, dealing with emerging threats, handling the migration crisis, or helping countries out of poverty. the united kingdom has outstanding capabilities. we have the biggest defense budget in europe and one of the largest development budgets in the world. we have a far-reaching diplomatic network and world-class security, intelligence, and law enforcement services. so what we offering will be ,nprecedented in its breadth taking in cooperation on diplomacy, defense, and security, and development, and will be unprecedented in its depth, in terms of the degree of engagement we would aim to deliver. it is our ambition to work as closely as possible together our the eu protecting people, promoting our values,

and ensuring the future security of our continent. the united kingdom is unconditionally committed to maintaining europe's security, and the u.k. will continue to offer aid and assistance to the eu member states that are the victims of armed aggression, terrorism, and natural or man-made disasters. taken as a whole, this bold new security partnership would not only reflect our history and practical benefits of cooperation in tackling shared threats, but also demonstrate the u.k.'s and genuine commitment to promoting our shared values across the world, and to maintaining a secure and prosperous europe. and that is the partnership i want british -- britain and the european union to have in the future. none of its goals should be controversial. everything i have said is about creating a long-term relationship through which the nations of the european union and the united kingdom can work

together for the mutual benefit of all our people. if we adopt this vision of a deep and special partnership, the question is then how we get there, how we build a bridge from where we are now, to where we want to be. the united kingdom will cease to be a member of the european union on the 29th of march, 2019 . we will no longer sit at the european council table or in the council of ministers, and we will no longer have members of the european parliament. our relations with countries outside the eu can be developed in new ways, including through our own trade negotiations because we will no longer be an eu country and will no longer degree -- directly benefit from trading negotiations. but at that point, neither the u.k. or the eu and its member states will be in a position to implement smoothly many of the detailed arrangements that would underpin this new relationship we seek. legally ablee eu

to conclude an agreement with the u.k. as an external partner while it is itself still part of the european union. such an agreement on the future partnership would require the appropriate legal ratification which would take time. it is also the case that people and businesses both in the u.k. and in the eu would benefit from a period to adjust to the new arrangements in a smooth and orderly way. as i said in my speech at lancaster house, a period of implementation would be in our mutual interest, and that is why i'm proposing that there should be such a period after the u.k. leaves the eu. clearly, people, businesses, public servants should only have to plan for one set of changes in the relationship between the u.k. and the eu. so during the implementation period, access to one another's markets should continue on current terms, and britain should also continue to take

part in existing security measures. i know businesses in particular would welcome the certainty this would provide. the framework for this strictly time-limited period, which can be agreed under article 50 emma would be the existing structure of eu rules and regulations. the framework for this strictly time-limitedhow long the periode determined simply by how long it would take to prepare and implement a new processes and new systems that would underpin the future partnership. for example, it will take time to put in place a new immigration system required to retake control of the uk's borders. during the implementation period , people will continue to be able to come and live and work in the u.k. but there will be a registration system, and essential preparation for the new regime. as of today, these considerations .2 and implementation period of around two years. because i don't believe that either the eu or the british people will want the u.k. to stay longer in the existing

structures than is necessary, we could also agreed to bring forward aspects of that future framework such as new dispute resolution mechanisms more quickly, if this can be done smoothly. it is clear that what would be most helpful to people and businesses on both sides who want this process to be smooth and orderly is for us to agree the detailed arrangements for this implementation period as early as possible. although we recognize the eu institutions will need to adopt a formal position. at the heart of these arrangements there should be a guaranteele lock, and that there will be a period of implementation giving businesses and people alike the certainty they will be able to prepare for the change, and the guarantee that this implementation period will be time-limited, giving everyone the certainty that this will not go on forever.

these arrangements will create .aluable certain t but in this context, unconscious that our departure causes another type of uncertainty for the remaining member states and their taxpayers over the eu .udget some of the claims made on this issue are exaggerated and unhelpful and we can only resolve this as part of the settlement of all the issues i have been talking about today. still, i do not want our partners to fear that they will need to pay more or receive less over the remainder of the current budget plan as a result of our decision to leave. the u.k. will honor commitments we have made during the period of our membership. as we move forward, we will also want to continue working together in ways that promote the long-term economic development of our continent. this includes continuing to take specific policies and programs which are greatly

to the u.k. anti-e.u.'s joint advantage -- and the eu's joint advantage, such as those that promote culture and security. as i set out in my speech at lancaster house, in doing so, we would want to make an ongoing contribution to cover our fair .hare of the costs involved when i gave my speech at the beginning of this year, i spoke not just about the preparations we were making for a successful negotiation, but also about our preparations for our life , withe the european union or without what i hope will be a successful deal, and the necessary work continues on all of these fronts so that we are able to meet any eventual outcome. but as we meet here today, in this city of creativity and rebirth, let us open our minds to the possible, to a new year of