>> korea tensions. some scenarios to solve the crisis are uglier than others as pyongyang said it could shoot down american warplanes. macron turns to merkel. the french president will need germany's support as he tries to reshape europe. but with merkel's position h helped, how much can hshe provide?

draghi said the ecb will keep as much stimulus as the eu economy needs. we have an exclusive interview minister,'s finance pier carlo padoan. in london, european stocks, little changed. one hour into the trading day, up marginally for the fourth consecutive day. best run since september. we have had fresh threats from north korea, sending money into haven assets. the euro falling for a second day post the german election down to 1.1813. falling five basis points in the wake of the german election. brent crude is just a low $60 a barrel, down by .6%.

why we saw gains in the last 24 hours, turkey threatened to shut down curtis shipments -- shutdown kurdish shipments through its territory. there is no a seven dollar spread between the benchmarks. greece willank of start stress tests to determine if they need fresh capital before the greek bailout program. the results of the test could be ready in early may. that comes as maria draghi said yesterday the single supervisory mechanism might hurt those stress loads for greek banks. the latest republican bill to repeal and replace obamacare has been dealt a fatal blow as susan collins became the third gop senator to say she would vote against the bill. it's latest trailer by

republican -- it is the latest failure by republicans. a fast track mechanism that allows the gop to bypassed immigrant support expires by the end of this week. in iraq, millions of kurds have voted in a historic referendum on independence. the repercussions will be felt throughout the field. more than 30 million kurds has spread across the borders of syria, iran and turkey. brent crude climbed to a two year high. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm nejra cehic. this is bloomberg. mark: the u.s. has discussed four or five ways to deal with north korea. some ofaster said the choices were uglier than

others. officials dismissed north korean foreign minister's comment. that donald trump's warnings equealed a call to war. gentlemen, thank you for joining us today. does north korea have the potential, charlie and daniel, to truly disrupt the calm we have seen in markets? >> if you think about where we were one month ago when we had expectations for the fed hiking rates near 20%, you had treasury yields moving back down, and part of that was north korea, as well as the hurricanes. a month or so later, the concerns about north korea should be higher, but you see yield at 20 basis points. it does show you a bit of a

disconnect were at that point, markets were a bit too concerned. maybe we are now back to complacency. it does seem there is the potential there for another surprise, another missile launch out of north korea to upset the calm. mark: what shakes up the complacency which many are alluding to, charlie, on a daily basis? >> i mean, all must always it is a tightening of financial conditions that really brings to an end this sort of extended kind of risk run. we see that in all other cycles. and that is not a one-day event. be a north korea episode, shall we say. most likely it will be the central bank continuing to withdraw accommodation. matt: conditions remain remarkably loose, despite the fact the fed is raising rates. >> at the moment, that is the self the filling prophecy. if that encourages the fed to get more aggressive, he will have to take more stimulus out

of the system, which is a possibility. if you listen to yellen and dudley, they are still keen to move in december and that could start taking its toll. but that is the six month view. mark: we will talk more about central banks in a second. in the meantime, sometimes investors move on from north korea. we are playing that risk on -risk off game aren't we, in recent weeks? >> as you say, the war of words, we hope it remains a war of words. from an investor's point of view, because it is political and noneconomic, it is inherently unpredictable. the german election is an example of that. on one hand, we want more volatility, so it is not necessarily bad because that gives you an opportunity to move into an asset class you like

that you think is too expensive. at the same time, we are trying to have a medium-term view on what the outlook trend should be, despite the volatility around it. mark: charlie, how would you look at it from a rate perspective? >> at the moment, we are neutral on duration. one of the overriding themes has been favoring em duration over dm. we are favoring duration oferiences in the likes southeast asia, in indonesia. returns from what is a relatively benign environment. so, that's working quite well at the moment. it's not going to work forever. mark: it is a question, isn't it, this em trade? what sort of legs does it have? it's been a good year.

>> it has been a good year. as long as central bankers remain relatively predictable, there still are some legs in it. if we were to wake up tomorrow and the federal reserve said we had been missing the point and we need to get much more aggressive and inflation is the problem, then that could endanger it, particularly as we also started see the dollar recover. >> i think it has done quite well so far this year. the appeal of had in terms of spreads, a lot of that has gone away. we still do like it, but not quite as much. and all sitting reduced potential, particularly in local currency, is the risk, which is arguably growing. and that centers around the dollar. that is the unpredictable affect us right now. if you did, for whatever reason, see dollar appreciation through the end of the year, that is one

obvious threat to e.m. trade. mark: gentlemen, they stay with us. daniel morris and charlie diebel. let's get out to the bloomberg banking conference in milan. standing by with the italian fry nantz minister -- with the italian finance minister, francine. matt: i have been looking forward to this interview all day. we have a lot to talk about with thhe minister of economy and finance. thank you for joining us. we need to talk about the banks in politics, but let's kick off with the german election. what does that mean for political stability? >> we will see what comes out of the negotiations in germany. this is a critical time for europe because russia was mounting for pushing forward reforms, which is much needed in europe.

we have left the major crisis behind us. let's hope this does not derai l the discussion. francine: do investors still ask you about the banking system and nonperforming loans? >> well, we are at a turning point. we have turned a corner. in mpl's, stocks are declining. and of course, critical cases have been dealt with. sector will start funding. francine: how do you worry about the upcoming italian election? now that the german election is over, will investors start worrying about whatever grand coalition or party could win? >> there is definitely a lot of uncertainty about the outcome. format,is that the which has been brought over in the last four years, will continue because this is what italy needs. matt: but if your government is

not in charge, what is the likelihood of those reforms going through and how should investors be reacting? >> i cannot answer that question. we will have to see. the commitment of the present government is to continue working for the continued time in office, sending to the parliament a budget, which will support growth and also continue fiscal consolidation. francine: so, is that your priority, the budget? what are your two priorities now until the election in may of next year? >> the priority is to conclude the budget process, which is well ahead with encouraging numbers coming, in terms of growth, which is higher than expected, in terms of debt, which is starting to fall, in terms of the turning point in the banking system. if if we do all of these things together, we have a much

better outlook. the election of president macron in france, and now with what we saw in germany, are we going to see more integration in europe? >> this is what europe needs. there is a rich agenda out there and italy is working hard with other countries, with france, germany and spain, to develop an agenda and push it forward. francine: what does brexit mean? the speech theresa may gave helpful? >> it was moderately helpful, but we will have to see the details. i do hope the brexit negotiations get on a straight course. this is what we need. what we do not need is further uncertainty in europe. francine: what does that mean specifically? if you have tough brexit

negotiations, will people move milan?ndon and >> the milan is an attractive city. so, this is a welcome side effect. promote growth to the single market. francine: do you and other group finance ministers worry about that.k. crashing out, there is not enough time to negotiate? >> know, we worry about not having a clear roadmap, so the u.k. sets out their positions clearly and the european union commission are able to respond as clearly as possible. francine: what would you describe the mood like at the moment? it's an inflection point for the bank. >> it's a mix of better results. you can see in that confidence,

consumers, and banks. future elections are not obvious through anybody, how they will prevail. francine: how should politicians stay to the people of italy to try to win their vote. has diplomacy changed? >> i can tell you how i would speak to the electorate. i would say, we have gone a long way over the last four years, along what we call the narrow path. we have made a lot of progress now with sustained growth and oil is increasing and reforms are beginning to bite. let's not interrupt this strategy. francine: you think they will be influenced by the budget? do you think people make up their minds on other things? >> we will present parliament with a budget over the next few weeks. a continues on a strong consolidation path.

it contains some new sources for supporting investments. these are the priorities of the government. the people because unemployment is the most pressing urgency in the agenda. francine: are banks lending enough in italy? >> they will go back to normal once they clean up their balance sheet. this is happening very quickly, faster than expected. they have to go back to do their job. francine: at this point, do you think banks are not lending enough? >> this is an old debate. there is a lot of investment, so i present companies are asking credit from the banks. and credit is going from the banks to companies at the speed which they can be approved. francine: i know we have to wrap it up, but do you think there

will be more cross-border consolidation? do you see a change amongst regulators and appetite if we get more integration, that banks will actually? >> with more integration, there will be more polluted the .viation will show >> this is always a two way gam e. both things will happen, i expect. francine: one final question on milan. do you think milan is changing? >> milan is changing already and milan is changing italy. francine: thank you so much for your time today. that was pier carlo padoan, the italian finance minister. we are going to run off and do this panel. we will be joined by many panelists.

we will be talking about opportunities and challenges for italian and european banks. the italian by finance minister. let's get the bloomberg business flash. >> an agreement on a framework to tie up their rail unit. a supervisory board is preparing to me to sign off the deal. they say they are likely to own slightly more than 50% of the combined entity and the agreement could be announced as early as today. those companies declined to comment. is being targeted as soon as next year. the offering could value china's most popular netflix style streaming video service at up to $10 billion. baidu wants to continue offering a controlling stake in ichi in the ipo. nestle has said a cuss ability target for one to 20, saying the

underlying trading operating 5argin should be 17.5 to 18. cents. mark schneider is set to meet with investors this morning. he has said it should sell its stake. jpmorgan is thtoo hire 3000 people for a pub in warsaw over the next three years. the company will do fine team roles over the next three month. is looking for competition. the luxury unit has been holding internal discussions on buying other brands to diversify the range of vehicles itself. representatives for tata group declined to comment. mark: macron will outline his

proposals to refine the european union today. the french president plans to announce all areas, ranging from defense, to the immigration, to the economy. angela merkel has other things on her mind. still with us, daniel morris. and still with us, charlie diebel. daniel, if i could start with you. i was going to outline his grand vision for forming the eu. he has one arm tied behind his back after the results of the german election over the weekend. >> typing full from both sides because there was the promise that macron could have answered. the problems were being addressed domestically and we just started down that path. we need to see that that continues because that is part

of the credibility he needs to have with the other leaders. yes, on the other hand, the enthusiasm as it does swing from one end of the extreme to the other. we probably got a bit too optimistic for performing before the eu with macron and italy and merkel. it will probably be a little moreoptimistic for performing be different than the market slot. euro, given the the results of the election, sincee fell by the most december of last year against the dollar. asked -- ischair the near-term past one of the downward trajectories? >> i mean, point out there has been a strong trend in favor of the euro. it is not surprising that we saw a bit of a selloff. i think in terms of, does this longe irritate the long-term

process for the euro. i believe it means the recovery process takes a little bit longer. the idea that we would suddenly accelerate into a european seer of solutions was a bit optimistic. fundamental europe has done pretty good on the growth side. the ecb be very slow at taking away accommodation. i think the underlying story for the euro is relatively positive. we may see a bit more of a correction, but i think it gives you an opportunity to rebuy the euro. mark: daniel? >> i think over the medium term, it does seem that the euro is undervalued. we also wonder how far it has moved this ear year. also, expectations for the fed,

still pretty low for december where on the other hand, if you are listening to what the fed's fomc meetings are saying, the probability is higher. there is potential for more strength of the dollar side, even if the fundamental direction is more clear. mark: you have any coalition risks, charlie and daniel? let's discuss. this rainbow, this jamaican coalition is being discussed because the grand coalition with the social democrats looks to be off the table, at least for now. there seem to be very many perils in the formation of this to make it coalition -- of this jamaica coalition. think to sit there, it is a bit like the brexit negotiations. if people don't take it seriously, it's going to go on for months and it is going to be

difficult to draw a coalition together. we have had coalition government in germany, since the second world war. it's the way it operates. they are used to it. it is just a process you have to go through. it's fair there is a sticking point, particularly with the ftp, the against the eur integrationo. likeonestly, that is a bit canoes trying to hold back the tide. realistically, if they want to have a seat of power, they have to compromise just like everybody else. not only the impact and implications for the eu, but for domestic and policy decisions for germany. before the election we heard that foreign investors come are the commentators, want to germany to spend more to invest more. i am wondering whether that has changed because of this.

also, the attitude before the election that everyone seems to be quite happy with merkel, but complained about the lack of diamondism. i think we will have a little more because she has to build this coalition, police, parties, and that will probably mean policy change. you do have the stability with merkel, but perhaps you could make more change it you could go for a bigger victory. year andhas been a people have managed to overcome a turtle, the french election. now possible, the catalonia referendum this weekend, as they were speaking with mr. pettit adoan. how do you see those hurdles theomer catalonia and upcoming italian election?

>> i think the catalonia situation is a difficult one because it is not really sanctioned by the central government. rangea clear will of that that is what they want to if you, but equally think back to brexit here, where scotland might want to stay part of the eu, happens with catalonia where it to separate from spain? because with that chuck it out and having to reapply, if you go down the decision tree, it remains very complicated. mark: it highlights that there are still fishers. >> absolutely right. i think italy is a much more interesting situation because that is a place where, depending on the opinion and as you pointed out, the populism is

still there to a degree in europe. if that continues perhaps we see a little bit of a dip in the italian growth and a little bit more pessimism, you don't know what that election outcome could be. francine: we will hold those thoughts. diebel. we'll be right back.

mark: getting some breaking news, a tweet from the european council president who says he will be discussing progress of the brexit talks with the e.u.

27 negotiation -- negotiator michel barnier the four he meets with theresa may in london. discussed u.s. has several ways to deal with north korea according to h.r. mcmaster , who says some of the choices ." heuglier than others says the threat is much further advanced than expected but dismissed the warnings that -- the bank of greece lance to -- plans to tests start stress tests to determine if they will made fresh capital before the end of the bailout. that comes as ecb president mario draghi said yesterday the single supervisory mechanism -- the buildests

to repeal and replace obamacare has been dealt a fatal blow as susan collins he comes the third gop senator to vote against the bill. a fast-track mechanism that allows the gop to bypass democratic support expires at the end of this week. president trump is said to have told dinner guests in washington for tax reformll by the end of this year. both chambers will have to i -- the president of the federal reserve bank of minneapolis has backed janet yellen for a second term. this as donald trump continues to weigh who will lead the central bank next year.

>> i really hope she gets reappointed. i cannot think of anybody who is better to lead the federal reserve than her. financial crisis experience, she is a rare economist with exceptional leadership skills. iraq, millions of kurds have voted on a referendum for independence. feltepercussions will be further afield. within 30 million kurds are dispersed across the borders here at brent crude climbed to a two-year high amid concerns of disruption of kurdish oil supply. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am nejra cehic. this is bloomberg. the goldman sachs european financial leveraged conference

is taking place and with us is huw pill, chief economist for goldman sachs. >> welcome. benevolent dovish draghi at the end of the speech, am i being overly gracious. i think it is in line with what we have heard in the past and we are not expecting him to see,-- we expect him to moving toward some tapering of asset purchases next year but to draw out taper because given the investment the ecb has made in this emphasis on the sequencing, we will not raise rates until asset purchases are complete, that drawn out process pushes the prospect of the for rate hike into 20 19th it is a dovish

story but closer to what markets are pricing. manus: there was no preset level of what a balance sheet should be. to you have a number in mind when the taper is done, when everything is done, where that balance sheet will be? is all aboutr slowing the expansion of the balance sheet. in an ideal world as the fed is moving toward, central bank balance sheets may have risen to a level that is too big and is interfering with market behavior. relative to where we were before the crisis, comparing the future with a decade ago, i think the ecb balance sheet will be bigger in that new study environment. i think the ecb de facto as other central banks have, has taken responsibility for maintaining the functioning and liquidity of some market. precrisis, central banks held fx

reserves. but we have learned in the process of the global crisis is that central banks cannot afford to not intervene in the systemically important markets domestically, and in europe that would include the money market, the bank funding market. unless we see a very big change in the institutional structure thatrope's fiscal union probably means heavy continued inlvement in peripheral sovereigns. manus: there is big risk on the table for next year, for example in italy we have an election. huw: it is difficult to escape when you are talking about systemically important terrific -- peripheral sovereign markets. a large part of that being the

sovereign asset purchases being made in that space by the ecb and bank of italiana. you have achieved more stability and it would take a big political shock to disturb that. the backstops that are in place and the ecb and bank of italiana will be holding almost a quarter of the outstanding stock by the end of next year. when you are in an environment where long fixed income investors are having to pay for the privilege of holding german sovereign debt, that creates a big incentive for their neighbors in the risk spectrum to hold italian debt. , a phrase one thing used recently by the ecb that all central banks need to tantrum. tight, not a what is the bandwidth for reduction in qe? 20 billion, 40 million? huw: mr. draghi is saying the

same thing. prudence is the same thing in different words. persistent accommodation changes and a prudent manner. i think it is a consensus view. we expect to see a pretty linear taper in the course of next year . we are starting from 60 billion and by the end of next year we expect to get to zero. we do not really expect it to be so much in the mode of going from 60 to 40 and we will see. we expect a stronger signal up front that you will go to zero because the more skeptical northern europeans want to see a relatively stronger signal that you will end up at zero to allow the flexibility, vis-a-vis the capital key in terms of asset purchases, is needed to perpetuate the program toward the anti-of next year.

manus: we have macron making a speech a little bit later. you touched on it briefly. the ambition is a grander and more collegiate europe, a fiscal unit, a monetary union. has that disappeared as a result of the coalition building that merkel has? huw: it is certainly complicated and the coalition in germany will involve parties that have shown a lot of skepticism about movement toward fiscal transfers in europe and greater fiscal integration. that will be complicated by domestic german politics. i think it was always somewhat overoptimistic to imagine we would see a great grand bargain emerge in short order after the german election. what we should expect to see is positive mood music, given the

environment we are in, will be enough to maintain the current stability and the prospect of deeper integration is one that it is -- is a decade-long process. manus: thank you for joining us today, huw pill, at goldman sachs. chat, manus cranny at the goldman sachs european leveraged financial conference in london. president trump says the tax reform bill will be approved by both houses before the end of next year. is that optimistic for the timeline really possible? ♪

♪ mark: you are watching bloomberg

"surveillance," i am mark barton in london. nejra: it is not really a clear-cut picture when you look at the markets. the asian session was risk off and you are seeing losses in european equities by the stock exchange in greece, but the dollar is bouncing back. 1%. weaker, down 3/10 of sterling still holding up a generally the dollar strength coming through. yields tick higher ever so slightly in some parts of europe . somewhat of a weaker gold price but a metals bid on the metal exchange. not a clear-cut picture in terms of whether it is risk on or risk off. the dax, yesterday when we saw thelose higher following german election results it started to approach 70 on the

relative strength index, a signal it could be overboard. we are at 66, and for it to be a sell signal it has got to go above 70 and come back down so that is where we are on the dax, and ever so slightly weaker. the dollar index, we are seeing a touch of dollar in tech -- dollar weakness against the yen and dollar trading around the 200 day moving average. i am getting into a lot of technicals, taking a look at brent crude. earlier in the session and went as high as 59.49 a barrel. if it hits $60 a barrel it will be the first time since july 2015. 58 -- 58.65.are at where the tension between turkey and kurdistan. the 50 day moving average

crossing above the 200 day, we know it as the golden cross. it has seen a touch of weakness this is still a bullish signal. mark: getting breaking news from had a, we have already number of headlines from the world's biggest food company. the chief executive is speaking to investors today and says the approach to the l'oreal investment is changing. following the death of the earlierrichest lady this week, the suggestion was that nestle might sell that stake. the chief executive says that the approach to the investment .s changing -- is not changing l'oreal has been a fantastic the investment. five to 6% organic target was too narrow a band, he said and the company may adjust its portfolio by 10% of group sales.

a number of headlines crossing the bloomberg terminal from the chief executive who is meeting executives today, ceo mark schneider trying to revive the world's biggest food company. is asking for a big shakeup at the swiss company. let's talk about donald trump who is said to have told dinner guests he expects the house reform bill will pass this month. the schedule is seen as aggressive. the last time congress passed a tax overhaul bill it took about 10 months to get signed by the president. still with us, daniel morris and charles diebel. what is priced in? what is priced in when it comes to tax reform? daniel: if you look at the

multiple on the s&p 500 it was 16 and a half at the election and 17 and a half now. treasury yields were at 1.8 five and we are a bit above that so there appears to be some anticipation expectation. we are waiting to see not only when it is but what it is. from a political perspective, the republicans have to have -- mark: what will that something look like and when? daniel: they have to pass tax reform and certainly before the midterm elections because they have no accomplishments to show. it is a political imperative and should be sufficient, to believe they will come through. if they fail the way they did with health care reform, what does that mean for the markets? mark: and what does it mean, charlie, if they fail in implementing some measure of tax reform? charles: the likely outcome is there will be something, i

completely agree, but it is about the scale and ambition that dictates -- saying tax reform sounds like you are reforming the whole tax code and there is this big wall of revolutionary structural change he is going through that will revitalize the u.s. economy, i think that is pretty unlikely. to get something like that through both houses certainly in the timeframe he is talking -- mark: he is breaking the corporation tax down. is that enough? daniel: we want all the offshore cash brought back to the u.s., it is a big ask and in the timeframe, you would think impossible. as we saw with health care, anytime you want to make changes of significance there will be opposition peers if you are talking about cutting corporate tax rates you are cutting loopholes and raising tax rates other where -- other places.

i think they are aiming higher. mark: he is having trouble repealing obamacare. there are the nfl troubles, there is daca, the debt ceiling at the end of the year. the to do list is piling up. charles: keeping in mind you have midterms november next year with allgo into those of these republicans effectively facing a complete failure of implementing anything, then the rewrite you could see on the u.s. political landscape could be quite substantial. something has to go through and to be honest, you are talking about piling up so much and raising the expectations of something in such a short time frame is almost come a setting yourself up for failure. the meantime, asset

allocation when it comes to the u.s. is what? hadel: the concerns u.s. for a long time about valuations are ever present so from that point of view we are still underweight u.s. equities. you would argue we have done better than expected in terms of u.s. equities but it goes back to sustainability, not only valuations but how much earnings growth you can get from the u.s. . treasuries, it comes back to this debate where we talked about central banks and expectations and the central bank, a little less certainty. mark: daniel morris and charles diebel. up next, mario draghi says the euro area will get all the support it needs as he tries to perform a balancing act ahead of the ecb policy meeting next month, central bank talk next. ♪

♪ you are watching bloomberg "surveillance," i am mark barton. draghi says the ecb will keep stimulus as they adjust their bond buying program.

uncertain seas about the medium-term dutch uncertainties about the medium-term inflation -- >> our monetary policy has one mandate, to a sure price stability and price stability is defined as an inflation rate that is close to 2%. today we are not there, our inflation rates are lower. mark: still with us are daniel morris and charles diebel. the ecb first, october obviously a pivotal meeting. what concrete announcements will we get? charles: i am slightly skeptical we will get anything really concrete in october. i think we will get more hints but we may not tie down the schedule until december. that is my personal opinion.

either way, i think the progress is going to be that when they taper, it will be very slow and drawn out. unwind andthe fed the very slow pace they are undertaking, i think the same will be true at the ecb. effective, fed funds december, 63%? a few months away or is it a bit too low? daniel: it is low. you have had relatively low probabilities if you looked -- compared to if you look at the rhetoric. they will go for us, 100% and it seems it is priced in. mark: u.s. rates outlooks ahead of december? remains rangeion bound and i do not see the case for a big selloff, but the

economy is doing well so we are kind of in neutral for the time being until we get either a more aggressive fed that the market is discounting or we see the economy start to roll over. -- 70%,vember 70, for december 80%, slightly more hawkish. the boe, when is the next rate hike? daniel: november is looking much more credible and with the ecb you would think they should be -- should not be tapering but they will. the bank of england you do not think they should but it looks like they will. whether this is the right decision, that is a debate. mark: yes or no? charles: i think it is one and done. mark: what does that mean for

bonds, for the pound? charles: for the pound, there is a much broader, how are the brexit talks going and so forth. the longer term prognosis in terms of the economic outlook is not good so i do not think you will have a strong rate cycle. word, boj least interesting out of the four? daniel: now with the election it is a little more interesting. we have learned to not try to anticipate the outcome. mark: daniel morris and charles diebel, thank you for getting us through all the central banks in under four minutes. ♪

tom: this morning brent crude breaks up towards $60 a barrel.

the yen is stronger, too. the republicans go down in flames. so, it's on to tax before. team white house says, email my private account. the president considers the collapse of an island, puerto rico. it's different than texas and florida. this is "bloomberg surveillance" and i'm tom keene. guy johnson is in for francine lacqua. guy, front and center for me in europe is the macron speech. am i right on that? guy: absolutely, it will have an number of impacts on the market. we also watching carefully how it will be read in germany.

the fdp, not exactly on board with mr. macron's idea. we also got a paper out of the finance ministry, suggesting that maybe germany really, in terms of the body politic, is not completely convinced either. that could be a factor behind the euro weakness. tom: we will touch on that during this hour. for now, here's taylor riggs. reporter: the united states national security advisor has gamed out four or five scenarios. some are uglier than others. u.s. officials dismiss as absurd the north korean foreign minister's comments that the trump u.n. speech amounted to a call to war. he expects the house will approve a house built in november. two people who attended the gathering say trump did not specify many details, but he and

legislative leaders point to roll this out tomorrow. meet donaldy will trump the white house today. you try to open ballot stations for an illegal up to vote on of independence. it is the biggest challenge for the country's constitution in more than three decades. macron the main proposals for reshaping europe later today. he needs the german chancellor's backing on overhauls. germany'sl weaning in election, the prospect looks to have diminished. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm taylor riggs. this is bloomberg. tom: equities, bonds, currencies, commodities, igoing going to call it light

safe havens. down 79 basis points come significant curve flattening. there is american oil, at $52 a barrel. the vix, 10.38. then there is the safe haven 11.69.t yen, 1. guy: let's talk about that energy story. it's having an impact on european stocks. the stoxx 600 energy sector, as you can see, it is outperforming the market. crude had been moving higher. there is a dollar move underway right now, which is sending the euro lower, which is taking some of the wind out of the sails of that granbrent move. euro-sterling is a little softer this morning. its' down by 0.4$.

there is some impact there. this is around this idea that the germans are not on board with mr. macron's vision. tom: guy, sometimes you stumble into charts. let's look at a stumble into charts. this is the bloomberg commodity index and this is wicked elegant. averages andmoving right here on this bear market, a beautiful, a beautiful kiss right there. we come down and coalesced down here at a new level. by no means whatsoever is this an indication of a bull market in commodities. as is a blended bloomberg commodity index and it is a well behaved bear market. guy: staying with the commodity theme, i have the breant curve. the current curve, the line in yellow, and you have the one month ago curve as well.

look at the difference in the shapes. i have highlighted the 2019 to 2020 fade. ake, could just be a head f it could be due politics, what is happening in the krg. we are going to wait and watch, but there has been a big shift in terms of the shape of the forward curve. we will wait and see if this is confirmed and if the commodity story is going to be something that we really need to pay attention to over the next fe w weeks. tom, let's talk about the stories we have been focusing on. haven movvees, the gold, the ye. investors are shifting their focus during today's speech from janet yellen. any clues on the trajectory of u.s. interest rates. the initial moves we saw yesterday, which took us into a risk off position, driven by the north korea story. the foreign minister declared

they could shoot down u.s. war planes. this in response to h.r. mcmaster saying the u.s. has four or five different scenarios for how the crisis will be resolved. the north korea story was related to what happened at the u.n. he says some are uglier than others. joining us now is onja laud. good morning. >> good morning. guy: we have gone from risk off yesterday to risk on today. we are beginning to look forward ch.janet yellen'ss peech spee given what she has said of lead, what it be a surprise -- what woulds said of late, it be a surprise? >> right now we are very much focusing on day to day activity and probably forgetting a bit what the bigger picture is

telling us. very much looking at the inflation picture. this would to a large extent determine what miss yellen is going to tell us. we have to accept inflation is less strong than what most commentators have anticipated. there is a lot of debate now why this is the case. view, we poitn ont of should see janet callan trying to accommodate development into her speech and outlook. from a market perspective, i am coming back to how you started the discussion, and the political noises currently taking over, driving really, the daily activity in market. simply because if you look at the fundamentals, growth is ok and inflation is ok. but valuations are no longer that supportive so we can move a genuine upward trend in markets. that means, assuming that we continue with this inflation

trajectory, it will be the daily nice that determines the market movement. hence, we should be very aware that focusing on fundamentals, any change in the fundamental trajectory would lead to significant repricing in markets. the markets really pressed for a continuation. which is more important over the nexth 48 hours? what janet yellen says? >> i think the bigger impact -- they could even themselves out it is an interesting question. i don't know. tom: wonderful to have you with us,a n and this strange idea of trying to be conservative with our money. is a dividend now equivalent to yield? >> it is definitely the case that the dividend will be a much

larger proportion of your equity return. if i'm right, in terms of the growth and inflation outlook, i struggle to see the overall market level to advance from here. the dividends yield is obviously the biggest part of your component and foremost markets, you are right. tom: i look at the fidelity heritage of peter lynch and da lton from many years ago and they look how things have changed now.is it disconcerting to you that you don't know where the risk-free rate is? that fixed income is so messed up with negative yields and chair yellen is speaking, are you flying blind every day? >> the interesting conclusion of what all of what you have just said is most of what we do these days is related to relative

analysis because you are quite right. we assume that the risk free rate is distorted. then of course, everything we do that is based on this risk-free rate has to equally be distorted. if you look at overall valuation levels across all asset markets, i think we agree there's very little that looks at right attractive. so, what we are looking for is mostly relative mispricing. tom: we have now moved to the relative instead of absolute level. some insightth us, through the hour on what to do with money, given the economics we see. we will get a briefing on the economics today in an exceptionally and important traditional speech. the chair speaking, to the national association for business economics. our michael mckee is ther wee.

we will carry that speech across all of our platforms at noon. this is bloomberg. ♪ reporter: this is "bloomberg

surveillance." minneapolis fed president neel kashkari is backing janet yellen for a second term as fed chair. this comes as donald trump weighs who he will nominate for next year. >> a really of janet yellen gets reappointed. i cannot think of anybody who was better equipped to lead the federal reserve. there is nobody else who has 20 plus years of monetary policy experience, financial crisis experience. she has excellent leadership skills. reporter: dylan's become --etary policy in cleveland

yellen speaks on monetary policy in cleveland this afternoon. private equity owners, including cbc capital partners, are exploring options for the generic pharmaceutical company. it could be valued at $4 billion. people familiar with the matter says the shareholders have entered talks, focusing on a sale of the u.s. business. some are calling a china's netflix. they are targeting a u.s. initial public offering as soon as 2018. those familiar with the matter say good value china's most populous turning video service as much as $10 billion. that is your bloomberg business flash. guy: the french president will outline proposals on european integration later today. the german chancellor, however, is otherwise engaged. the recent election has left her with a complex series of

coalition negotiations and the afd to deal with. earlier, francine lacqua spoke to the italian finance minister pier carlo padoan uin milan. >> this is what europe needs. there is a rich agenda out there and italy is working hard with france, germany and spain to develop an agenda and pushed forward. guy: joining us now to discuss all of this, richard jones. still with us, sonja laud. rich, good morning. we find ourselves in an interesting situation. we try to find at what happened in berlin, and we get the speech later today from mr. macron. can mr. macron change the direction of the euro? >> well, i think the new relationship between the yet to be established german government in berlin and the government in

paris is going to be critical for the pricing of the euro. i think the euro got a decent lift when mr. macron assumed power. i think there is a little uncertainty now, given how these coalition negotiations will go in berlin. realistically, i think it will be more challenging now under the proposed jamaica coalition to get the type of integration that mr. macron is pushing for as it would have been if we had had a continuation of the grand coalition. guy: what do you make of this paper that seems to have been leaked out? it is not exactly in favor of debt neutralization. >> it shows the depths of the challenges and is very much out of the fdp playbook, guy. i think he made some conciliatory tones yesterday when he said that germany has an interest in the success of mr. macron's reforms. a leak into the papers shows how

much needs to be done in order for both sides to come together and move european reform forward. tom: richard, we have moved on from may 7 and make 8 and the celebration as mr. mccrone walked across the plaza in paris. how is he perceived now in september, as compared to may? >> well, i think there is still a very good feeling about him. i think there is a feeling he will be able to enact the reforms. but he be challenging, has shown he does have the will to push them forward. but now the reality bites. we've got -- the devil is in the details and getting these things done does not always seem to be as straightforward as they were in the planning stages. tom: we know our presidents love to go abroad and deal with foreign issues, versus domestic. as he is speaking today to the french people, is there a domestic angle to what we will

he or today? -- to what we will hear today? >> there are most has to be. i think the domestic reforms are going to be critical from a berlin perspective. if there is, if mr. macron shows he can make domestic reforms and make progress, it means europeanwide reforms are more likely. guy: let's bring you into the conversation, sonja. mr. macron has made it very clear that he expects the base he is building in france with domestic reforms to allow him to supercharge the european reform process. the question is, and today's news does not exactly speak to this, is berlin on board? if the fdp gets the finance ministry, can we assume that is never going to happen? >> i would not be that pessimistic. to start with, i think as long as macron can deliver

domestically, that is the starting point. that is the necessary ingredient for germany to consider further european reform. i would not say that germany is ruling out any further european reform. i think the paper today for me is not a big surprise, when you consider they are starting negotiations today. so, to establish your starting position you would always start at the other end of the spectrum before you then obviously start the compromising. if you compromise on day one, there is not a lot left you can establish. wayt is, in a three coalition, the starting point has been well-established during the campaign. be atw that europe will the more extreme end of the spectrum. i could see she managed to get the compromise that

unnecessarily she is after, but that which will allow her to form a stable government. guy: sonja, stick around. mr. jones, thank you for joining us. coming up in the next hour, we are live in milan. we have a conversation with socgen's chairman. he knows something about what happens in the ecb. that's coming up. this is bloomberg. ♪ >> it is going to create a

tension point. guy: i am here in this seat beca there, asne lacqua is you can see on the right at the italian banking conference. she is on the panel of a bunch of senior bankers. certainly, that is why fran is there and she will have some great guests coming up. watch out for them as we work our way through this morning. those are senior italian bankers on stage with francine in milan. let's come back to the conversation we have been talking about this morning. that is what is happening with global equities and european equities. sonja laud, still with us, joining us from fidelity. fran is down there, talking italian banking and i suspect

politics will be something we will focus on as we work our way through the back end of this year and the beginning of next year with italian politics front and center. i wanted to ask you a quick question about great banks. this is praise bank. it has halved in value over the last few weeks. there are a bunch of factors here and whaone is happening with npl's, the acid review, the fact that the german election has caused some of this as well. this the periphery have to worry about what is happening in germany at the moment? >> the worry is based on the statements from the fdp. they said they preferred of greece were to leave the eurozone if they were to ask for more debt forgiveness. debt forgiveness for them is related to greece leaving the eurozone. we should not forget that was part of the campaign and we'll have to wait and see. it is quite normal that they would react in anticipation of

whatever comes out of this. guy: can i read the same thing into italian banks? should i worry? >> two different things. i would separate those because one is more related to politics. in italy, we are still facing npl's, but on a different level. tom: sonja laud, thank you very much. she stays with us. for more bloomberg stories, pick up the latest issue of bloomberg businessweek on news stands. worldwide, we see the difficulties of facebook and especially, one mark zuckerberg, very much a focus in this edition. this is bloomberg. ♪ who knew that phones would start doing everything?

entertaining us, getting us back on track, and finding us dates. phones really have changed. so why hasn't the way we pay for them? introducing xfinity mobile. you only pay for data and can easily switch between pay per gig and unlimited.

no one else lets you do that. see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit or go to xfinitymobile.com. ♪ tom: every central banker speaking, francine lacqua at an important banking, conference in

italy. right now you're tuesday briefing, or first word news, here is taylor riggs. taylor: the french president will lay out his vision for a more unified europe today. despite rex it looming. -- despite brexit looming. talking about integration in europe. >> this is what europe needs. there is a rich agenda out there. italy is working hard with other countries, france, germany, spain, to develop an agenda and push it forward. president macron will be speaking later today. susan collins punctured any remaining gop hopes of repealing obamacare anytime soon. dealing a fatal blow by rejecting the last republican health care bill. the main senator became the third two oppose the measure. hillary clinton is on her media tour promoting her book, what happened.

there is one huge problem that is a combination of a reality tv campaign, the role that the russians played. things that have never happened before. we weren't prepared. now we have to be prepared. losing, helped prepare, the dutch, french, the germans, to defend themselves against some of the same forces. taylor: you can see the entire interview with charlie rose tonight. 6 p.m. and 10 p.m. eastern in the u.s. the top. in front of congress today following the agency's disclosure that it was the victim of a cyber hack. government cyber security knew about the breach, months before the agency's new chairman made it public. the latest on brexit, theresa may will have a working lunch in london.

tusk who has said he would like brexit to be reversed, will first meet with michel barnier. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. thank you. the oil bulls are back. propelled, shut down a pipeline that runs through kurdish territory. let's bring in energy aspects miswin.yst, ago,ve moved from a month very quickly. is this a flash in the pan caused by what is happening in

iraq and what is happening with risk off sentiment? i would say it is a lot more to do with how strong the physical markets are at the moment. cruderies are looking for at the stock market and they have been bidding for the barrels. that is part of the reason they are willing to pay that premium. we have also been jawing in inventory. that is compounding the effect. as a result, you get more investors coming at the front as well and that compounds it. we are a combination of all those factors coming through. as the geopolitical story is adding to the sentiment but it is more physical here where the markets are tightening. flip, it is hard to get back the other way. context and your thoughts on what is happening with the k rg right now?

the threats in turkey a pair real, they have a kurdish minority, this is a big chunk of oil. is the market concerned that could be removed from supply? miswin: the concern is there. if you look beneath the hood there is a lot of political stuff here. the turkey statements, from their perspective, there is the prize a lott they with regards to the kurds, there is a lot of kurdish businesses heavily involved in the region as well. all of those would be affected if they were to go ahead and shut that pipeline. we would say, the chances of that happening are less than 20%. we think the bigger risk is the , gets resultsk rg

from the referendum. as much as they would like to punish the kurds, they would lose money. tom: miswin, good morning. help me with why oil is going up? i have heard opinions. why is it going up? miswin: it is a combination of things. we started drawing refined products very early on over the summer. refineries globally are running at high rates. they are trying to max out there runs globally. that is part of the reason brent grade crudes are doing much better. they're trying to make up for the losses we have had because of the hurricanes, which impacted product exports in america.

that is having one very strong impact. we have had the opec compliance numbers come through. they are in good shape. exports have come lower. the markets essentially tightened at the front. that is part of the reason. tom: nicely explained. wordithin that, to use a from chair yellen, is it a transitory price movement? miswin: we don't think it is transitory. we think the rebalancing process has kick started. inventories are drawing down and that is helping that process. caution that if it gets too steep to quickly, we might get more inventories getting drawn down than what is required in the market. we would maintain these levels before we go into a more balanced market. the rate of inventory to is

important. at the moment, those rates are good. tom: tell me about demand? about that, talked is it there, is a tangible and is accountable? miswin: it is very much tangible. we have not had such strong globalization for a wild now, it is not coming from -- or a wild now, it is coming from america and europe, not asia. all of that has helped refine more crude. it is not one single product that is going well. diesel, gasoline, it is a broad-based recovery. mirroring economic sentiment globally and the lower oil prices also help. , combination of these factors demand has done a lot of the heavy lifting. that has helped along with the supply counts. guy: thank you very much indeed.

aspects.st at energy let's get an equity take on this. sonja is still with us. if this carries on and we continue to see oil moving up are we going to see, the stoxx 600 energy index here, it started to rally, is there more theroom here and are dividends these companies producing, like shell, critical dividends for investors, is that more safe now than a month ago? if you're inventories higher it is more supportive to your cash flow. i would caution though to make general statements. we have seen a differentiated performance within the group. it looks like the group has reacted alongside the oil price,

there is a difference between the big integrated in the more. pure that are directly linked to the price. when looking at individual companies you have to look at what oil prices discounted already. the big integrated never really went down to discount $20. they're trying to calculate the upside, you look at the individual and price movement to make sure this is not captured in the price action already. from a fundamental point of view in terms of dividends in the integrated names, there is a big positive. there were worries over whether the dividends would be covered or whether they would have to subsidize them. that definitely is -- guy: there is a credit story in there as well. where is the maximum value in the sector? if we see oil comes back up into the $60 range, with the supply chain companies faring favorably

this morning, is that where the value is? point me in the right direction. sonja: at this point in the cycle, stick to the safer end. although the, if you have the equipment maker, it is directly linked. they will react sensitively to what the oil prices doing on the day and if it were to continue, would do well. whatusly, picking up on the analysts said, you have to be mindful there are moving parts. let's assume that the underlying withoutemand is stable major disruptions from the geopolitical side. then i think you have the better and more stable risk return profile in the integrated names. a 6% dividend from shell is a decent number. tom: i will steal from anybody and today i will steal from guy johnson. a great and beautiful thing. this is the same idea guy was showing but with a longer perspective. this is when sonja sold all her

oil. $100 a barrel. now, $90 a barrel. that did not work out. ago, and we a year a, whatme up nicely,sonj do you do with oil equities now? buy them for their fat dividends? what do you do with exxon? sonja: not commenting on specific names i would look at the business models. i would differentiate between the more geared place in the oil price and the more balanced and more diversified big names. point, from a general position in the market i would speak to the larger integrated names. the europeans pay higher dividends, given that i have

traditionally been an income investor i would stick to those names at this point. tom: very good. a, we will continue with particularly on equities. thank you so much for watching bloomberg surveillance. darkens the door later. before that, coast-to-coast, serious xm, channel 119, new york, boston, san francisco, washington, all points in between. this is bloomberg. ♪

♪ by johnson in london, in for francine. tom keene is in new york. let's talk bitcoin.

tough to find on wall street right now, they say jamie dimon calls the cryptocurrency a fraud. meantime, others say cryptocurrency is here to stay. >> when i first bought it it was an experiment. now i am positive this is implementation. 1997 when wes, in were talking about the internet we dreamed about what it could be. so much more ubiquitous today than anything we dreamed about. the same as block chain. you will see that technology everywhere in 15 years. it will be a different world. >> there are credible naysayers out there. jamie dimon for example. >> jamie dimon is making those comments, and san francisco, his office is hosting bitcoin. it is not just him. >> he calls it a fraud.

a bubble. howard marks says it is not real. >> he said it and took it back. it is a bubble. it will be the largest bubble of our lifetimes. bubbles happen around things that fundamentally change the way we live. railroadsit is a bubble. bubble, it changed the way we live. the internet. prices are going to get way ahead of where they should be. lot of make a whole money on the way up and we plan on it. at one point you will have to sell. i don't anticipate sitting here and watching my money go up and down. we will be active and try to buy the right companies. ico's are going to go to zero. i would not arous 100% of net worth and it, i sold some because i had so much net worth in it. >> should everyone have some?

>> i think everyone should have some. guy: everyone should have some. mike talking about cryptocurrency. interesting conversation. one that permeates a lot of what we are talking here. us.a is still with i want to pivot off that and go in a different direction and talk about tech it is such a huge driver. driver of whatig is happening with the s&p as it makes more records on the upside but then i look at emerging markets as well and where the drivers are. countries like south korea. there again, effectively as a tech play. we aredering if when thinking about how we are pivoting our money and putting it to work in different parts of the world, is it basically the same underlying theme? we are all just investing in tech. we are doing it differently but all in tech.

the correlations are stronger than we anticipate in em and dm? sonja: i think there are various elements of what you raised the implication for the stock market and the way the stocks have behaved and whether they are only related to the underlying theme or not is a different topic. there is a feature in their. first of all if you look at those companies, they are much broader in scope, most of them, then they used to be. ground than broader it used to be. it is all related. i would be mindful to make the connection between our daily lives and the stock market, although it seems very much connected, i think it might well be from a stock market point of view we see a differentiation in the future. tom: i don't want you to get in

trouble with the johnson family or your general counsel, fidelity, i will step lightly. i found stunning the interview with eric and his right up, -- up which you can read on bloomberg news, i have never read someone say that we are in a bubble right now. we have studied bubbles. within your study of investment history away from the delicacies of bitcoin, do you know when you are in a bubble when you are in a bubble? to be humble enough, yes, i probably would have an inkling. i am not sure when i would be able to pinpoint when it is happening. tom: that was a very good answer. she will keep the green badge.

sonja is going to stick around. a function we should promote, tv highlight,m likes to not only do you get the video stream but you get this sidebar and what that allows you to do is pop out the functionality we have here and also some charts. this one in particular relating to the moving averages when it comes to oil. the conversation continues. this is bloomberg. ♪

♪ johnson -- guy johnson in london. lines from the turkish president in the last few minutes. worthy of our attention. talking of the fact that the iraqi kurds will not be able to find food, clothing as a result of the referendum. he is talking about the fact that he will refrain from cooperation with israel but he is putting military options on the table.

this is a conflict that has been brewing for some time. we have seen a number of countries making it clear including the united states that this could provide a reason for instability in the region but nevertheless this is where we find ourselves and the turks are taking it quite seriously with their kurdish minority. these are the types of events that move markets and this is a big chunk of the oil market. we have talked about how some of the oil stocks will fare if we continue to see oil move higher but that is a supply-demand a story. that is about balance. very specific risk for the oil market. how is an investor in two large global oil companies, how do you factor this kind of stuff into your thinking? sonja: first of all, you are right. this would be the wrong spike. we do not want to see this because it is not related to the supply-demand picture. this links into what i said

earlier, sticking to more integrated with a higher yield. if you are worried that this tension will escalate, you probably have to rethink your exposure to the oil market in general. the safer end is where your income is paid and would be covered through a higher oil price. left,n the time we have your time is far too brief, we would love to have you back. fidelity invented in-house research. mifid your friend? are you saying, i am going to love this or not? will have to come up with a politically correct answer because we have not made an announcement yet. pointing inu are the right direction given that we have a strong in-house research capacity and that should come as a strength to us.

tom: diplomatically said. i wouldn't sure you we would love to have you on set with your fidelity leadership when you make that announcement. -- i am sure we would love to have you on set. it is fascinating to see what these old houses will do. fidelity, capital trust, and others as well. sonja, thank you for joining us. coming up, an important interview in the next hour. talking about assumption. they are focused on making it. the single-digit landscape. from london and new york, with francine and italy, this is bloomberg. ♪

♪ tom: this morning, brent curve

rel, the yen bar stronger, the swiss franc also. republicans go down in flames. cassidy, called deeply flawed. the white house, email on private account. nfl and taking shots. john mccain, the president, considers the collapse of an island. thano rico is different texas and florida. -- i'm tom keene in new york. macron with an important speech today. why is this different from many others? will try and lay out the future of europe. he believes this is the moment that europe should plan a new surge toward integration. the issue, a significant one, we

have just had a german election that puts angela merkel in a different place particularly --h a new partner, the fp bp the ftp. -- fdp. tom: here is taylor riggs. taylor: h.r. mcmaster says the u.s. has gained five scenarios for how the crisis with north korea will be resolved and some are uglier than others. u.s. officials dismiss as absurd the north koreans foreign thatter conference president trump's speech amounted to a declaration of war. president trump expects the house to approve the tax bill i year's end. the tax bill by year's end. spanish prime minister will meet

president at the white house today. the visit comedays before catalonia's regional government opens a vote on independence. it is the biggest challenge to the country's constitution and more than three decades. mentioning, emmanuel macron will make proposals for reshaping europe later today. he needs angela merkel's backing for planned overhauls of areas ranging from defense and integration to the economy. with angela merkel we can in germany's elections, the prospect for radical change in europe looks to have diminished. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs, this is bloomberg. tom: taylor, thanks so much. in this half hour, two outstanding guests on the equity market. , flattening.ek ago a little bit of a safe haven

steel, american crude shows where brent is elevated. yen, stronger, shows a little bit of angst out there. the dollar is on full. the euro-dollar trade is quite interesting. it seems to be providing a downdraft for oil which is backing away from the $60 mark. the energy sector is up on the back of the fact that we have elevated crude prices. a nice terminal chart that is floating around that shows the correlations between oil stocks and the oil price now multiyear lows. that is interesting. at the bottom as well, the euro-sterling chart. another interesting idea floating around as well. mr. macron is in the driving seat in europe. as a result of the german election, he will be more hard on the brits and that will

provide clarity and theoretically that should be good for the pound. tom: let's go to the bloomberg. a massive bear market before we get into the bull markets we have seen globally on equities. this is the bloomberg commodity index which is good math. this is the bear market. man movingcalled kline averages. beyond elegant. a classic bear market kiss. it show barbara, kids up with their flip-flops, down here is where we are. squeezed right into where the price is. a well behaved bear market. this is a joy. gina martin adams is with us on set. she is with bloomberg intelligence. thrilled that she is with us. in berlin this morning, is christopher ailman.

we have someone that manages money and reay wants kn at gina martin adams things. chris, how is your you're going at the california pension fund? fundou getting the index response or are you underperforming like any other active manager? christopher: it is thumbs up. we are so passive in the usa, we are capturing the beta of the markets. we are at records highs, we have moved more global. we are doing quite well because of here in europe and even in asia recovering. i'm not as dependent on the u.s. market. you are the ultimate, move the needle guy. how do you move the needle on with all the dollars

you manage? christopher: paying attention to tightening your cash with all ts you manage? flow, rebalancing allocation and being smart. the chart you just showed on commodities, everyone is trying to find a market that is near low. commodities, doesn't mean they will turn around now but we are starting to feather into commodities. we think global gdp is healthy, it will be in the 3% range. we should put some demand back into commodity prices. supply and demand, just like i learned in santa barbara on the beach. tom: withops the flip- economic class. inc. you for your shout out the other day. we canrtin adams knows rip up the script. where are you within the equity markets? equity is still at the bottom of the scorecard. this is a bear market rally as you suggested with oil.

we've seen a strong comeback in energy stocks over the last weeks. more&p 500 are now overbought been at any point since december, 2016, which was the last time they peaked. that fits well with your charts, commodities have rallied, energy stocks are in a similar position. that doesn't mean they are diversification tool. if you look at the longer term, commodities and equities, diversification is beneficial. the correlations of broken down, you still have a lot of beta available in the commodity complex. if you are a long-term invester, this is a better place to look for value. guy: can i stick with that point on what is happening with the energy story and the correlations that exist. here andchart this is a european story. correlation between energy stocks and the oil price is now at a multi-year low.

how quickly does that change? was at happened with that breakdown earlier this year. in the spring and summer months you saw rallies in oil prices particularly in brent that were not captured in the equity market. to wtiare to switch relative to energy stocks in the u.s. you would see a tighter correlation. what i think happened is you have supply concerns, equity investors are not buying it to a large extent. earlier this year when those were driven by geopolitical concern especially, north korea, you saw oil prices respond but the equities did not respond as quickly. that has reversed course over the last couple weeks. they will start to come back together because you are seeing the equity market respond to supply shocks price in the commodity complex. guy: chris, let me come back to you. do you like europe because it is offering value right now or

because it has no tech? i like it because it is offering value. it has done well in the last 12 months but we've seen it has more carrying. we think there will be growth. on the ecb, that is on a different track than the fed, it is a few months behind. there is some upside potential. the fact that there is tech in the usa and that is heavy in the index, europe provides added diversification but we think it will grow. tom: let me bring up a chart. it is a little messy. this is the acclaimed equity screen. usese that has a bloomberg this three or four times a day to see how far they are behind. chris, you are not. this is the double-digit chart. pain,ng dow, s&p 500, the

france up 25%. the see the italian or whatever, up 45%. chris, your people are saying it is a single digit world. i don't see it. when we get back to a single digit world? christopher: that is one of my favorite pages. one of the first i bring up in the morning on my launchpad. those are one year returns and i have been arguing with people that are so adamant about low returns. we will see waves. ofwill have periods double-digit returns but we will probably have a recession here or there. when you look over a decade, we still think stocks will generate an 8% return but that captures good years like this like last year and this year where you get solid returns. the key you pointed out is the currency impact. that is been powerful and hurting people. 1.11 wethe yen down at

have had such a struggle managing currency exposure. tom: we will talk about that later. chris and gina, what a great pairing to look at the equity markets, the record highs of last week. johnson, thank you so much for joining us this morning. as francine is in milan. she will come back well-dressed, no doubt, with some important banking interviews. hour,today, at the 12:00 the meetings and cleveland, an important speech by chair yellen. this is bloomberg. ♪

♪ tom: bloomberg surveillance from

london and new york. in milan, italy, is francine lacqua. it is always good to go to milan , european and italian banking in the last 12 months. it must be most interesting this time around. francine: it is most interesting. finished a fantastic panel looking at the challenges and opportunities for european banking sectors. when you look at italian banks, they have been in a funny place. investor start looking at them because of the turnaround or selection points that we saw because of nonperforming lows that offered consolidation in europe. what comes next is the big question for a lot of us. we talked of mifid ii and brexit. now, the ceo of mediobanca. thank you for joining us. when you look at the italian banking system and i spoke

earlier, to the finance minister, they both say, this is an inflection point. how can you be so sure that something ugly is not around the corner? something with the political system? >> i think they are right in saying, italy has removed the systemic risk with two major interventions. one was the capital increase and the cleanup and the second was the good decision to put $20 -- saveto say banks banks. i don't see a risk anymore. sector -- a banking weak banking sector so the tangible return would be 5.5% after equity. to the in part connected

asset quality. averagebanks, the quality, is three times income, compared to europe, so profitability will recover but it will take time. the italian banking system today is stronger but there is still np, the key point is, how long will it take to get this number to the average of europe and how fast the regulator will ask for that? for the time being we see the, 10% fors ratio, about three years reduction but this would take time. francine: do you think regulators have advertised for sectors in banks and what role do italian banks play?

i don't think this will happen anytime soon because there are too many uncertainties from the regulatory standpoint, political standpoint. are not solid in the case of synergy when they look at cross-border synergies. it may happen but not anytime soon according to my judgment because there are too many uncertainties. francine: last november you presented a new three-year plan. how did the targets go? on the management units but also investment banking. alberto: after one year we are broad in terms of delivering the results and the plan targets. with the consumer capital generation and risk, we are at about our target. the development of the platform,

we have done three deals in terms o m&a, so we expect these to go on with more m&a, midsize, but we can also look at a bigger deal. to create a stronger platform that would be a business beyond consumer, having a good size and profitability. francine: is there space for an italian investment bank? when you see so much power and market share being taken by u.s. banks? europe: there is because has not a big number of large corporate's. midsize, of corporate require a look at distribution and a target that is more difficult to be reached by larger u.s. banks. francine: what is the thing you need from politicians and

regulators today to make your business better? thatto: the conviction imposing rules and changing framework of rules will not help a european banks that are more fragmented and less profitable compared to u.s. ones. we need a stable or environment and also theules acknowledgment that banks have to be considered for the future. if we see the recent reports mba, only 5% of mbas are taking a job in an investment bank. , 10 years ago. we need to convince the job isians, the bank's to consider the future. francine: when you talk about

rules, are you talking about mifid ii or basil or both? in 2018, we have these introductions, we have the directive on payments. we have all the regulator moves that is the in 2018, we have the project, credit assets. we are plenty of new initiatives in the rules and supervisory guidance. costs tong in creating the players. everyone is acting with additional cost, additional hiring, to cope with. this is a process that cannot go , we shouldwithout regulators,estors

policymakers, that a stable and more friendly environment in terms of regulation is needed for the system. francine: everyone wants that. i've never heard one person say they don't want that. is it just that regulators come up with things without speaking to ceos of banks? also inertiae is that started after the crisis that has not finished. it led to a more robust set of banks in europe. profitability has been hammered. francine: thank you so much for speaking to bloomberg surveillance this morning. tom, i will send it back to you. we have more great interviews coming up. tom: francine, thank you. i want to bring up a chart which is a good thing to do with gina martin adams of bloomberg intelligence and christopher ailman in berlin. this is much of what francine was talking about. in blue is jpmorgan and the

terrific outperformance of that franchise and as a generalization, american banking, and yellow is a train wreck known as deutsche bank. the media banca, not only what to do, but gina you have seen this so many times. bank,perior to deutsche by what you don't do. isking more than anything about making strategic decisions of what not to do. i think also hanging tight to your longer-term plans and believes. that is what deutsche bank has struggled with over the last several years. they're making these vicious moves that are scaring shareholders out of stock. jpmorgan is a perfect example. they stick to their guns and the plan. they have not made any major scale backs and changes. they are stuck with their goals and it is reflected in the share price. tom: christopher, i have five

questions and not enough time. what do you do with a high flyer? is a 1%ave amazon position and all of a sudden it is 3% or apple or fortress diamond, what do you do with jpmorgan when you are taking a great ride? do you continue to hold it? christopher: if you are an index fund you continue to hold it but that is where you rebalance into other assets. that is why we are going to europe. u.s. stocks are priced near perfection. it is very different leadership within the three banks. it is a matter of having a clear vision. in my case i rebalance my portfolio away from those gainers i take my profits, and i reinvest in lower-priced assets that we think have more upside. tom: where are you on european banking? we have a set of interviews coming up, are there opportunities we don't know about? christopher: i've seen my

private equity firms, particularly the distressed debt firms, they have been in italy for almost eight years. this is not a new story. that nonperforming loan that francine just talked about that they have to rolloff is an investment opportunity or distressed debt players who can turn it around. we have seen so many regulations in european banking, it is not so much of an upside but we think the overall marketplace, particularly manufacturing is where we will see opportunity. tom: let's rip up the script on distressed loans. secured loans as well. is it a bubble again? everyone is piling in and looking for the bigger coupon. is the loan business a bubble in the making? christopher: i don't like to use the word bubble, i think that those markets are frothy.

my staff just pointed out we are getting back to covenant light, a real uncomfortable place. we think there are too many people piling into bank loans. too many people chasing the coupon and yield which causes us to be slower and more cautious. i think people have to realize, the banking business is about loaning money. if you loan it to people who can't pay you back you are going to have trouble. in yourave no covenants document you will not have recourse. you have to go back to old traditional banking. tom: i like that idea. covenant light brings up ghosts from 10 years ago. from 10 years ago. give me an update on industrials? general electric's restructuring, they have dropped the thomas edison division to the europeans. are there huge opportunities in industrials? christopher: we think they are growing opportunities. there is private equity money

looking to go to work to buy divisions and units. we will see strategic dispositions and acquisitions of companies. corporations are sitting on tons of cash. globally we think there is opportunity for growth. companies can reposition themselves and tighten their belts and do better. tom: let's come back with chris and gina. those in this hour. bloomberg businessweek's reinvigorated. i am getting a huge buzz on it from the young set. they like the article on mr. zuckerberg and his many challenges. nfle he needs to own and football team. that would fixes problems. ♪ what did we do before phones?

they save us from getting lost, getting hungry, and getting tired of places like this. phones changed everything - shouldn't the way pay for them change too? introducing xfinity mobile. where you can pay for data by the gig, and share it across all of your lines.

no one else lets you do that. see how much you can save when you pay by the gig. xfinity mobile. it's a new kind of network designed to save you money. call, visit, or go to xfinitymobile.com. tom: we do finance, investing and we also do smart discussions on banking. francine is in milan. tough duty.

francine lacqua with important banking interviews coming up. i am tom keene in new york. martin atoms is with us. in berlin taking a few sensitive meetings as a chief investment officer. on the changing of expenses of research on what guys like you are going to pay for research. where are we going to be in one year? going to be a question because a lot of people are wondering what is the value of that research. we already pay for some independent economic research services. we pay for geopolitical research because refined the street doesn't do a good job with that. we have been out of soft dollars for over about six years now. have really limited the use of our managers so i'm not sure how the usa is going to navigate

what happens in europe. if it really is of value you should be willing to pay for it. tom: this is important folks. there is all this other stuff going on. the president just tweeting about nfl. you are way out front on whether regulators want to go. if the regulators get the wish, if we see research diminished, does that drive people to pass investing? chris: i don't think that people that rely on wall street research are really just using it as a guidebook. what i think is going to happen, you will see a verification. people will be willing to pay for that. there will be active management but a lot of the active managers like to do a lot of their own work. will the drive more people to

pass it? i hope so. the amount of 401(k) money in the u.s. alone needs to be impassive because otherwise active management is not meeting the cost it charges. francine: good morning from elan. do you worry about a lot of hedge funds taking position on the market? the market almost being distorted by this passive money and if that changes, is there a correction coming that could be quite ugly? morning.od i don't believe the passive money is distorting the market. i think it is creating some stabilization and of the numbers we have seen, there is more money following indexes than before but what we are seeing in the market is fairly quiet because there's not a lot of people swing trading.

the hedge funds that have been in and out of the market, it is really the leveraged etf to have an impact. i don't think it is going to cause a significant change in trading habits. due to some kind of recession, .ome kind of tax law change we will see if we get this famous tax law. they have been so successful so far, i guess i have to have for the tax change. i don't perceive this market is okthe internal dynamics look . it is priced to perfection and it could stay that way. i don't think hedge fund activity is wanted his fun -- is going to trigger that. francine: what what triggered the readjustment of the market? market withow the function with all the free cash out there? chris: that is the million-dollar question i have been asking all of our economic services. what is that trigger point back

up of it could be a federal reserve policy action. we have seen before, like in 1994, when the fed moves too quick. we see it where there is a trained in federal policy that causes the economy to stumble. we have seen it where there are events that cause consumers to lose confidence. andould be any one of those i cannot tell you that there is a particular action to look for to gauge. the challenge is this could go on for a week, but it could go on for another two years. you don't want to be out of this market, but i'm very cautious and not being overweight in the market and that too much. tom: we appreciate your effort. andre going to continue, gina martin adams will do that in a moment. ministertalian prime

says he wants clarity when it comes to the u.k. >> new hope that the brexit decision gets on a straight course because this is the we need it will be do not need is further uncertainty in europe. teleco he made the cash taylor: he made the comments in an interview. -- dealing a fatal blow by rejecting a last cash at the republican of care bill. hillary clinton continued her media tour promoting her new book, what happened. she talks about the effects of the 2016 election with charlie rose. >> here is one huge problem that is a combination of a reality tv campaign, the role of the russians. we were not prepared. now we have to be prepared.

ed prepare the dutch, the french and the germans to defend themselves against the same forces. taylor: you can see the entire interview tonight on bloomberg television, 6:00 p.m. and 10:00 p.m. in the u.s. global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. riggs.ylor this is bloomberg. tom: we could spend an hour, even two hours with kevin things.on too many that may go to the heartbreak of .hat a riga -- of puerto rico the president was tweeting out onhe nfl. is anybody at the white house focused on puerto rico or is it up to fema to help the island? president justhe kevin: the president is --

kevin: the president is scheduled to go to puerto rico. the president is planning a visit there as well as congress working with government officials on the ground. has gripped the american consciousness or the last couple of days -- over the last couple of days as the devastation images from puerto rico continue to make way here in the u.s. tom: what is the issue this morning? i don't ask this in a snide way but if i look at the post, if i look at bloomberg, there is a jumble of six things. are you going to tell me tax reform is what counts? kevin: republicans in the house is good to meet with trump in the white house to discuss tax reform. that will happen. we are anticipating remarks at the 12:00 noon hour. as we cassidy is dead have been saying. reform, desk health

care, tax reform comes the following the developments on reform,health care, tax still following the developments reform, still following the developments on that. tom: for the big six, is their definition of middle-class coming anybody that pays the alternative minimum tax? kevin: maybe. a lot of people in washington think we are going to have permanent tax cuts by the end of year. this big sweeping plan looking unlikely. tom: and look at what you are confronting. give us a update on the power of senator mcconnell the speaker of the house. they have been pushed to the sidelines. we have an alabama vote tonight. what will be the -- what will their power be? kevin: john mccain has shown he has more power because of graham cassidy. republican leadership has

greatly diminished in terms of what they are able to do. care aboutnybody what the fiscal deficit is doing? to five to 7% of gdp. does anybody care? kevin: i'm hearing that there might be a new bill of fourth on fiduciary requirements within the next 48 hours. tom: kevin cirilli, great to catch up with you again. someone who watches each and every nfl game. we are going to go to italy to an important interview with francine lacqua. francine: i like the fact that if you love nfl games, it is more of a theme now.

i'm very pleased about this interview because we have a great panel talking about monetary policy to the main challenges for china banks and the european banks. i would like to bring in lorenzo bini smaghi. you look at the european banking landscape and you made that clear that you wear very many hats. what does europe need? firmer roles? or is it growth just from her rules? rules? or is it growth? lorenzo: we are starting a message on regulation. the u.s. has indicated -- we clear sossage which is that we can plan our business going forward. there is no worst thing as uncertainty about what the

regulatory environment will be. we are waiting for qe and monetary policy. this is less important because we are going to be living in a world of low-interest rates for quite some time. the fact that there will be some withdrawal will have some impact. francine: will we see cross-border consolidation? lorenzo: consolidation will continue within borders because that is where the synergies are. monthslook beyond the 12 , what europe needs is to look a bit more like the u.s. from a financial point of view. bigger and deeper capital markets. you cannot build this capital market if you have too many regional players. you need bigger players.

now in the current environment, we have some players which are big but not big enough. that is what we will need. it depends on regulation and the political environment. francine: who should buy who? is it the size of the bank of the country? lorenzo: what you need is the ability to be active in the financial markets. to serve, especially corporate. you need a critical size to -- that your clients all over europe so that you can really leverage on size to be efficient. efficiency, you need to raise capital and from this point of view, european banks are moving forward, but we still need to work. francine: is there a place for a big investment european bank when you look at the size of a market share?

where art european banks left? lorenzo: there is still a lot of room. big american banks look for large corporate. is ag for a medium-sized bit more difficult because you need deeper relations, more knowledge. that is where european banks hold leverage. american banks have gained market power also leveraging on the u.s. position, being very competitive in europe. europe is very competitive. american banks make much more money on the american markets. there is less competition in the u.s.. we still need to have a bigger player in europe. tom: good morning from new york.

socgen has -- are we on safer ground now? do we have a more stable banking and financial environment and the lessons learned over the last 10 years? lorenzo: i would say certainly yes. we have strength and regulation -- and regulation and capital. on the other hand, we have more fragmented system. that is one of the problems that regulators have to solve. the regulatory efforts which improve the situation have left banks with a more domestic background. brexit doesn't help from this point of view. this -- i go back to your heritage at the university of chicago, 30 years ago. the idea of becoming more like anglo american banks. i understand this is a sensitive

cultural issue to say the least, what does deutsche bank need to do? what do the french banks need to do? what do the italian banks need to do to get a better equity performance? to the have to be more like the american banks? do they have to be more like the american banks? lorenzo: to do some of the things that american banks have done before. work on cost, work on technology. , becominger clients more checked if. in the end, -- becoming more checked if. attractive.more in the end, banks have become bigger. in europe this hasn't happened yet due to political hurdles. we need to do these political efforts which are going to

become located because synergies are not easy to extract. arizona is the same in or new jersey, the same legal structure. a mortgage in italy is different from a mortgage in the netherlands. and selling of this back to the market is was more competition but we need to move toward this goal to become more profitable. put european banks on a level field with the u.s., are they -- lorenzo: the us treasury has published a report which says it the regulatory pendulum is moving backwards. while europe is still trying to stick to the new -- even to some

, the regulatory cost. if you want a level playing field, i would be the first to take into account we have a level that's very different banking system. -- very different backing system. we also have to move together. frankly, we have the impression in europe that some of the agreement that we have put together are starting to unfold and we are the only ones at the table. we are waiting for the new authorities. francine: when you talk about often ability for european banks, how much does the european central bank getting rid of qe help? lorenzo: we get into a situation more similar to the u.s. extent, we leave the

environment with low interest rates. banks have proven -- i think french banks have proven that they are resilient. is efficientnking so we just have to show quarter after quarter that we are resilient so we can deliver. investors are looking at it. francine: lorenzo bini smaghi, we thank you for joining us. coming up, we will be talking to bob diamond. tom, he was saying that he is interested in italian banks but also looking at a challenger bank and greece. -- in greece. tom: let me look at tv right now. bob diamond of their front and center -- bob diamond up there,

front and center. you can look on a chart. this is bloomberg. ♪

tom: in the soup known as

american politics, we just spoke to kevin cirilli and gary yellen -- chair yellen speaking at the top :00 hour. -- at 12:00. david west and joining us. david: we're going to have kathleen sebelius. she was responsible for intimating obamacare and we are going to talk about what happened. what comes next because they cannot just leave it there. we are going to talk to her after you talked to on the radio . we are going to see if there's anything left. tom: we are going to see if we can do that. i like the fact that she is a governor. up. for that coming how about a single best chart. we have shown it many times. let's show it in a different way. the 1940's, the edge of

the depression. up we go. this is beyond elegant long-term chart of the trend, the trend is your friend and along the way you better be doing sector rotation gina martin adams is here -- sector rotation. gina martin adams is here. gina: it means investors are selling tech. tom: they are selling apple to amazon. the mutual funds? gina: the active managers. they're selling etf's focused on different sectors and they are buying more sectors that are more inflationary. there's a little bit of fear in north korea. 60% of tech sales come from outside of the united states. a lot of that comes from asia so investors are selling some these these -- selling some of these winners. tom: bring up the chart again.

expand in here to the 90's and 2000s, a great bull market. what i want to know is sector rotation helpful? is there a track record of where sector rotation proves it is common sense and good for returns? gina: absolutely. sectors tend to outperform during downturns in the market. as your continuing in a longer-term bull market, you want to have a very cyclical exposure. everything we see suggest investors are still anticipating a cyclical recovery. tom: only what we do on tuesday and we can do the greek letters with gina martin adams. beta. does it work for a portfolio? does it work for a sector? or does beta work for individual

stock? or does it work for all three? gina: i think it works for all three. we look at beta all time -- all the time. your highest beta sector is financials. financials is most likely to outperform on the up cycle. tom: the good people at state street global, are the same -- are they the same as james dimon over it jpmorgan -- over at jpmorgan? what about all the banks that are baseball parks? -- the big banks are more diversified. the regional banks are more exposed to the loans. time onspend 95% of our five banks. imf idiot.

gina: -- i am an idiot. are: the asset management's pretty high value because everybody's been down the gates. he have some value in insurance because of the hurricanes recently. tom: ewen: dollar recently. gina martin adams, sticking with the dollar. let us walk a little bit of safe haven, 112 on dollar yen. sterling, 94.36. stay with us. it is washington. ♪ what did we do before phones?

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effort is set to fail as we approach the final stretch of the year, republicans look divided without a perspective when. the split between federal reserve officials is just as a parent. parent.st as a attempts to find agreement on reshaping europe hit another roadblock. president macron will make puzzles but merkel -- will make proposals. i am jonathan ferro alongside david westin and alex steele -- and alix steel. weaker euro once again. the euro will continue to bleed. it came back down to a one-month low. it is a mild risk aversion. features should stay softer by .1%. -- futures should stay softer by 1%. alix: brent almost at $60 a barrel. we haven't seen that in over a year.