francine: yellen strikes again. the fed chairs says it would be imprudent to wait for 2% to raise rates. the president and republicans plan to set out the long-awaited overhaul. will it live up to expectations? the new presidents is not enough progress has been made in brexit negotiations to warrant the start of trade talks. i'm francine lacqua in london. we will be talking a little bit

about what the boe can and cannot do. i am looking at dollar extending gains. stocks, overall advancing a touch. this is after janet yellen boosted expectations for an interest rate rise in december. we have crude resuming a rally after tuesday's pause. we'll keep an eye on the market movements. .ut first, here's nejra cehic reporter: president trump says he is prepared to use devastating military force against north korea, saying his preference was for the world to work together to end the onion's nuclear -- to end pyongyang's nuclear program. >> we are totally prepared for the second option, not a preferred option, but if we take that option, it will be devastating, i can tell you that, devastating for north korea. that is called the

military action. reporter: theresa may says she is bitterly disappointed about a decision by the u.s. government to slap import duties of 220% on a new jetliner. citedmmerce department improper subsidies. more than 4000 people work for bombardier in belfast, northern ireland. spanish prime minister rajoy has penciled his -- has canceled his forum nextttend a friday. yesterday he won backing from president trump, who said spain should remain united. chinese industrial firms have extended the earnings surge. profits increased 20% from one year earlier, the most in four years and compared with the 16.5% pace earlier, it suggests resilience is enduring.

and saudi arabia will start allowing women to drive cars next june, ending the status as the only country in the world to ban half the population from getting behind the wheel. it is the most romantic -- most rheumatic bid -- the most change itsd to economy. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. francine: janet yellen has once again struck a hawkish tone, saying she does not want to leave interest rates on hold. the federal reserve chair a knowledge the high level of uncertainty about the forces weighing on inflation, but she said it would be imprudent for the central bank to wait on the 2% target. >> a gradual approach is particularly appropriate in light of a low neutral real interest rate, which implies the

fomc will have only limited rate to cut the funds should the economy be hit with an adverse shock. we should also be wary of moving too gradually. francine: the market analyses a 70% chance of a fed rate hike before the year is out, up from 63% two days ago. president trump will announces long-awaited tax overhaul plan today. the rate on corporations will be 20%, and businesses will be allowed to immediately led off their capital spending for five years. congress is left to decide whether to create a higher bracket for top earners. les moec.ng in gil first of all, what do we know about janet yellen? how totrying to figure

interpret inflation. is the model right, and would you apply it to europe? >> i think there is an interesting shift in narrative. normally, the fed's approach to uncertainty has been the sanc tions. if i don't understand what is going on, and inflation is below the target, i should be very cautious. the new narrative seems to be, i still understand what is going on. inflation is still on target, but i'm still going to continue with my plant, which is very bold. the issue is two fold. does that mean that in reality, the fed is working on other stuff. central banks don't have a great record in trying to target prices. or is it simply that the fed considers it would be foolish not to preempt an acceleration in inflation as they see as unavoidable. the market clearly seems to

believe in the first interpretation. to your question on the eurozone, i think there the narrative is different. we have a central bank that tends to say, we don't know why inflation is not where it should be. we continue to remain supportive, even after qe is over. francine: if we go back to the fed, let me bring you to my chart. he overlay is the actual core cpe, that is in blue. on social it out media for our radio listeners. to you think janet yellen is worried about the recession? so, she feels the need to hike rates, just in case? >> i'm not sure it is a very easy question because the risk in trying to reload the gun, to prepare isnt

he might trigger the very shock you were trying to avoid. to hikexpecting them december. even when everyone said they would hike three times next year. we hear what the study is saying, and we are quite comfortable with our call. it's just that again, what strikes me is the market is not extrapolating more from what's being said. if the fed means business there and delivers, wherever inflation is, then, definitely the market is mispriced. there should be by the end of the year, some repricing of the u.s. bond market. we can discuss whether or not

the fed is right. what i find a striking is the market continues not to hear what the fed is saying. francine: why? because this underpins everything we do here. >> the market considers the fed has been regularly wrong on the inflation forecast and again, they would be forced into some sort of u-turn into 2018. they also put a lot on the fact that we were expecting a lot from fiscal policy, which is not coming. this could change. francine: does that change? let's say we have this tax overhaul at 20%. does that kickstart the animal spirit? >> i don't believe actually, in a big, massive fiscal stimulus, but the same time, the market was expecting too much just

after the new administration came to power and they came to expect absolutely nothing, while the truth was somewhere in between. there will be something, maybe not before the end of the year. it could take a little bit longer. there should be a reassessment of the simple fact that this administration needs to come up with something in the text field. all iscing nothing at wrong. francine: what will it take for the market to reprice? could you argue that what the market is looking at is the fact that president trump has consistently said he wants some lower rates? maybe there is some kind of subliminal message, the message from the markets is, whoever we get next, they are going to be hawkish. vindicatedlen be within the next few months?

this is probably what we need to see. secondly, who's going to comment? will the new team be in line with yellen's approach. it might take a few months before we get there, but i'm still surprised that the market what is ignore entirely being said, with one exception, which is the fx market. it has started to rebalance the low bids between the ecb and the feds. this will probably come as a massive relief for the ecb. francine: gilles moec stays with us. here is nejra cehic. reporter: siemens has agreed to

merge real businesses, bringing together former arch rivals from germany and france to create a european transformation giant. itsens will transform business, taking equipment to alstom, in exchange for a 50% stake in the company. we will be joined by the ceo of siemens and alstom. morning.as jumped this the middle eastern company is weighing a bid. the paper said the move is unrelated to ongoing talks between the british company enmities on firms over sales of parts of the overseas operations . nike shares fell in late trading after it squashed any hope of a quick turnaround and ailing domestic operations. fakes expect north american sales to decline again this quarter. nike's conversation is will also drop in the current period.

easyjet is developing a fully electric commercial plane within a decade. right electric is setting its sights on designing an aircraft that could fly 300 235 miles. that is the bloomberg business flash. hascine: president macron laid out his vision for the european union, including the creation of a line of defense was in the finance industry. >> a budget can only go forward with strong political leadership led by common finance ministers and a strong parliamentary supervision at the european level. only the eurozone with the strong international currency can offer europe the framework of an economic world power. francine: the proposal has gotten a mixed reaction across europe. they could trigger the exit.

meanwhile, the french finance minister later today unveils the first full budget since macron's election and it is expected to contain the first details on tax cuts from 2018. still with us, gilles moec. you are also a frenchman. you have been paying close attention to macron. was there too much europe? >> he was elected on a pro-european agenda. one of the main reasons people voted for him in the first and second round was the european agenda. he could not in any case, ignore and in the european dimensions are central. i was reading again actually, a whenh given 10 years ago the president first came to power. he made this call at the end of the speech, talking about how european governors needed to think the protection and defense create.ould

he was elected and managed to defeat a european populist. if europe does not change, is not seen as a forceful good, instead of being seen, the risk is we will have the sex and continuation. i think this european reform in central, not just for macron in general, but for france. francine: will there be a backlash biggest further immigration? support europe, but they might have issues with sovereignty. the more there is a force of integration, could it all backfired? >> yes, and what the president did yesterday was to recognize the. future of europe. you even mentioned that the u.k. could end up staying in the eu.

this reform might not just be europe. there is something for everyone there. from the market point of view, things did not go as far as people were expecting from the euroarea institutions themselves. i think this is a simple and reasonable reaction to the german elections. , evenench administration if they maintain this idea in the details things are less ambitious. eu in general. more protection, border control, citizens rights, trying to cite social dumping in europe. less than expected on how to make the eu work together. francine: what do you worry about with europe at the moment? we are still dealing with

brexit. the unintended consequences could be quite significant. the ecb is ready to do something with qe. and then we have these italian elections. is there something we are missing? >> that the risk of being overly french, i think that brexit is a massive issue for the u.k., not the eurozone. francine: not even for germany? they export so much. >> if we end up with a longer in the euroarea, i think what we had yesterday from paris was probably less ambitious on the fiscal union, which will leave an institutional gap in the way of eurozone function. end of next year, we

will be back to the usual conversations about what the large risk premium is. i believe it is the main issue. less, tension between all of europe and eastern europe, there is quite a significant feeling between paris and boston workers. that might be an issue for germany. germany maintain strong relationships, both political and economically, with eastern europe. francine: gilles moec stays with us. theyxt, leaders are warned are facing technological and geopolitical forces that are reshaping the world's order. this is bloomberg. ♪ francine: you are watching

"bloomberg surveillance" and i'm francine lacqua in london. there are concerns amongst policymakers and business leaders about future growth. that is according to the little global competitiveness report. world leaders are facing major issues, such as changing environmental factors. add the technological and political forces that are reshaping the world order. joining us now is margareta drzeniek-hanouz, the head of

global competitiveness and risks at the global economic forum. thank you. we enjoy this report because they gives us a new focus on what countries should be looking at. what is a country that has come out of it the worst? >> yemen, actually, is coming out. it's a difficult situation. francine: when you look at, actually, the strongest economies. i'm looking at the 10 places. the u.s. is not doing badly at all. >> the u.s. is moving up by two places. u.s.the last two yers the has been moving up. moved up by one place this year. francine: what are the chief executives worried about?

that competitiveness? theo they worry about political leadership? >> there is a lot of concern on the political leadership. we don't see improvement at all. in some countries, we have seen this area drop. thwew is -- there is a lot of concern around environments. we should see a strengthen competitiveness because this is the base of growth, a major conc ern. francine: you need to look for product investiture? >> they are very linked, actually. it drives growth, which drives incomes. francine: does it come out when

you look at forecasts for a country, do you look at productivity, inflation and competitiveness? >> yes, we have two main ways. you use the two main indicators. it usually does not work. francine: not anymore. >> for, you look at precise precision estimates. actually has a strong input in exports. francine: when countries get in touch with the world economic forum, do they ask for a ways to increase competitiveness? and do you give them a timeline? sure, you can great competitiveness here. >> there is a gap between the way companies do it and how it is reflected in the index. we are looking a long-term drivers off of competitiveness.

the improvement takes time to play out in the ranking itself. we look at infrastructure, education. this plays out in the economy. o 20 years, 10 t even. some of those are faster to fix. on the institutional side, we can see improvement within a short period of time. we also look at innovation and sophistication. we've seen the company lead in innovation, and also the use of icp's. china is moving upward. so, it really depends on the factors we look at . many of the factors encompass health, education, infrastructure. those are really structural factors. francine: i looking at me caltrans sheet.

-- i'm looking at the caltrans sheet. margareta drzeniek-hanouz, thank you for joining us. and gilles moec stays with us to talk about brexit. eu president welcomes theresa may's softer brexit stands, but says more ground must be given. we will come about the next. this is bloomberg. ♪

francine: good morning. this is "bloomberg surveillance ." let's get straight to the bloomberg first word news. here's nejra cehic. said he'ssident trump

prepared to use devastating military force against north korea, announcing new sanctions. the american leader said his preference was to work together to end pyongyang's nuclear program. >> we are totally prepared for the second option, not a preferred option, but if we take that option, it will be the devastating, i can tell you that, devastating for north korea. nejra: janet yellen has once again struck a mildly hawkish tone, saying she doesn't want to leave interest rates on hold. the federal reserve chairman acknowledged uncertainty about the forces weighing on inflation , but said it would be imprudent for the central bank to wait for a 2% target to hit before raising rates. >> the approach is appropriate in light of subdued inflation. the fomc will have only limited

scope to cut the federal funds rate should the economy be hit with an adverse shock. but we should also be wary of moving too gradually. nejra: the u.k. prime minister said she is bitterly disappointed by the decision by the u.s. government to slap import duties on. the commerce department cited improper subsidies after a complaint by boeing. more than 4000 people work for bombardier in belfast. saudi arabia will start allowing women to drive cars next june, ending its status as the only country in the world to ban half the population from getting behind the wheel. it is the most dramatic bid to open saudi society and modernize its economy. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i nejra cehic. this is bloomberg.

hascine: the e.u. president what he calls a more realistic tone from theresa may, but he still doesn't think enough progress has been made to allow trade talks to start. donald tusk said he hadn't seen enough concessions from the u.k. , despite saying britain's philosophy of having its cake and eating it is finally coming to an end. i'm pleased to welcome jim o'neill, former commercial secretary and goldman sachs executive. still with us as well, gilles moec. thank you both for joining us. jim, how much focused to you have on brexit? jim: brexit? what has that got to do with the northern powerhouse? francine: i'm sure it does. does it not? argue, sorting out

things to do with our productivity and skills, challenging them, massive geographic imbalance in the u.k. is more important than brexit. francine: are they linked? was brexit in some cases an anti-london vote? jim: i think it is a little bit dangerous to simplify things, but certainly it was an , within theovement north, not just in liverpool, so it looks like the more remote you are from a big urban place that is doing well, yeah, i think there's something about that. .nd certainly anti-london in all seriousness, this is a big issue for the u.k. a lot of people around the country think that they don't

get a voice, and london dominates too much everything that has been decided about this country. including brexit. francine: i will get into the nitty-gritty in a second. he can't wait. what the u.k.at economy will look like in 5, 10 years, what is the plan the government has in place? jim: plan? there's a plan? francine: what would you do if you were in charge? things, one of which i think i've said before. the whole reason we are in the situation we are is primarily because of conservative party politics. at some point, somebody will emerge inside the tory party, possibly the current leader, possibly others, that actually focus on the economics of these issues, but it is not the main driving factor. is, mything

interpretation of what donald tusk has said overnight, we need to accept that there is a price for leaving. there is absolutely no real negotiating power of continually going down the path of we want the best, but we want out the bits we don't like. it is not very smart. the e.u. isn't going to allow any country to leave without any cost. i don't think we've really recognized that yet. i would go seek quiet meetings with him. what is the least amount of cost you will start talking seriously about negotiating? every time an event happens like last week, within a day or so, they are saying it is not enough. they are like, you are the ones with all the risk, so you come to us with something definitive,

then we will take negotiations seriously. a year later, there's not anything of materialness happening. francine: what is the chance of the u.k. crashing out, and do we need to wait for angela merkel to sort out her coalition and talk about trade at the same time we talk about the divorce bill? gilles: i've always been surprised by this presentation in the british press about, down the road, it is up to merkel and maybe one or two heads of government to sort out all this. truth is, the european process is extraordinarily complex and it is going to be hard for any isolated head of government. for the time being, if we could stick to what is being said by the e.u., that there is a negotiating system, it is about

the council in total, and maybe -- francine: how does theresa may convince her party that she can get 20 billion or 50 billion or whatever that figure is, if she doesn't have anything negotiated? is it faulty from the start? jim: probably should have thought about that before they triggered article 50. the conservative party has given itself what is sometimes known as a hospital pass. there's not an easy way to go through it other than some version of what i said a few minutes ago. what is the cost that we can handle as a conservative party and country, and is this enough, as opposed to where we seem to be going. francine: is the labour party ready to rule the u.k.? jim: they seem to think they are.

is it a serious issue right now? we're only three months after an election. dysfunctionality aspects of the current they don't because want to lose power, it is not clear to me that an election is around the corner. francine: does it matter to economics, if you model what we know the proposals of labour to the fm moment? do -- there's a government, there's a majority, and we are not in the business of trying to look at other scenarios. it remains to be seen if the view of brexit is much clearer than the government's position. jim: amongst the many aspects of this never-ending madness is the labour party now is as divided

as the conservative party. they wouldn't be ready for dealing on brexit. if you look at some of the extremely ambitious things they appear to be suggesting they would do, maybe it is good there will be another bit of time before we have another election. francine: sometimes it feels like u.k. politics is becoming more like our southern european countries. stay with us. on the road to modernization, saudi insurance stocks rise as the kingdom says it is lifting its ban on women drivers. with the move caused tensions among powerful religious establishments? we are live in the middle east next. ♪

francine: you are watching "bloomberg surveillance." let's check in on your markets right now with mark barton. mark: janet yellen said yesterday while uncertainty is high around the forces keeping inflation low, the central banks most likely strategy is to continue raising borrowing cost. she did add that it would be imprudent to keep policy on hold until flechette is back to 2%. roughly 70% chance of a fed rate hike by the end of the year. on monday, it was 63%. the blue line, trump and republican leaders will today announce their long-awaited tax overhaul plan, cutting rates for corporations and pass through businesses, but also propose 35%,top individual rate of whether to create a higher bracket for top earners.

the highest taxed companies have barely outperformed the s&p 500 since the election. yesterday, shadow chancellor john mcdonald said that labour's , and you will confidence whenever this party wins, there will be a run on the pound. corbyn agreed with those comments. thought we would look back and see when sterling had some big declines in history. financial crisis, and of course post-brexit. those are when we saw what we could term runs on the pound. saudi arabia will allow women to drive cars, ending its status as the only country in the world to ban half the population from getting behind the wheel. it is going to have a profound impact on vehicle demand, driving habits, and even immigration patterns in a country where low-wage

immigrants from bangladesh and the philippines often work as hired drivers. francine: thank you so much. we're going to stick with that story. it did send shockwaves in the country. insurance up this morning after the kingdom clans to lift a ban on women driving, ending its status as the only country in the world to have that restriction. for more, yousef gamal el-din joins us from dubai. how much does this have to do with women driving, and how much does it have to do with saudi arabia trying to modernize itself very quickly? >> that is hitting the nail on the head. there were quite a few skeptics out there when it came to the saudi reform program. if there's any better way to enter them, it is this latest decision. the market evaluation suggests that skepticism among investors, here is your clear answer, move

fast, aggressively, and boldly. in terms of the economic impact, mark pointed this out already, one is on your foreign worker remittances, and the other is on job markets. you have to remember, you have about one million drivers, all they do is drive around him and in different saudi households. those are resources that are going to get reinvested. think along the lines of more disposable income. instead of paying the driver, you can go get a cup of coffee or a nice night out. plenty of ways to rethink how this economy functions going forward. reaction ise market actually quite big, not only because we saw a little movement on insurance companies, but it impacts remittances. >> interesting moves.

this is a broadly negative market on the benchmark saudi index, but the insurance stocks, this ties back to our argument. one estimate suggesting there will be at least a 20% to 25% increase in the next 10 years as a result of this decision. indexthe transportation is a focus. we are also seeing consumer stocks on the move. we are still a few months away from the actual implementation. this will give a lot of the analyst investors time to come to grips of how this will trickle through the economy. francine: thank you so much, yousef gamal el-din in dubai. the odds of a fed rate hike have risen to 70% after janet yellen struck a hawkish tone last night, saying she doesn't want theait for inflation to hit

2% target before tightening. how are emerging markets reacting? the economies of brazil, russia, india and china. jim o'neill is here. -- do we you look at understand the profound changes the world is going through? i'm talking about the way we do diplomacy, the way we tweet, the way brexit underlined populism, and saudi arabia accelerating reforms very quickly. jim: a lot for the mind to think about. when you are having the discussion, i was trying to think through that myself. the really big question going through my head is, is this just the first of a number of things in saudi arabia? if they are allowing the women to drive, is this the beginning

of women getting proper rights? bloomberg should apply for a show for a week in riyadh, see if you can move around normally. it would be pretty interesting. if that is the beginning of something like that, given saudi arabia's role in the middle east, that could be the beginning of an enormous change in that part of the so-called emerging world, and certainly more relevant than what janet yellen is going to do with the next 25 basis points at the fed. francine: i know you are a little more removed from the markets. jim: i'm glad you said that. francine: the markets seem to be on blinkers, almost. if we are going through these huge societal changes, how do markets price it? jim: i don't know if markets are

blinkered. it is the same as always. we are victims of the paranoia of things that have happened in the past, as well as being full of greed and wanting to never miss out on the next opportunity. the two things constantly clash. think whenn mind, i i just read or watch you guys or listen to something else, there's a lot of fear about something going wrong, whether it is the fed raising more, some kind of disaster in china, north ,orea, trump himself, brexit german election, people jump on the things that could go wrong pretty quickly. part of me thinks it is still a legacy that people are like, i can't afford to have that skill of shock. francine: is that good or bad?

jim: for markets, it is probably good. people never get carried away, famous last words, to the degree we saw in the nasdaq in the start of the millennium. -- people seem to worry a lot. generally speaking, markets are better when people worry. francine: do you miss markets? jim: no. it is in my veins, of course, so i still look at them two or three times a day. but what i would say in that regard, i think there is some benefit from being somewhat disciplined -- distant from the hour to hour blow. i have belief in the notion that those investors that stand back from the screens and don't react to something that is going on

probably have a better chance of getting a better longer-term performance. francine: so they look at what? jim: they think a bit more. there's also evidence that you've got to be able to react to the big moments correctly, and what you do every other day is neither here nor there. most people that trade a lot don't typically make good decisions. an activense, i am investor -- i do invest, but do i miss the daily thing? not at all. francine: do you worry that markets are being taken over by passive investment? we have hedge funds now with artificial intelligence and you miss the thinking. chancewould think the for really thoughtful active is,stors to still do well

if not as high as it was in the past, maybe even higher as these trends emerge. what i also think is probably going on, the reality, it is not easy to be a good investor. francine: it has never been easy. jim: same as being a good analyst. i used to say to people i thought i was doing a good job if i got the foreign exchange market right 60% of the time. if you get it right 60% of the time, that will keep me happy. that is the reality. people who killed themselves about investing are the ones that usually don't hang around. again, what do i know, but i think it is partly reality. most investors, or those that try to invest, aren't very good. it is not easy.

i guess that is part of the reaction. all these people aren't very good. what that probably should mean is those few that really are good have a chance of shining again, whereas in the past 20 years, they've just been dominated. francine: clever way of thinking of it. i will ask a little bit about research. i've been informed that we will be on the road in riyadh. jim: there you go. francine: when you look at research, the way we should model and price research, there's a lot of talk, a lot of ceo's that say, i don't know how to price this. do you worry that it is the end of research, or does it mean that good quality research will be priced correctly again? jim: i don't think it is as simplified as black or white,

but i think trying to put a clearer price on the real value perhapsrch, and with it judging how truly independent is the research coming out of the author's head, is probably a good thing. years, of the past 35 nearly 40, when i first started, this growth and research provision, how much of it was marketing, how much of it is closeness to banks, and all these different interconnected things, and how much of it is genuine research? the pressure to split it and have research be more genuine is a really good thing. smart firmss the that really do value research as a way of identifying a

differential between them and the others will be happy to pay for it themselves. in reality, probably most won't do that. the pressure goes to the investors. then it is a tricky issue. the bigger investment firms who can probably afford and do their own research, they aren't going to pay a lot. for the small guys, trickier. francine: i hosted a panel with a lot of italian and european banking ceo's, and there's uneasiness that the u.s. banks are eating a lot of our lunch. is there any truth in that? because of regulation, because they said they want do basel ii in or even mifid certain cases, is that unfair? jim: i think it is a bit naive. i spent much of my career

working for american-based firms. they are generally so aggressive and probably a bit more focused, and they seize the opportunities where they are. what i would say in response to goes to many of the challenges of the e.u.. they don't really allow european banks to play as european banks. why don't we have a huge cross european bank? then you would be having a like for like bank. bank of america, goldman sachs. francine: thank you, jim o'neill. this is "bloomberg surveillance ." ♪ who knew that phones would start doing everything?

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overhaul. the fed chair says they would be imprudent to raise rates before the 2% target. saudi arabia will now allow women to drive cars, opening up the economy. this is "bloomberg surveillance ." i'm francine lacqua in london. tom keene, battling his cold, is in new york. there is a little movement on oil and a a lot of movement in saudi arabia. tom: seismic shifts and politics in america. we will touch on that with kevin. the idea of what senator mcconnell saw yesterday's groundbreaking toward the elections of their saw yesterday is really groundbreaking -- senator mcconnell saw yesterday is really groundbreaking toward the elections of 2018. reporter: we will start with

both of those stories. the candidate backed by president trump lost the seat to roy moore. his victory is a blow to mitch mcconnell, whose efforts to boost strange's campaign failed. the long-awaited tax overhaul plan will be announced today, proposing a top individual rate of 35%, but leaving to congress the decision of creating a higher bracket for top earners. will be on corporations set at 20%, down from the current rate of 35%. tough words again by president donald trump when it comes to north korea. he says if necessary, the u.s. will use military force. president trump: we are totally thepared for second option. not a preferred option, but if we take that option, it will be

devastating for north korea. that is called the military action and if we have to take it, we will. reporter: he made those comments yesterday during a joint news conference with spain's prime minister. jeremy corbyn could lose his party's conference with the key note speech later today. he will tell activists that labour is ready to roll. 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: interesting data check toda y. equities, bonds, currencies and commodities, nowhere near the highs of five or six days ago. the euro weaker, 1.1740. over.oil, 59.92, way out the vix, under 10.

that's a big deal. the lack of volatility creeps in yesterday with gold decisively weaker. francine: tim does not want to talk about the dollar, only about treasury yields. if we don't talk about treasury yields, he will walk off set. tim: i want to talk about tom's cold and what he does not use antibiotics. francine: it is all to do with janet yellen, boosting excitations for the interest rate hike in december and donald trump is preparing to lay out his tax cut plans. tom: we like to listen to our guest. i am sure we have a chart from jim o'neill tomorrow. just bloomberg -- just brilliant was bloomberg intelligence. here's the unemployment rate with a 12 month moving average. yesterday again, you cut through recession in 2001. again, in 2008.

there is a pattern here and we are nowhere near that right now, nowhere near the unemployment rate cutting through the 12 month moving average. francine: you know what, tom. i've changed my bloomberg at the last minute. i was going to look at forecast versus reality when talking about the fed, but i want to show you consumer credits. i wanted to do this because jim o'neill is on set. this is in white. for radio listeners, we will push and out on social media. this is one of the things the boe is looking at and it could complicate things for households, especially when dealing with brexit. tom: what an interesting day yesterday in the united states. we got the president's speech and far more important, the political events that directly affect the legislature. in london, the jim o'neill, as

well as kathleen hunter a bloomberg. an ugly dayata for senator mcconnell. did the election run-up for 2018 start yesterday? >> absolutely. we saw trump and mitch mcconnell aligned, which is something we have not seen yet. still, their candidate lost. i think it was definitely round one of the establishment versus conservatives for next year's primary elections were control of the house and senate. conservatives are probably emboldened this morning. tom: the differences, the president can migrate over to senator moore, assuming he is elected, with great ease. the other republicans can't. will there be other corkers of tennessee who just give it up as a moderate?

that's one ofnk the questions senator mcconnell will be grappling with, trying to convince his members up for reelection that it is worth their while to go through the process of running, that they are not in such danger as a challenge from their own party before the even reach the general election. also, it becomes a recruitment issue as well in democratically held seats. it becomes a challenge when something like this happens because you know if you are a candidate that is refuted by mitch mcconnell and you agree to run, all of a sudden you have this far right primary challenger, that becomes a much more difficult prospect and certainly, folks mcconnell is trying to recruit will have that on their minds. francine: are you just addicted to stories from the u.s.? do you take a more relaxed approach? jim: i have said to you guys,

when it comes to economic stuff, what is going oni in china is more important than what's going on in the u.s. germany's number one trade partner became china. it had been every other year, either the u.s. or france. obviously what goes on in the u.s. is extremely important, but it isn't as important as it once was. there's bizarre stuff going on over there. again, there is a lot of bizarre stuff going on everywhere. francine: you spent a lot of time looking at the u.k. and the northern powerhouse. there's part of that when you look at the u.s. right now. jim: when i was listening to that discussion, if there is a commonality between what the obama voters have just chosen, what we saw in germany over the

weekend, what we saw in brexit, there is this disaffected gang out there that somehow feel as though life has missed them by. and as somebody who has been at the front of the benefits of globalization, it's something i think about a lot. that is probably why i spend so much of my time on the so-called northern powerhouse. because you're china to change not just the last 20 years or the past 50 years. a lot of people come from proud societies that have a great industrial heritage that have missed out. it seems to me the u.s. needs to find its own version of the northern powerhouse strategy because you can't -- you can get away with it during the election and clever soundbites, but unless there is something with substance behind it, that will compound the problem and i am not sure if the u.s. has gotten to that stage yet.

obviously, i am hopeful here that the northern powerhouse, and midlands, these kinds of things develop more substance and deal with the underlying issues, rather than the superficial noise which the clever opportunistic media friendly figures play. it is easy to say this stuff and it yourself in a position of influence, but you have got to follow through with substance. tom: he's a really important comments -- these are really important comments and they go to globalization. is this a new globalization, or is it a deepening of the old fears of globalization? jim: i don't know the answer to that, tom. i think it is quite complex. i suspect there are two big things. one of which is something bloomberg is in the center of, this 24/7 media world we live in. it is so easy for one of 8 billion people to say something anywhere in the world at any

moment of any day and that did not used to exist. so, policymakers have to somehow live in the middle of all of that, which means a lot of them can say stuff without meaning it. we probably need to see policymakers that have principles they can stick with, despite pressures of our 24/7 world. the second thing, i would say on the globalization issue, we need to go back to some of the things that policymakers neglected when we had a lot of these trade agreements, where the, particularly in the u.s., we helped areas cope. a lot of that was not followed through. and again, going to aspects of the northern powerhouse, that is the kind of think one wants to focus on. clearly, in terms of change, there is always some marginal loser, but what appears to have happened in this rush to globalization is people forgot about that part.

this is what i think is at the core of so many disaffected people in parts of western society. germany, wherein we thought they were immune. tom: we look him back and talk to jim o'neill about some of these trends. kathleen, thank you for joining us. we will continue from london. francine lacqua and tom keene in new york. later on, the president will speak, rolling up reforms. this is bloomberg. ♪ reporter: this is "bloomberg

surveillance" and i'm taylor riggs.

futures are indicating a 70% chance of a rate hike in december following the speech by any yellen. she said the most likely strategy is to continue raising borrowing costs. >> the gradual approach is particularly appropriate in light of subdued inflation and a low neutral interest rate. which implies that the fomc will have only limited scope to cut the federal funds rate, should the economy be hit with an adverse shock. but we should also be wary of moving too gradually. reporter: we will hear from three more fed officials today. st. louis fed president, boston fred president. and fed governor speak in separate events. alstom have agreed to merge, bringing together archrivals from germany and france, creating a transportation giant. and stay with bloomberg for a

conversation with both ceo's. that's your bloomberg business flash. tom: taylor, thank you. it's always a joy to speak with jim o'neill. it could be about his acclaimed bricks. it could be about wayne rooney, or it could be about manchester football. maybe we should talk about brexit. jim o'neill now on the changes in his disunited kingdom. i want to talk first about the economics, the religion and almost the mythology that there will be another empire. we will reach out across the globe and have a new british empire of global trade. is it going to happen? is it even feasible for the prime minister to speak of that? jim: you have obviously been having lunch with dr. fox from our department of trade. you are an evangelist for the

u.k. going forward. the potential for trade with a lot of exciting places in the world. i also know that in reality, life is tougher than that. i mentioned a couple minutes ago about germany and their number one trade partner china. you don't have to leave the eu to have great trade relationships with other places in the world. that is something that the evangelist in the u.k. seems to ignore. to be good at trade, you have to be good at trade, it does not matter whether you are in the eu or not. global trade has gone down, whether we are in the eu or not. we have got to be serious about prioritizing trade relative to this chart i am looking at here, which basically encourages people to constantly borrow money to consume. francine: that is a chart we were showing at the beginning of the hour. tom: let's show another one.

let's talk to lord o'neill about it. this is trade weighted united kingdom. it expands the o'neill career. will the united kingdom breakdown donw to the 1992 weakness? what happens to the u.k. if they get weaker euro-sterling? - even 50 years before i was even alive. tom: this here is the decline of manchester football. jim: in terms of the current cyclical weakness, the pound's decline has been a negative, not a positive, because it is cramping real incomes. obviously, if we really did focus and became good at trade, none of these decades a decline

in the pound what help the export performance. let's just say we wait for that decade to happen with some excitement when it might occur. francine: the excitement of the year might be a boe hike. if we get it, is it a reversal of the cut we had last august? with that put in question their credibility, or is it an actual hike? jim: the bank has got to do what it thinks is the right moment. in some ways, they should have already taken that rate and cut back because of the catastrophic consequences of brexit not immediately happening. at the same time, it is linked to the u.s. and elsewhere. underlying inflationary pressures don't think particularly high. and it is a delicate balance. the bank might have a bit of humble pie to eat, but a lot of them are bigger people than just worrying about eating humble pie. tom: jim o'neill, we hope you

can stay around with us. i know you have got to run off. maybe we could get you to stay around a little bit as well. we'll talk to howard ward. he's been right, right, right, right to have the courage to be in this market. this is bloomberg. ♪ >> my colleagues and i might

have misjudged the strength of the labor market, the degree to which longer run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation. yellene: that was janet speaking in cleveland yesterday, saying the fed might have been overcautious about unemployment with the labor market showing signs of more slack. thank you so much for joining us. a lot of talk about how you finance a lot of the deals. if you speak to ceo's, do they worry about the hawkishness and a vision is and what markets did to monetary policy? atthe answer is, i think this point, they are much less concerned than they were two or three years ago. then, without there was going to be a number of rate hikes and

suddenly, the economic dynamics changed and we stayed in the same dynamic we have had since the crisis. at this point, it is widely expected -- is it going to change their stance? i do think so. francine: is there a concern that there is some kind of temper tantrum? do you think the communication between markets, i guess investment bankers and the fed is much more transparent and open? >> it is more transparent. we have been here two or three times before. yellen.o believe janet iso believe the u.s. strengthening and i do believe there will be a rate hike in december. this time i think it is real. i think markets will take it in stride. tom: good morning, sir. wonderful to speak with you and your expertise on national resources and hydrocarbons. let me bring up a chart we put

up yesterday, folks. i would suggest this is tied into central bankers and their restrictive policies. we go with one of the great bear starts out there. would you suggest as a look at central bankers struggling to become more restrictive or to get back to some form of neutrality, that that could signal a resurgence of commodities? could we even begin to discuss the end of the commodity bear market? >> i don't think so. there are very broad dynamics in relation to the advent of commodities. of course, there is the rate cycle. the chinese economy is probably the biggest driver. and of course, you have the new change and the wohole in dynamics around energy, renewables and so on. i think these dynamics will come

into play over the course of the next two years. i would not be calling the end of the bear market yet. tom: that is an important statement from william vereker. we will come back and talk about the transactions and combinations of next year. later today, the former governor of the federal reserve system on regulation and on a new structure for the next fed. really looking forward to that conversation. and a new discussion with the former governor. it's the warmest september than i can remember in new york city. ♪

tom: "bloomberg surveillance." francine lacqua effort most successful trip yesterday. news to first word

with taylor riggs. republicans concede defeat after their latest effort to repeal and replace obamacare after they say they don't have the votes. backed byate president donald trump lost the primary. roy moore's victory is a blow to trump and mitch mcconnell, whose efforts to boost his campaign failed. the trump administration says and militaryships personnel to puerto rico to help with the growing humanitarian crisis after hurricane reappeared many are still without adequate food, water, and feel. president trump's national security adviser says north korea should declare it's willing to give up its atomic weapons. h.r. mcmaster said those moves could lead to the u.s. negotiating with that government.

for hours astory day powered by 27 journalists and analysts in more than 120 riggs.es, i'm taylor this is bloomberg. francine: we're just getting breaking news out of s cania. this is accusing the vw of price-fixing. i remember seeing figures that it could of been lower, but it could've been much bigger. i'm looking at the volkswagen share price right now to see if it's having an attentive impact. 0.7%.agen at i will know how big the price-fixing or the investigation is. let's turn to the m&a space and finish. fulton has agreed to buy legacy fossil fuel and trading business into what could turn into

europe's biggest acquisition in five years. merge of, there's a rail business to create a transportation giant. we are joined by william, the u.s. global head of investment banking. when you look at all this m&a activity, what is it spurred by? financing or is it selective targeting of companies that make sense? william: it's a great question fo. we have seen a big uptake in german m&a and these deals in the last for hours. ceos and culprits are feeling under pressure to grow topline and feeling under pressure to grow earnings. they're feeling under pressure from competition from china and asia in this is spurring them to think more broadly around m&a as a potential means to compete

. francine: what is the catalyst for them to stop worrying so much and spend the cash that they are sitting on? william: we have seen consolidation amongst the chinese running stock companies and they are going to compete and compete very hard. the europeans need to get bigger and more cost-efficient to be able to compete. that has spurred action in this instance today in utilities and aerodynamics. tom: within the synergies that you get out of a transaction of accommodation, the idea that the revenue is not going to be there. do you suggest that much of the m&a activity to come is based on a lack of revenue growth and we have got to emerge just to keep the growth of the income statement going? william: to generalize a bit, but yes is the answer to your question. we live in a world where and just rates are very low and the

return almost asset classes is close to zero. we have a very low growth environment and european if you ar in europe. if you are ceo, it will be stripping o cost which is what synergies are about. switch you assume we from the transactions we are seeing over to the old diluted transactions and maybe m&a of old? william: there speaks a wise old hand, tom. we have seen the frothy. m&a with 2007of being the best example. shareholder of are plotting these moves because they do see that real value is going to be created. ultimately over excitement and over exuberance leads to too high prices and that is going to have the reverse effect. francine: is there going to be

more m&a going forward? we are seeing certain industry groups being saturated. william: let's not forget that m&a volumes in europe are close still to 50% below where they were in 2007. while we have seen about fitness year by historical standards, they are still quite depressed. yes, cautiously i would expect more m&a selectively in certain sectors. i do think the market is concerned about a correction in some points given some of the headwinds that we face so there is caution underlying the expectation. francine: i don't know how you look at catalysts when you look at a correction. is there something that could happen or is it just market sentiment has moved? william: the markets were certainly serving to price in and expect some correction at the end of the summer. volatility spiked in the early

days of september and it was easy to look at whether it was economic expectations of rate rises, whether it was trump, whether it was korea. there were many different things. markets have settled down and we are seeing a strong period of performance in september. there is an expectation that will be a catalyst likely to be economic over geopolitical, which may lead to a correction. tom: i don't want to get you in trouble with clients that you talked to from time to time, but i will take a stab at it this morning. bring over the chart in this is the acclaimed description stri g screen. buried in all this data is a dividend of 5.46%. this is a unique way of doing business. to we going to see a change a more anglo-american finance on continental europe of a lower dividend-greater dividend growth and maybe a more concise use of cash? the oil sector has been

characterized by very healthy levels of dividend and dividend yield. the pm shell from memory have been paying out one in every three pounds of dividends that have gone to the u.k. market. this is characteristic of the sector and i would expect that in the stocks because of the yield characteristics which underlie them. tom: the yield characteristics are there, but it does come down. anyone who watches the show knows the keel of the sailboat. need the fixed income market to normalize away from negative rates to a positive real rate among so many nations and cultures? do you need that to get back to normal in mergers and acquisitions? william: no, actually. offers the current exceptionally low rates on

financing so we have seen very big deals that have been driven by the available the of low-cost financing. just this week, you have seen acquisitions and you have seem very significant low-cost financing that has driven that transaction. ofof course, you saw 3g make an approach to unilever early on this year. one of the biggest deals and history that finance. francine: how long does it take a deal to come into fruition? does it go from thinking of doing this to fruition? are the times longer than they used to be? william: so the most part, yes. these deals that you see today are one or two years in the making and there have been discussions with a number of total parties around that transaction. there's also the transaction with discussions around consolidation in the utility

space in europe now for two plus years. these things do take a long time and the conditions have to be right ultimately to see these things announced. tom: we will continue. william with ubs, wonderful to have him here to look at transactions and combinations to come. we thank you for watching our television briefing of the morning. some of the expert conversation that you need. you can do the same thing on radio and launch into the vehicle of your choice by listening to bloomberg daybreak on radio. that's in selected cities as well as sirius xm. this is bloomberg. ♪

francine: this is "bloomberg surveillance." is adjusting has tied to

talk a little about what's going on in the rest of the world. saudi arabia has announced plans to lift a ban on women driving, the only country in the world have such restrictions. fors the much dramatic move the government to open saudi society. we are joined now by yousef from dubai. this do marks the fact that the people in charge of saudi arabia want to accelerate their plans for upheaval quite quickly. >> yeah, this is about sending a message. there's no two ways about it. there was always a bit of an execution risk and people are skeptical about the pace of saudi reforms. this is a very clear answer that they will move boldly and aggressively and it also comes on the same day where they are only assuming for the second time this year dollar denominated bonds. it speaks the broader reform process.

when you look at the economy here on the one hand, on foreign worker remittances, the drivers who have been ferrying around the women in saudi arabia, those are going to get pushed out. you look at changes in labor market which were previously not accessible to women. it will arguably lead to more productivity as well. francine: i had a chart actually that i will bring up in a second if i can pull it back up, but it looks at remittances. but we sometimes forget is that because saudi arabia such a different country that it functions in the way that this kind of change could have a big impact not only on insurance stocks like you were telling us this morning but also on remittances. yousef: according to one estimate from this morning, about a million drivers out there -- all they do is serve saudi households and basically the means of saudi women in terms of getting from point a to point b. that is the kind of activity that is being missed out and could be reinvested.

think along the lines of more disposable income to either purchase another car or to invest in something completely different. that money is no longer going to pakistan or bangladesh or india. saudi arabia and remittance has always been a hot topic in the kingdom. tom: i know that there are some delicacies here and some history being made. i looked up what an uber ride is from riyadh to jeddah. it is somewhere in the vicinity of 270 u.s. dollars. will these women have the freedom to drive for uber or we talking about going to get a gallon of milk? yousef: it's the same, freedom and flexibility. this commission has been tasked to really study how to best implement this process. the actual of limitation will not happen until summer of 2018. set byes of uber will be this latest decision and some of the beneficiaries will be the bigger car brands like toyota

that have a big presence in this market. people who need insurance as well when they buy a car. that is why we are seeing the move and what's a broadly negative market. a lot of color in this and plenty of legs in the story of total foldout in full. tom: is this driven by the royal family or one voice of the royal family? is it driven by legislature? where is the catalyst for this historic change? yousef: this is really part of the reform program from the crown prince who has been the face of the 611 reform program. this goes along the lines of what they have been trying to do in opening up to foreign capital and msci emerging market. it andbeen spearheading

it comes off the back of political it and it comes off the back of political consolidation. it's a controversial move and you need a lot of power to the educated without any backlash. francine: thanks so much. that's the use of about this big saudi story. and i don'tilliam know how you take this as the kind of impact if it have on the uber in saudi arabia and world markets. are they doing this to show that they are progressive, changing, and therefore able to attract more ideas? william: it's a very interesting parallel opening up for female drivers and ipos are usually not connected. this is part of modernization and a program to open the country up and that includes capital markets. listve seen the plants to saudi aramco, which has the potential to become the biggest company in the world. tom: with saudi aramco is the deal of a lifetime. how's that deal going to work out? what is the timeline to get aramco out to the public? william: lots of uncertainty

still and a significant amount of work needs to be done on the transaction both in terms of structure and ultimately the decisions around listing venues and where else it might end up listing 50. so plenty of time to go. my guess is more like 2019 rather than 2018 business. francine: william, thank you so much. if you have questions that you want tom and i at task william, log onto tv if you are bloomberg customer. please ask william this. send that to us and we will ask him next. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i'm taylor riggs. let's get the bloomberg business flash. as theyo bombard ea slashed duties up 220% of bombard he has jetliner, citing improper subsidies after complaints by boeing. it threatens to up and it's airlines,o delta which ordered 75 jets with a list value of more than $5 billion. the u.s.s working with engineering startup to develop a fully electric commercial plane

within a decade. bright electric is setting its sides on designing an aircraft that can fly 335 miles. that will cover 20% of the passengers easyjet flights today. battery powered plants offer a way to reduce fuel costs, which are typically among the biggest expenses for airlines. twitter is lifting its 140 character limit on tweets that may expand the entire social media platform. users could send tweets as many as 280 characters. this comes as they try to invigorate user growth and revenue. fired for --en fine for price-fixing after reaching a record settlement with regulators. this is the second highest fine for a european price-fixing case. tonyine: joining us now is

in london. we need to talk about scania. let me recap the start. bykswagen's unit was fined the european commission for what they say was colluding with of the truck manufacturers on vehicle prices for 14 years. appealsays it plans to this finding. what is going on behind the scenes? ever this is the biggest eu price-fixing case that they like to say. these are 14 years, very expensive products and big trucks that cost a lot. it has involved a lot of truck makers. another volkswagen unit was in the case last year. that is why the fines are so staggeringly big here. francine: this is basically what the commission is saying that scania coordinated factory prices is. was it the sale price or the

components of what they were making? they also included on the timings of emissions technologies. what does that mean? tony: they were rolling out the technology in concert with other manufacturers. that all adds up in calculating the bill at the end of the 14 year period. tom: let's be clear, folks. this is the swedish truck company owned by vw. they have come out and said this is a bunch of baloney. usually in america where there is a big fine like this, we didn't mean to do it and were not guilty, but find. i don't sense this year at all. i sense it is hugely adversarial. in my right? -- am i right? will they push against the eu and the commission rule? tony: a lot of companies appeal court rulings and decisions all the time from the european commission. google is doing so right now in their case. that was a 2.4 billion fine. that is not a price-fixing case

but a little different. it's going to be a hard case you because the other manufacturers all settled so they are the only ones going out on their own. tom: we have good perspective from william from ubs as well. is this is an impediment to eu business? let me rephrase this. this unique adversarial relationship of the european commission to the company a or company b scania? william: i don't think so. i think it's a real wake-up call and reminder to businesses in europe that they need to comply with the regulations. stylistically may be the approach is different, but fundamentally there is an absolute need for companies to pay attention to this and i don't think this will be an impediment to business. francine: what does this mean for the consumer? do people when they merged think of antitrust regulators in the you?

eu? that's part parcel of the job. william: absolutely. biggestt is one of the factors that these companies think about when they think about transactions. is this going to be anti-competitive? will the consolidation lead to too great market shares? how are the regulators want to think about it? absolutely they need to be best. tom: what do you expect to see from vw scania? tony: they are going to appeal the case. appeals of the eu cases can take two to for your store through the european general court and the european court of justice. we will see what happens during that time. fines are frequently lowered by those courts. they are not thrown out all the time, but they are lower quite often. tom: very good. tony, thank you so much. tony aarons, greatly appreciated this morning. to talk about,re

particularly on equity markets as well. howard will join us. looking forward to talking to howard not only about the blue-chip stock but the assumption here of a single digit world and the double-digit returns. january itnk in would be up 17%, up 22% as well? let's look at some of the data right now on the market. let's get a risk on feel with the euro weaker again today. we can thank chair yellen for that with her hawkish comments in cleveland as well. the president with a fundraiser and night for republicans that will be a part of our theme in the next hour. this is bloomberg. ♪

tom: this morning, korea fears -- stronger dollar, weaker gold.

hawkishllen with a tinge to her comments. single-digit actuarial assumptions in this hour. -- and drain this form, what a day for senator mcconnell. buzz, roy moore enters the stage far, far right. the morning everyone. this is "bloomberg surveillance ," i'm tom keene. in london.cqua francine, what was the takeaway from the many conversations in the panel in milan yesterday? francine: a lot of european -- wishes they were a lot more like the u.s. banking regulators, which seems to be a little more lax.

wall street is kind of eating their lunch with comes to investment banking. tom: very good. first word news in new york. taylor: a candidate backed by u.s. president donald trump has lost a primary in alabama. luther strange was beaten out by ray moore. more's victory is a bloated trump.- is a blow to long-awaited tax overhaul plan today, an individual tax rate of 35% and leave congress to the decision whether to create a higher bracket the top earners. rate onay the corporations would be 20% down from the current 35% rate. donald trump on north korea, says if necessary the u.s. will

use military force. we are totally prepared for the second option, but if we take that option it will be devastating. can tell you that. korea,ting for north that is called the military option. if we have to take it, we well. francine: he made the comments yesterday at the white house. jeremy corbyn concludes his party's conference with a keynote speech later today, he will tell activists labor is ready to roll. has reduced theresa may's party to a minority. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. to: very quickly, we want get to mr. ward and also politics with kevin. euroon futures up, the

weaker, stronger dollar and oil turning here. oil churning here. francine: what i'm looking at is similar to what you were mentioning there, i would just -- risk rate, once again, we have talked about it. it is all to do with janet yellen. donald trump preparing to lay out his tax plan. tom: good visit yesterday with gina martin adams, let's look at one of her points of optimism, which is no recession in sight. the 12 monthrough moving average, gloom. we are no where near that over here. francine: this is what i wanted

to look at. it goes back to what you were saying and also fold in with what we heard from janet yellen. this is simply put the forecast versus a reality when you look at the pce. the white line is what economists on the terminal predict rates to be and this is overlaid with actual core pce in blue. i will push about for regular listeners, but that's a difference between the reality and what people think will happen, tom. get to mr.'so really, he was not at the president. here is one summary of what happened yesterday. this is a write up in the "washington post." it's a blow, forced to call off cassidy, graham and ray moore who won the alabama primary last night

pushing against mcconnell, if not the president. kevin cirilli distills all of this, a lousy day for republican establishment types. what does this mean for jeff flake of arizona? kevin: it could be a foreshadowing. let's talk about who one, and that is steve bannon who backed moore in the alabama race. he holds counter mainstream beliefs on social issues, he is anti-marriage equality. this is a signal to the grassroots conservatives on health care and issues like it that perhaps the mood of conservatives, as you said, is very much antiestablishment as we head into midterms. the establishment right now is senate majority leader mitch mcconnell. thati would suggest

midterm elections started last night. kevin: i agree. tom: how many senators are threatened as senator corker of tennessee? kevin: i would say handful. i don't have an exact number. tom: that's fine. senator bob corker, wow, this is someone who really is as you mentioned, a sstalwortt -- a styl in the senate. i cannot speak enough to his professionalism and stature in the upper chamber. francine: we pick this out out today," we don't do this often. he says months after voting for trump's promising agenda, the

american public is tired of the do-nothing congress ." do you hear this when you speak to insiders? kevin: yes. he had the nail on the head. and yesterday in the press conference, the president trying to move forward after a devastating loss on health care reform, another devastating loss and of course he turns to tax policy here we are going to be hearing all about that in the coming hours. tax policy day we are told is going to be today. and quite frankly the sources i talked with, francine, say a republican-controlled white house, republican-controlled house and senate, if they can't pass tax reform, what can a republican-controlled government do? francine: why has it been so

difficult? is it the tweets or something more underlying dysfunction? kevin: it has proven to be the when we had speaker boehner and now with president trump, the divisions senator ted cruz versus the establishment are so much alive and well as we saw last night and the great state of alabama. tom: how to democrats adapt and adjust, do they stay where they are, go more progressive, or do they try to move to the center to become more centrist against senator presumed moore? kevin: i think what we saw on the right we will see on the left. there is a fight for the soul of the democratic party. this is a party without a leader. likenk people to watch our

,ormer vice president joe biden and senator elizabeth warren. what i have noticed, the launch of hillary clinton's book tour has been a concerted effort to isolate bernie sanders of vermont. tom: thank you. howard ward is going to tell me he doesn't care about politics, all he cares about is moving the ic pack up the ice for the rangers. -- courageurt in the to be in the equity markets. how much cast you have right now in the portfolio. ward: very little, tom. tom: explain how you can do that every day. what is the behavioral construct

-- how can he be 96% in this market? mr. ward: just the history of understanding the futility of market timing goes a long way towards that your having said that, we have had a tremendous move in the stock market coming -- 2009000 and nine bottom. we have to respect that, we have ,o respect the duration the length of the economic expansion, stock valuations are not cheap. the fed is beginning to tighten. while it has been reasonably easy to stay fully invested up until now, i think it will become more challenging in the year ahead. francine: challenging, why? how can you protect yourself? mr. ward: the big thing goes back to monetary policy and the fed. the fed has been clearly helpful to the equity markets since it began its process of

quantitative easing. that is all changing. the fed has tightened four times, they will tighten a fifth time. they hit the next month, next week, they begin the process of letting their bonds roll off the balance sheet. quantitative tightening if you want to call it that. it was positive for the economy, then we start to move the other way. at some point that will become a bigger and bigger problem. withwe'll do that next howard ward of the belly funds. gabelli funds. president trump and a 3:00 hour, his remarks on tax reform. , thisondon, from new york is bloomberg. ♪

taylor: this is "bloomberg ," merging rail businesses in a deal that brings together former archrivals from germany and france. the union will create a transportation giant aimed at countering petition from china. stay with bloomberg for a ceo's.ation with both fed fund futures are indicating at 70% chance of a rate hike in december u.s. followed by yesterday's speech by janet yellen. the strategy is likely to continue raising borrowing costs, anyway. she talks about the labor market. >> my colleagues and i may have misjudged the strength of the degreemarket, the

which is consistent with our inflation objective, or even the fundamental forces driving inflation. taylor: we will hear from three more fed officials today. they all speak at separate events. that is your bloomberg business flash. tom: thanks so much. it is a good time to speak to howard ward about hawkish tinges i mentioned of chair yellen. mr. ward is of gabelli funds. all of this is presumed on a pickup and inflation, do you see a pickup and inflation? mr. ward: no, and a few minutes ago we talked about the pce deflator. one pointnning around 6-1.7 and the fed has tightened four times, they have to tighten five times.

they are moving to normalize things, but they may be doing things start to weaken, but the hurricanes -- tom: i agree, but the critical issue is howard ward looks at a lot of different companies in the hour, what are you hearing from corporate officers in their conference calls, do they have pricing power, or are they leaving low-inflation at the top line? mr. ward: some prices are going up, some enjoy the pricing power, but many industries don't. think about retail, think about the amazon impact on some indifferent companies now and different industries. .etail is tricky home depot, great, the company's not in the crosshairs of amazon, should do well. but there are not that many, fewer than there used to be. it is amazing that e-commerce is

only about 12% of retail, and get it seems much greater than that, because of the outside impact that amazon is having on everybody. -power is here and there, but not widespread. that is why the pce deflator is fede it is, up 2% and the is right -- for inflation, but what is the rush? francine: is the way the economy is changing so fundamental we

--d to get to a change mr. ward: we know starting next week they will begin the process of unwinding the balance sheet, so they have been active, that process of trying to raise rates started in december of 2015. has the economy changed? yes. for demographic reasons we are looking at a slower growth, nominal gdp and that has implications for pricing. i think it will be more difficult to reignite inflation in the sense that we had in the 1970's for example where we had the baby boomers and they were entering the workforce big-time and we had an expansionary monetary policy, negative real rates. we are light years away from that today. the fed is moving -- they are not being imprudent by not moving. i simply would say, let's put

the rakes on this, let's be data dependent. --'s not just dial the sin the this in. they -- francine: what if they are worried about not having tools left? mr. ward: they should be worried, bring it on. the challenge is the impact on the economy, we may not be feeling the full impact of the previous four tightening's because of the lack. this is why i think we have to be extremely careful about the fed doing too much too soon is that, that is going to be hitting the economy over the next six to 12 months. francine: thank you some much. howard ward of the belly funds stay with us -- of the belly funds stay with us.

this is bloomberg. ♪

tom: all of the phones in the howard ward house are broken, it is a miracle waiting for the iphone x. talking about apple and the dreaded bank stocks. -- the saying stocks. -- the fang stocks.

5,really shows a fixation on 6, 7 stocks. how do you respond to the idea 5,t the market is fixated on 6, seven named stocks. it is sort of business as usual, isn't it? mr. ward: yes and no. let me start out by saying with respect to the fang, let's extend matt universe a little bit. what we have seen up to this point is the biggest a performance of large-cap growth over small-cap value in history. not only had you had massive outperformance of growth over value, but you have had massive outperformance of large-cap over small-cap. what we have seen in the last few weeks is some of that beginning to unwind as the so -called reflation trade started to come back a little bit. given the huge gains that

large-cap growth as a category and faang in particular have had, these are names that every household knows these companies, so it is easy for them to relate to. and it gets so much attention, and they have been such huge successes in terms of revenues and earnings, not to mention -- tom: can you buy their growth, model growth, extrapolated growth? mr. ward: if you tell me were going to continue to have 2% interest rates, yes, you can, does that mean they are not vulnerable after the move they've taken? no. there will be cyclical bumps along the road, but these companies are huge beneficiaries of the new digital world particularly with respect to media. tom: i have to get to the gloom on apple, have you sold a share of apple? mr. ward: not recently, no.

it remains my biggest holding. the sock have come and a little bit, it is not uncommon for apple to sell on the news once they make a product introduction. they are around 150 or so, 14 times this earnings. apple is about to enter a huge year for revenue and earnings growth. their fiscal year starts october 1. it is trying percent kind of growth and earnings here at this is not the time to be too worried about apple here to the new products are going to sell well. tom: we will come back. howard ward with us on general electric. stay with us. this is bloomberg. ♪

francine: this is "bloomberg surveillance," looking at an austere -- on two st. paul's cathedral here it is not sunny

in london, but what else is new. let's get to first word news with taylor riggs. taylor: senate republicans have conceded defeat on their last ditch effort to repeal and replace obamacare. helpednt donald trump raise an estimated $5 million for republicans as he dined in new york some of the biggest names in finance and real estate. about 150 people attended the event. tickets cost a minimum of 250,000 dollars but couples a seat with the president. incumbent senator in alabama luther strange was beat by roy moore. efforts to boost strange's campaign failed.

sending personnel to puerto rico could to address the humanitarian crisis after hurricane maria, large sections are still without food, water, and fuel. president trump a adviser says north korea should consider inspections of nuclear facilities and declare it is willing to give up atomic weapons. h.r. mcmaster says that could lead to the u.s. negotiating with the government. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. think is a much. saudi arabia has announced a ban -- a plan to lift the ban on women driving. , vivian joins us. you have been living there for quite some time, how much -- i

don't know if it's confusion, how much excitement them how much pushback was there yesterday as the announcement came through? the definitely was a lot of excitement, many women have been waiting for the decision and expecting it for some time, but there's also a lot of shock and disbelief. people were not sure this is happening, they expected it would happen vaguely in the distant future, maybe five years from now, but very few expected it to happen so quickly. there was some resistance. i did go out into the streets to talk to saudi's to hear their opinion and i found many people who did not like the decision and said they opposed women driving, including some women. that said, there is a lot of excitement for the women who have been pushing for this for many years. they are happy and are awaiting more information on how it will them when more conditions

are announced. francine: what does this tell us about the appetite for reform government to beg thisdesire be viewed as more modern and be seen as modernizers, but they dichotomyy -- the the is not a true one, there are many conservative people, but the government has also weighed the decisions many times for many years and the fact they chose to do it now doesn't necessarily mean that more saudi suppose it or more saudi's are against it. it was clearly a decision from them that now is a time that suits the efforts and political goals. there surely will be resistance from both religious clerics who are conservative as well as conservative saudi's, but so far

the religious establishment has mostly fallen in line and issued a convoluted statement today that expressed they support for the decision. tom: the beautiful shot we have keepingh shows hotels -- hermetically sealed, often the distance we can see the saudi people here at i want to know how does the decision play there, how does it play out 12 to the left7 blocks of that fancy hotel i stayed in years ago? did go out yesterday and talk to people, and it played very mixed. some people were happy. i met some women who were happy forsome people who work

five. i met a group of three young men who said, why are you driving, jokingly. and i use the opportunity to start a conversation and ask what they thought, and they thought and i thought it was a mistake. they see it as a western driven agenda and or imperialist agenda and have associated it with foreign influence. this is not something that is welcome to them. that is an element to society that is there. looking at some of the changences how is this -- how will this change, will people buy more coffee on their own, or will this impact in a bad way, because you'll have -- people will have to use drivers, for example? vivian: there is a large class of foreign drivers that will potentially lose their jobs, but i think women will maintain those drivers. while women are going to be allowed to drive, that doesn't mean everybody is going to apply for a license in ditch their driver. the impact could be limited or quite large, but will have to wait years to see that.

one way we will have a quick impact is the women who are already working and are paying to themto take them from work will have extra money in their pocket every month that they were spending on drivers, that they theoretically could then put into the economy into other areas of the economy. it also could theoretically encourage women discouraged by enterst of transport to the workforce, but there are a lot of societal, cultural, and legal restrictions that remain that are discouraging to some women. tom: thank is a much. reporting from riyadh this morning. important new stock that howard ward is looking at, you may know the name of that as well. let me drive your attention to what you do when you driving the car, which is maybe get briefed on the news and important conversation on sirius xm

channel 119 coast-to-coast. good morning. ♪

taylor: "bloomberg surveillance -- one billion dollar fine by the european union after a price-fixing binding. they reached a record settlement with regulators. to -- import duties jetliner.bombard ea's

delta airlines ordered at least 75 jets. twitter is lifting its 140 character limit and experimenting with a small group that may go to the entire social media platform. it will let the user send tweets as much as 280 characters. it struggles to create user growth and advertising revenue. tom: thank is a much. a global wall street clinic, get out a piece of paper and listen to howard ward of gabelli funds. this is how you do it here to this is a single best chart, there is the stock. the ceo redline is right there. m l -- mr. flannery has

take away the gulfstream for various ge executives. free cash flow from a minting $15 billion to a -$2 billion free cash flow and am i right, you are loading the boat on ge? mr. ward: loading the boat may be too strong, but it has been one of my recent purchases. this is a stock that has fallen from grace. everyone hates this stock, you can see a decline in share price this year. i think the stock at this level is cheap on its dividend, it is cheap on its aspect of earnings. i think it is technically oversold. there is a new ceo that will be a catalyst for change. he is cutting cost. you mentioned the airlines, the ge fleet is going here he is going to sell some assets, he

announced the sale of some , alcatel, ihis week think. there is a catalyst for change, stock is hated. the market is up substantially, so i think it is a great contrary bet. tom: on the x access, we hear you have aaxis, timeline of patients knowing gabelli ared th going to be patient. i think this will be a stock that adds to the portfolio over the next six months, i think we are in for turbulence in the stock market, we are way overdue for a correction, this one with its 240 dividend yield is going to provide you downturn protection.

images into an industrial main that is going no where. tom: short-term is six months for you. what is your holding for a dog like ge, three years? mr. ward: three years, yes. howard ward is looking short-term six-month an average term three years. francine: right, but things can turn quickly here if you look at , are you worried that the markets lose momentum out of nothing, that there is a board mentality that doesn't catalyste linked to a or monetary policy that there is a little bit of selloff that gets accelerated quickly? mr. ward: that is a problem we have in the modern stock market era where all girl rhythms and rapidfire trading has become 80% plus of daily trades.

au worry about that on day-to-day basis, there's nothing i can do about that, so we do try to focus on the fundamentals. cheap, wherecks are they out of favor, where can we get the biggest bang for buck . particularly now, because i am concerned about the markets .eing near record highs stocks that can write us protection, if we do end up with a correction, which we have not had in some time. francine: doesn't mean you take less risk because of what you said? mr. ward: yes. i think you need to be somewhat more defensively positioned today, let me put it this way, if you go back and look at the chart on the smp, how far it has to 2900. 666 intraday i would argue this is the worst time since the beginning of this market to be committing cash to stocks. it still might eat an ok time, but it is the worst time you

could've picked between 2009 and now to put money to work. the patient, don't chase some of althoughng stocks, they may be good stocks over the next several years. tom: bring it up here. francine mentioned this to me, here is the run of adidas. fashion forward. it is a moonshot over the last stays flat.ile nike can a guy like you get lucky on fashion, or is that just too hard to do? the keyword is lucky, because playing the fashion game is so difficult, especially for me. not really a fashionista, not a close source -- clothes horse. you have style. tom: they dress me.

they changed management and they got -- tom: like ge, that's where i'm trying to go here. mr. ward: look at the difference of management can make. they have a new problem with the college passed ball thing, but that probably won't change the merits for investing in adidas, or as they say in europe -- adidas. francine: is this the new thing or is it getting close to saturated? mr. ward: this is a category, at a huge category, strongest growing categories within apparel retail. i think it is here to stay. the movement to casual dress, more comfortable clothing and shoes, i think this is a long-term secular play. so, i do think it merits close

attention and i think nike, which is really the leader of this band is a reasonably attractive stock at its current price, it is discounting a lot news, if you can take a verizon, 1218 months, i think nike will work out, too. tom: is the street buying jeff bezos blind? mr. ward: maybe that's a little in july i wasem, waiting for a correction in amazon. amazon has gone down since i was here in july. i think it is still in a corrective a's. i think it will get below 900 and some point between now and the end of the year, again, that is a stock i wouldn't chase. it feeds us there for a few

quarters as it was turning on -- profitct's big get spigot, but now they are planning for growth for years from now and are willing to run whole foods without making any money. it is a stretch in terms of expecting a near-term payoff from amazon. i think you can buy that below 900, be patient on that. for thenk you so much stories that make us buy, hold, and sell. i mentioned, bob men karen moskow, how about tv ? i think i have to reset my bowtie,. you can pull up in old segment, that chart, that chart with apple, you can pull that directly over to your terminal like magic. ♪

francine: this is "bloomberg surveillance," coming up shortly is bloomberg a break america.

david joins us now. as you know we heard from chair janet yellen about inflation. today we will talk to somebody who sat next to her for eight years, just came off of the federal reserve here and we will talk to him about what is going on with inflation, and how you manage price stability. as proud as i am to have him, i --jealous about ej washington with the " post" and write book after book. he teams up with orenstein and man, they write one nation after trump. democrats,k republicans and maybe senator mcconnell have to read. what we saw yesterday,

graham cassidy inflames, senator corker out the door and roy team far right, is it going to be one nation after mcconnell? >> i think it might be for your part -- three or four parties after mcconnell. the line that has gone through my head now for some years is a line from jfk's inaugural address, he who foolishly rides for power the back of the tiger ins up inside. i think republican leaders have courted extreme forces that led to roy moore's victory yesterday for years. a thought they could keep a lid on them, and they couldn't. if first gave them donald trump and now it has given them this roy moore victory, which is a slap in the face to mcconnell, and no matter what he says, a slap in the face to president trump. i think the other thing from yesterday, this was the steve

bannon-donald trump primary and steve bannon one. this is going to empower his forces in the party, to mount a lot of other challenges and bob corker will probably look forward to that. tom: "one nation after trump" and you talk about our little platoons, what is one little post soon of note in the democrat party? of.: i think everybody looks the party that lost the previous election and says they are in disarray, they said that about the republicans after obama won in 2008. some of it is just talk, what democrats have to figure out is how to bring together two basic ideas. there is a lot of talk about democrats losing the white working class vote, and they did lose it to some extent. obama lost it and hillary clinton lost it more, but the focus on in class voters has to

extend beyond whites. it's also african-american and latino, and they have to figure party is to say this committed to both racial justice and economic justice. never i talk like that they say it is my bobby kennedy fantasy. that is what democrats have to do, it is almost always their job and they have to do it in a forward-looking way that says we have a new economy here, the jobs of the past will not exist in the future, but if we don't give people opportunity, where going to have a lot of chaos in the country and political chaos included. francine: e.j. dionne, if we were to have presidential thetions in 2018, who would democratic party put up to stand against donald trump? e.j.: i think you would have to hire out fenway park to fit all of the democrats who want to run 2018, so i have

no clue. i think all pundits should get out of the prediction business after the 2016 election, but i think you've got a range of people from elizabeth warren, chris murphy, kamala harris, sharon brown, you're going to have a very big field starting out and a lot of democrats are looking at trump and saying, well if he can do it, i can do it. tom: ok. e.j. dionne, were going to ca continue. and we will continue with howard ward as well. stay with us. "bloomberg surveillance" on

jonathan: chair yellen cautions against tightening to gradually.

the dollardrop and rallies. president trump is expected to unveil his tax plan later today. the administration is said to be planning a 20% corporate tax rate. fending off the high-speed rail challenge coming out of asia. from new york city, good morning, a warm welcome to our viewers worldwide, i am jonathan david westin and alix. as we count down, let's get you set up for the trading day. futures are positive on the s&p 500. the dollar stronger against putting much everything in g10 and treasury yields keep popping higher, popping higher by five basis points, six on 229 on a tenure rally. >> and really looking at the break out there, take a look at yields in europe, the big