e.u. leaders meet under a cloud of issues. way for find a ward. economist on the treasury secretary disagree on the impact of the plan on the deficit. a new poll finds most members of may's party want her gone before the next election. fda's warning. good morning, everyone. this is bloomberg "surveillance

." a very dark london this morning. coming up later, the brexit show. we will be joined by the former prime minister of ireland. let's quickly check your market s. euro-dollar. no, it's euro-yen. this is what the pros look at. it's the end of the quarter so we're seeing a little bit of caution when you look at the stoxx 600. the price of oil. the spanish government is continuing efforts to stop an independence referendum in catalonia. the region's administration is pressing ahead with a vote even deployed thousands of police and arrested eight dozen local officials. catalonia includes barcelona and theunts for a fifth of

economy. in the u.k., most members of theresa may's party think she should quit before the next election. ina poll, 13% said she should leave now or in the next year. and the same proportion said she should go just before the next elections in 2022. meanwhile, 38% think she should quit after britain has left the european union, march 2019. steven mnuchin says the republican tax plan will cut the u.s. deficit byt $1 trillion but most economists think otherwise. 21 out of 26 predict it will widen the budget deficit over 10 years. the tax plan fall short of promises to create jobs and spur growth and only really benefits the wealthy. >> this is going to be a great tax bill for hedge fund managers in florida. and the descendents of very

wealthy people. it will be great for them. inthe probability gets done 2017? >> i do not think this bill is getting done. nejra: the white house it has begun an internal review of its staff use of private emails for government business. reported yesterday that private email accounts used by the president's daughter and her husband both top level advisors are of particular interest. ahead ot eh-- urging institutios to prepare for the new rules that come into effect in january. andrew bailey spoke to bloomberg. the rest of this year there will be some firm messages going out. please turn up on our door january. o of

what we do not want is we don't want to see citations on the 3 of january. so, we've been very much focused on what we need to do to make sure that markets are functioning. nejra: you can catch the full interview with andrew bailey on bloomberg markets from 8 p.m. london time today. news 24 hours a day powered by 2700 journalists in 120 countries. this is bloomberg. francine: i'm really looking forward to that regulation interview. european leaders are meeting in a baltic city. having won a fourth term as chancellor, angela merkel is just beginning the long task of forming a coalition government. isthe meantime, macron trying to sell his version for the future of the e.u.

theresa may is digesting the news that most of her part want her gone before the next election. to talk abouting all of this, the global fixed income strategist at soc gen. it seems like it is one of those funny summit. e.u. summits tend to be a little bit funny anyway. but does it feel different this time? it's all about politics. >> it is all about politics and after just after president macron outlined his vision. everyone will be figuring themselves out. in terms of who wants to po litely lean against this. francine: first of all, if something unexpected would alonia does it

play out on the markets? >> i think it is much more of a human, social domestic political issue. the whatever it takes pledge from mario draghi. still got negative rates. there is only so far you can push this. it can cause some short concern. i think it's something else for people looking for a softer euro to cling to. aboutart of a story concerns about populism coming back in germany, concerns about the italian elections, part of that story. but i don't think it will run very far. francine: what do you make of the german story? it was called a watershed moment. angela merkel could be putting her chief of staff is the interim finance minister. the implications are for german

policy? >> the concern for the periphery countries is still about any coalition with the fdc, a much harder line in terms of the relationship with the periphery countries. that will continue to be a worry. the bigger concerns for me are much further down the road in the sense that, i'm glad german unemployment is level aghaain. because the next recession is when all of this comes back with a vengeance. francine: what does that mean for euro? you were talking about euro weakness. what the pros look at is euro-yen. >> if you want to look at euro -yen, i don't think we will get to 140 on euro-yen. if you had an uptrend from where we are now, it's not likely to go crashing straight through that. that would make me nervous.

we are going to see a choppy period sideways. francine: on the euro side? >> thon the euro side. the problem is the euro has gone up too far, too fast. it's kind of settling back. i don't think european politics is enough now to smash me down through that uptrend. i'm watching and keen to get more actively involved in long euro-yen once we've chopped around sideways for a bit. francine: is there anything that mario draghi can do? he's mentioned it but kind of on the sidelines. >> no. mario draghi is a much happier man with the euro a bit softer. balance sheet normalization before he has to make his next steps toward slowing the pace of bond purchases. a badt think the ecb's in

place. the october meeting can see them be more united. they'll probably be more happy. but they're in a better place than they were in august. francine: do, what about euro- pound? if you look at that cross, is the euro affected by brexit? >> if you look at euro-dollar, you do need to look at the trade weight of the euro, which because of the weakness of sterling, has gone up more than euro-dollar. the euro strength is more general. so, that does matter. again, they're probably happier with euro-sterling here than when it looks like it was headed to parity. francine: i have a great chart. trade weighted. we will get to that in the second. in the meantime, breaking news out of uber. the uber ceo will meet with transport for london next week.

this time yesterday, on the back of the u.k. prime minister lashing out at uber operating in london. she was blaming the mayor for putting 40,000 jobs at risk. there's a petition signed. if you go to any bar in london they talk about uber. nejra: v volkswagen says will take an additional charge of 2.5 billion euros in the third quarter to buy back all retrofit tainted-- p arts in north america. thata mackers expects it will hit operating costs in the third quarter. it brings total damages from the diesel cheating scandal to over 25 billion euros. deutsche bank had its credit rate cut one level by fitch. wasgerman bank's grade reduced to bbb+.

lenderays expects the will take some time to reach its earnings targets. tesla is structurally unprofitable and way too leveraged, that is the verdict of an investor. he's betting against elon musk's company. >> this company was supposed to be making money now. and now supposed to be making money by 2020. i'm guessing by 2019 we will hear about 2025. this company is structurally unprofitable. it's capital structure is way too leveraged. ken griffin so the dollars returning capital to the clients as it seeks to tighten up its investor base. some of the investors will receive all of their money back from the citadel fund by the end of the year. a spokesman said "we have routinely made profit

distribution in whole or in part across a number of our funds over the past 20 years." u.s. regulators are setting to be plan to release aig from an oversight order after its role in the 2008 crisis. the council has called an unusual last-minute meeting for today to reevaluate the company's designation. while aig is not named in a statement, the council has been working toward releasing it from the label. that's the bloomberg business flash. francine: now, the dollar is headed towards the best week of the year on hopes that u.s. tax reform will lead to economic growth. the bloomberg dollar spot indexes on track but headed for a third straight monthly drop. still with us, the global fixed income strategist at societe generale. is any tax reform priced in? we're still too thin on details.

>> we are pricing in the idea that peek pessimism -- peak pessimism about trump policies is behind us and something is going to be done. there's optimism there will be tax cuts and optimism that will be repatriation of foreign profits back into the united states. things for the economy. there are some optimism. there is no sense of how big the package is. francine: what does it mean for the fed? if we do have tax reform, the outlines we heard, 20% for tax, for a corporation, does it impact inflation? or does it even help with gdp? >> i think a house a little bit with gdp if you get something. it'll keep on extending the cycle. what it does to inflation is still a mystery. they've lost their phillips curve.

until it turns up again, we are confused. think for the fed a more accommodative fiscal stance keeps them on track. rate hike in december, a couple next year. francine: even if inflation is at these levels? they seem to be looking through these inflationary pressures to focus on hiking. >> there's a sense is what we need to do with monetary policy is get a close assurance -- to say we need to get away from the extraordinary wartime crisis management policy settings. whether there is inflation or not, the right level of rates isn't the one that gives us this kind of asset price globally. that's not the right level. itshould be nudging carefully higher. francine: does it risked derailing the growth trends we are seeing?

i've heard they are thinking they need more tools to deal with the downturn. >> you know, i struggle with the fed that the cost is peak funds above 2 but not above 2.5. the peak 10-year note is under 3% and behind us. that really, nominally, when nominal gdp is growing, i struggle with the idea that that cost of money, particular in the united states, whether is not much level in the system, is going to blow things up. you have got a more urgent problem with concerns about places where you have strong -- canada, straley, sweden. -- and austrlia. francine: you put out a brilliant note. you talk about, it's entitled what if it is all about china? a lot of the swings we have seen in fx have more to do with china

policy. than actually what our western countries are doing. >> yeah, i ponder whether to put clients and it is sense it is a conspiracy theory story but i thought it was too good not to write. and everything is playing out. there is, a number of things happening at the moment. one is that it's not a coincidence completely that the high end euro-dollar and the low end -- happened a day before the chinese announced a change in regulations. which also means it was the low end of the dollar against the chinese yuan. so, you could argue that the chinese allowed their currency to appreciate in the first eight months of this year, because it was weakening. this has helped global asset prices. when the chinese said enough with our currency, and people

like me who look at u.s. economic data, we are missing this. i think it's a lovely story. it highlights the fact that you ignore with the chinese do a chore perio -- at your peril. francine: we're listening to jean-claude juncker, the president of the commission. as the e.u. leaders arrive for the summit. you were just talking about some of the trade weighted currencies. weighted pound and trade weighted swiss. think people need to pay more attention to trade weighted indices, but ultimately, again, the yuan is a good example. people see dollar-yuan going down. in trade weighted terms, it is weaker than it was at the beginning of the year.

so, yes, and for something like sterling, much the same in the sense that the trade weighted pound is closer to euro-sterling that it is to -- which people tend to look at more. francine: what happens from here? i have a million charts for you today. it's all about currencies. >> i think it had as much of a run-up as it can on the back of that shift of monetary probably language. the peak might be the day we pricing two rate hikes by february in the u.k. there is an argument for saying ave anotherwere to h referendum on brexit or anything like that. high percentage. call it 10%. we would trade at 150 pretty quickly. let's not get confused in terms of the size of the move. so, there are people looking at

strategies around that idea. that's an outlier conversation that gives it a bit of support. the reality is i think the pound has had a nice run on the back of repricing rates, but the economy is still slowly -- overlevered and the uncertainties in the future are still out there. we will probably trade sterling back down against the dollar. francine: against euro? >> against the euro. euro-dollar will determine what happens against the euro. we need to find a base. unless euro parity we are trading euro euro- dollar above 130. francine: we were also bring you an interview with the director of the u.s. economic council at 12:30 u.k. time. don't come crying in january. the warning from a u.k. regulator. we will share interview with the fca's andrew bailey next.

this is bloomberg. ♪

francine: don't go cring. -- crying. when the new mifid rules comes into effect. that is the message from andrew bailey who says firms need to be preparing now. all, there is a lot of work going on during the course of this year we make sure that we do everything we can to

be ready. that's involved -- being out and about as it were, making sure firms understand what is needed. everyone knows what they need to do. plotting out the timelines. we're not finding in many cases a deliberate refusal to -- so , i'm recently comfortable with where we've got to. when i said -- liability, what that really means is the rules come into effect on the 3 of ja nuary. our supervision will take over the markets in the firm's. but obviously, we work with them to make sure the thing is embedded. i expect to be taking that forward as time evolves. and no doubt we will find things that are better than others and we have to address the things that go less well.

firms will tell us about that. nejra: you have asked about paperwork to be submitted by july the 3. many firms have met this deadline but how concerned are you about the ones that have not? overallhe moment, our view is we had a good response following the publicity we gave in july, which was delivered to say now is the time. good response. so, we're chasing down a few sets of the industry. actually, often more, it is those sets for which it is all new. not so much a continuation of what came before. we have to do more there to alert them. example?lke wke what, for >> some of the trading platforms where they have got -- a new world i suspect. nejra: so, you said you will work with firms when january 3 hits, but again, with any firms

that have not made any attempts to be ready, how hard and how will you come down on them? >> to the rest of this year, there will be some for messages going o ut. don't please turn up on our door on 3 of january and ask us to solve the problem in the morning. that said, what we do not want in this is why we structure the work, we do not want to see dislocations on the 3 of january. so, we have been very much focused on what we need to do to make sure that markets are functioning effectively. francine: that was andrew bailey. theresa may arriving. and our brexit is next. this is bloomberg. ♪

♪ francine: welcome to our weekly brexit show. i am francine lacqua. minister theresa may just arriving in town and earlier she was pledging that britain will

defend its allies from an increasing russian threat. she was joined by emmanuel macron. we will put some live images out and you can access them through the website. a lot of the leaders are just arriving now but they will start negotiations and talks in the next couple of hours. the european union's president on tuesday welcomed what he called a more realistic tone on brexit negotiations from theresa may. said the philosophy of having a cake and eating it is coming to an end, but concessions do not go far enough to warrant the start of trade talks. the first round of brexit talks wrapped up in brussels, with the chief negotiator warning it could take months before the talks moved to trade. welcomed ther

positive -- >> the prime minister's -- we felt this during the negotiations this week. nejra: new figures showed u.k. consumer confidence rising to a six-month high though it remains below pre-brexit levels. consumer spending is starting to recover after being held back by faster inflation in the wake of britain's decision to leave the european union. wasain's post brexit policy dealt a blow when the u.s. imposed a 226% tariff on bombardier planes. theresa may spoke out about the move. > we have a long-term partnership with boeing. this is not the sort of behavior we expect with a long-term

partner. this undermines that partnership, but on the wider challengere is a real globally today because i think there are aspects of protectionism creeping in around the world. nejra: global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am nejra cehic. this is bloomberg. francine: just getting some breaking news out of the u.k. we have a little bit of data in terms of mortgage approval and gdp. consumer confidence, a little bit better than expected. this is what i am looking at for the current accounts and i have that gdp. it has been revised downwards for the second quarter. 1.5 percent instead of the one point 7% we were expecting year on year. it is in line with what we were saying. ,his is what the pound is doing 1.339. approvals, we were

expecting 63,000 mortgages. at 66,000. came in kit juckes is the global fixed income manager. , we you look at metrics look at consumer credit, the pound trade weighted, what is the message for investors to get a feeling on how brexit negotiations are going? most of the economic measures would tell you brexit is going ahead, but the average british consumer is ignoring it in a pretty big way. consumer credit has gone on rising unsustainably. not good in the economy because the growth has slowed to 1.5% year over year.

the consumer is spending on the never never affect, which does not fill me with masses of hope. you only take two things out of that. , yes, something changes we look like we will get a rate rise but we will not get a series of rate rises into a slowing economy. aancine: would this just be reversal of the rate cut we had is what the if that bank of england wants to do, how do they make sure that is how investors take it? make thate time they in november we will have priced in another one for february. showe data continued to this gradual deceleration in growth we have got, i think the markets will slowly rethink the series. mark carney talking about gradual and slow and does not want people to get too overexcited. francine: do you worry about

consumer credit in the u.k.? this is something the bank of england has increasingly focused on. kit: they are making lots of noise because they are not sure what to do about it. , and morereally cheap than the united states the u.k. is real ever to households to some degree. re-leveraging households to some degree. if the economy is slowing significantly this good cause banks a lot of money -- cost banks a lot of money and cause households misery. brexit is not likely to deliver a recession. it will deliver a period of slower growth, which is bad enough in economic terms. if you see an overstretched consumer you will have to scramble to get his or her finances back in order, you do been that and the fiscal position gets worse. francine: what happens to

inflation from here? of all,t know -- first what is the chance of the u.k. crashing out of the e.u.? if you have wto, does that mean tariffs go up and inflation can shoot up to 5%? kit: not 5%, but you could get another shock. we are seeing a temporary rise in u.k. inflation is of the pound. that is temporary. we want -- we are not seeing wage growth and without that i do not think you can get a sustained up trend. then inflation will come back down. in due course. brexit talkson this week, the only thing i would take away, is that the chances of crashing out without an extension, without a period for implementation is gone.

it is a small possibility, but i think there is no agreement that we are making progress. we are going to need more time, but we are making enough progress. francine: does pound move on the back of what happens to theresa may? i do not know how you view this, if it is a conservative person her, whether there is fresh elections in germany and corbin gets in. what does that do to the pound? kit: i think the markets would be scared if they thought there was the risk of another early election that could trigger -- that equally seems unlikely. if we are going to have a conservative government committed to going ahead with who is nominally in charge of that government will make a lot of difference.

what would cause the biggest move -- and one of the things that is clear with sterling -- is that the pound is very weak. it is likely to bump on the bottom. talk of one rate rise tells you where you to get any kind of shift in policy that gave anybody the same glimpse of the thought that someone might have another referendum or not make this happen, anything like that, whatever anybody thinks about brexit, we would trade sterling a lot higher very quickly. kit juckes, thank you. theresa may failed to get momentum in brexit talks. what can be done to move the negotiation forward? we will talk with the former head of state next. this is bloomberg. ♪

♪ francine: welcome to our weekly brexit show, live from bloomberg headquarters in london. theresa may appears to have failed to create the momentum she was looking for after last speech.rexit michel barnier says there is a new dynamic but trade negotiations could be delayed. others are said to be calling the u.k. counterpart david davis and obstacle. -- and obstacle to progress. the director of open europe is here. henry newman, great to have you. we look at negotiations, a lot of it is posturing, game theory, like a game of chess. how do we know how they will end up? henry: we do not know completely . the prime minister brought things forward at florence, made

concessions, and put new policy on the table. i think europe has recognized that. barnier is still saying there is not yet sufficient progress. there is one more round of talks before the crucial council meeting in october where the heads of government and state will get together and decide whether britain is greenlighted for trade talks. francine: negotiations are pretty clear, commission to commission. they talk first about divorce bills. the u.k. wants to talk about trade straightaway. can angela merkel or emmanuel macron step in and make that happen? .enry: i think they should there is nothing in european law that says we have to settle these questions with the money. that was a political decision by the european union and it is also political whether we have made sufficient progress here and there is no test in law as to what that amounts to.

european council officials have officially said that. francine: is it whether you are making progress together? a grand theater, a bit of posturing, and they are likely to put the pressure on the u.k. wem reasonably pessimistic will make sufficient progress by october, but i do not think it will be that big of a problem in the overall scheme. as long as we talked trade by the end of the year or the new year i think that will be reasonable. francine: is there a clear understanding on the e.u. side what the u.k. wants, or does theresa may -- there is still confusion what kind of blueprint the u.k. is looking for? some discussions inside the cabinet and a degree of disagreement, but i think we have got a clear policy. in florence, we found that we are having a standstill transition where for two years

pretty much nothing will change even though we are leaving the institutions. that is a good degree of clarity . what we need more from the u.k. is what sort of country will we be after brexit? will we be where europe will u.k.ce regulation and follows? where can we diverge from that? we can only diversion we ask permission from the e.u. i think we need to set out our own paths. francine: if you look at the florence speech, did it reduce the chances of the u.k. crashing out of the e.u.? henry: i do not think it was ever likely we would crash out. it is important to get negotiations that you say you will walk away and any kind of business negotiator will say this. i do not think anybody on the u.k. side ever wanted to walk away. that is getting less likely.

we are quite close on these three first issues. nevertheless, there are sticking points. francine: do you think we are largely discounting the role of jeremy corbyn and labour? henry: i would like a more cross party approach, yes. tot has always been the way deal with more -- with these constitutional questions. they are trying to have their cake and eat it, they are saying to stangl -- stay in the single market. does that mean we become members of the european economic area? we do not know. francine: it is impossible to know because there is no precedent. henry: i think you can be clear about what your intentions are. the brexit secretary saying structures do not matter. for athey don't, but legal organization like the european union that deals

through institutions. francine: henry newman joining us. we are joined by the former prime minister of island -- ireland. this is bloomberg. ♪

>> we value the contribution that e.u. citizens have made in the u.k. i value their contribution, i want them to say -- stay. i also obviously want u.k. citizens to have their rights guaranteed as well. francine: theresa may talking to reporters as she is arriving in estonia for the e.u. leader summit. she also said that she is willing to pledge that britain will defend its allies from an increasing russian threat, even after brexit. she is basically doing a little bit trying to court her european leaders -- european union leaders. this is what we are seeing in terms of your market. the dollar seems a little pressured after a strong week.

the dollar poised to finish its first monthly game -- gain with a whimper. edging lower as investors continued to weigh the prospects of tax cuts in the u.s. if you look at european stocks, first of all, it is the end of the term. european government bonds eking -- industrial metals and bonds. i am looking at crude oil, treasuries probably the most interesting. they seem to be the most stable. it jumped the most since donald trump's election in november. we had a great chat yesterday about glencore. a lot of the copper and cobalt produced for a lot of these mi ners will be important even with

the introduction of electric cars because that stuff is used in batteries. back to brexit. what to do about the irish border? anna edwards has more. anna: that border largely melted away in the 1990's due to the good friday agreement, and the fact that both economies were part of the single market. after europe -- the u.k. leaves, it will be the only land border and they believe people and goods should be able to move seamlessly. john broughton joins us now from dublin -- john bruton joins us from dublin. we heard from theresa may and she says she wants a creative relationship and a deep partnership. are you any closer to understanding what the trade relationship will look like? know i think we need to first of all what relationship britain wants with the european union.

talking about a full partnership, that is just words. that does not contain any detail as to whether for example the e.u. standards would be applied -- bytain and could be the european court of justice. they could adopt a cheap food policy which would require border.at the ireland the first decision is for britain to decide what sort of relationship it wants from the e.u. and there does not seem to be consensus in either of the major parties as to what the major goal is. they all agreed there should be a transition, but transition to what? until we know what is the ultimate destination we cannot know what sort of controls if any will be required on the irish border. anna: we heard from the irish band minister who said the transition could last four years. d.c. that likely?

-- do you see that likely? transition agreement will have to be approved by all 27 members of the e.u. and perhaps their parliament. it will have to be compliant with wto rules in regard to most-favored-nation treatment of one country rather than another partner of the european union. the simplest thing may be for britain to stay in the european union by extending the negotiating period from two years to six. that way, perhaps we could avoid complications with the wto and avoid some of the difficulties that might arise in ratifying a transition agreement. it is very different to draft a transition agreement until you know what you are transitioning to, and britain has to make up its mind about that. given the situation in the house

of commons, that is difficult. has called foray creativity and trying to fix many parts of this, including the irish border issue. u.k. position papers pointed to examples in the vulcans and the russia-polish border where .reativity has been used can you see a creative solution to solving the border issue? that has creativity been spoken about was creativity in regard to process, how you might check whether goods were what they were supposed to be or whether certain payments had been made. but the process is only part of the story. what the ultimate requirements of the trade agreement are is what is really needing to be decided first. we don't even have ideas from britain on this. i have to say that brexit is a british idea, and it is for britain to come up with the creative ideas about the

long-term relationship that it rhetoric,ng beyond and talking in details about what standards they would apply, what trade policy they would have with certain countries so as to determine from that the nature of the relationship it would have with the e.u. it does not seem to me that the intellectual debate is even engaged with that yet. irish foreign minister saying the idea of a physical border has been killed. these see it that way? john: this all depends on what the ultimate arrangement is between britain and the european union, or if there is an arrangement. we have already wasted six months of the two year time period making very little progress. effectively, this will all have to be wrapped up between january of next year and november of next year, a very short 11 month period. do all this detail?

we are discovering new complications in the matter of law and the matter of arrest warrants and all sorts of areas, we are discovering new complications every time we dig down. anna: a lot of questions still remaining. thank you so much, john. that is the former irish prime minister. thank you very much for your time. francine: anna, great work. that was the former irish prime minister mincing no words when it comes to brexit. there seems to be a lot of anxiousness. "surveillance" continues in the next hour. our producer is moving to dubai. this is bloomberg. ♪ what did we do before phones?

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can they plot away forward? but economists, disagree on the impact the plan will have on the deficit. itsicky turnaround has long-term credit rating cut one level as it struggles through another strategic overhaul. it is friday. i am francine lacqua in london. tom keene in new york. let's not forget, it is the end of the quarter. tom: we will look at volatility, one of the themes across surveillance today. it is a lot harder to make money without agitation to move things around. that has been the story of this quarter. francine: we have to have a discussion about passive verse hasctive and what role ai to play in your stockpicking. taylor: catalonia's campaign for

independence comes to a head on sunday. the rebel administration in barcelona will attempt to hold a referendum in defiance of the constitutional court and the government in madrid. the conservative party does not agree when the prime minister should quit, but they think it should be before the next election in 2022. in a poll published in today's times, 13% believe she should quit now or in the next year, 38% believe she should quit before britain leaves the european union in 2019. almost 500 people have been arrested in a nationwide sweep that targeted so-called sanctuary cities. officials say at least two thirds of those had criminal records in the u.s. donald trump's chief economic advisor says he could pass a tax overhaul despite objections to

the president's remarks on white supremacists last month. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thanks so much. just one screen, one screen this morning with a little down in equities. the euro gets my attention. what a mystery for october, whither the euro? oil elevated over the last 10 days. help me here, i failed at the data check this morning. francine: you did not. you did a great job because that encapsulates everything. investors continue to assess donald trump's tax proposal, which is why we are not seeing much movement in stocks. we are lacking detail, what does it mean?

dollar dynamics looking poised to finish the best weekly gain of the year with a whimper because we don't know how to weigh the prospects for a tax cut, and european bonds rebounded. tom: we will try to get a dollar chart in here later on. we have a stronger dollar over the last 10 days. you wonder if that is the end of the great surprise of this summer, weak dollar. let me go to the bloomberg, the vix, the picture of the quiet out there. the three year moving average of the vix, i arbitrarily picked it. sinoidalg friday, function. down we go. we are almost back on the three year moving average to a quiet. on a monthly basis, we are decidedly to a quiet on the qe from. francine: i like that chart a

lot. we are looking at pictures of the arrival of eu ministers. tom: he looks great on radio. francine: that was funny. the french president already running into bumps on the road in his plan to reform europe. offspeech seemed a little because he was talking about and iferest rated europe, and as angela merkel had full support on sunday, awhereas her position had weakened. this is my bloomberg. this is what we chose for our radio listeners. this is a simple treasury yield curve. it is the yield spread between seven-year and 30 year. tom: seven and 30.

, itcine: it basically shows shows that some traders have had enough of the persistent yield curve flattening this year. i will push that out on social media. tom: we thank our radio listeners for joining us worldwide and across america and on london radio as well. it is the perfect time to speak to rupert harrison, a little bit of a political here ditch -- heritage in the united kingdom. quarter, tax reform percolating up in the united states. gary cohn speaking to bloomberg in the next few hours. what is the likelihood of fiscal policy into are many central bank policies? is that an important linkage, or

are they still discrete? i think it is important in the u.s.. i think backing that trade has not been a good bet this year. the change in the last couple weeks is reflation back on. the expectations around tax reform is an important part about that. it is the long-term idea the federal reserve will stick with this forecast policy. those two together combined with stronger data and it asian data bouncing back is what has put the reflation trade back on the table. meet inthe troops estonia, is there still austerity in europe? rupert: there is a lot less austerity in europe. we have countries that are a lot less strained than they used to be. the question markets are more

interested in is whether there is going to be significant progress on some of the institutional reform in the eurozone, and this is the crucial macron-oh merkel -- macron-merkel alliance. emmanuel macron gave a great speech, but the reality is we are unlikely to get significant progress over the next 12 months. francine: i don't know if you put some of the concerns or some of the great data we saw in europe against the fed, and you play the two sides. rupert: i think the fed has been repriced in a lot. having said that, i think janet yellen's speech earlier this week got a hawkish reception for markets.

wasing home that the fed sticking to this forecast based approach. i think she paid a lot of attention to inflation expectations and this issue about how difficult it is to move inflation expectations up after a long period of low inflation is important, and i think the fed is on track, but the structural factors around inflation lead us to we will not get a big repressing on the longer of the curve. francine: last i checked, that was 70%. rupert: december was well priced, but during 2018, you have a shallow price. i think people are taking this one hike at a time. that what the federal reserve says about their plans for teaching is not going to be delivered -- for 2018 is not going to be delivered. taylor: my idea --

tom: my idea for october is quantitative tightening. is that the right idea? rupert: the interesting thing is the federal reserve balance sheet announcement got absorbed smoothly. the ecb and the bank of japan are still buying assets at a high pace. the ecb remains my concern. i think the ecb running out of assets to buy, setting out to taper despite the inflation data out of germany showing an increase, and i think the outlook for the eurozone is depressed and not justified. that could mean an october or december announcement gets out of the way, but longer-term, i think as you say the fact that the ecb is going to be tapering probably 20 by the end of next zero by the and of

next year, that is something we have to look for. i don't think the impact can be that they when we have powerful structural forces weighing down interest rates tom: rupert harrison with us. we have an important discussion coming up in the hour. the interview of the day, think of alix steel's last interview with gary cohn. it was outstanding. she will do it again. the national economic council director, look for that the 7:00 hour with alix steel, david westin, and jonathan ferro. this is bloomberg. ♪

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

business flash. elon musk envisions a human colony on mars. he is planning on creating a new rocketship capable of traveling anywhere on earth in under an hour. >> it supports 20 cabins, and it depends -- you could conceivably have five or six people per cabi n. i think mostly we would expect to see two to three people per cabin, so normally about 100 people per flight to mars. taylor: if the concept becomes a reality, a journey from shanghai to new york could take 30 minutes. retrofitbuy back or tainted diesel cars in north america proved more complex than expected. the latest charge brings total damages to $30 billion.

deutsche bank had its long-term credit grade cut one level as it struggled through another strategic overhaul. it was reduced from trouble people us to single i minimize. that is your bloomberg business flash. francine: thank you so much. let's stick with deutsche bank and banks in europe in general. rupert harrison of blackrock is with us. had ceosn the week, we with us, and although there is a concern that we have gone through the worst, there are things in germany that do not make much sense. you could see repressing unless we get cross-border m&a support for the banking sector in europe. rupert: this slow healing process is likely to continue. there will be bumps along the road. this basic environment where we see strong macro momentum and

improvement for yields to rise, i think there will be bumps along the road, but the slow healing process lead us to think this is a long rather than short revenue. francine: they need to make money. rupert: yes. part of that is some of these painful changes, m&a, reducing costs, business models. we have made some progress. our tendency if you are looking around the world is u.s. banks are a stronger back, but banks in general in an environment stillyields arising are competitive. tom: i don't say this lightly, and i say this with great respect for strategic planning folding over into tactical realities, what in this day and age is an international bank? how do you define what an international bank is? rupert: i have no answer to that

question. we have definitely seen within europe banks retrenching. there are fewer international banks than there used to be. i basically have no answer. that is a good question. i will come back next week. tom: i think this is critical. 40 years ago, we knew, and even 15 years ago we knew what an international bank is. we are all trying to figure that out now. francine: when i was in milan, from going global to bigger, the problem is regulation has sliced off a lot of the banks, and i don't know whether you refocus or regroup. they are looking for a niche. this goes to active investment versus passive, are we going to a fundamental change?

we are 10 years on from the financial crisis, do we realize what kind of banks we will be left with? rupert: i think we largely know where we are going now. i think the regulatory and work has been set -- framework has been set. i think the uncertainty -- the technological challenge is still there in theory, and i don't think anyone knows how that is going to impact income, whether they are going to be up to co-opt these technologies. i think the uncertainty is less than you might think. we have come a long way. the adjustments we have made have been huge. technology is still a big unknown to the sector, but we have not seen the destruction that is the arise. tom: is the disruption cross-border m&a? they have argued those walls are

mergersr can they get to get the synergy they need to make income statements better? rupert: i think in europe we could get some of that. if there is any further progress on banker union, i think they want to see consolidation, but it is difficult. i think the bigger uncertainty around technology disruption challenge. i don't think anyone has a good idea of the impact that is going to make. is that going to benefit insurgents or incumbents to enhance their business models? francine: rupert harrison of blackrock stays with us. later, tax cuts, how you manage the deficit, and how you pay for those tax cuts. this is bloomberg. ♪

♪ this is what the pros look at. producer,f today our who goes over to lead. tom: all those people work for us? it is unbelievable. francine: this is it.

do it like a pro. this is what we do on surveillance. tom: demanding that we do euro-yen. we do it every other day. francine: he said he would walk off if we don't do euro-pound. the bank of england is marking 20 years of independence from government. vote, striking a hawkish note, saying investors should look for signs that the economy is healing. viewers, theyur note rupert harrison, not only from blackrock, but chief of staff for george osborne. you have a unique insight into how the central bank works. pound, isook at euro this the right way to look at po

und? rupert: we have been more positive on sterling for a while because we thought it was underappreciated. without the u.k. economy would surprise on the upside. we were surprised how hawkish voices out of the bank of england have become. clearly lining up. mark carney was speaking this morning. we have heard from the elvish members of the committee, and they are clearly lining up to reverse the post-referendum rate cut. is this the beginning of a broader hiking cycle? i am dubious we are going to get the kind of sustained wage growth in this uncertain environment you would need to justify it. story is a very gloomy story for the u.k.

supply potential is going to be constrained by brexit. that means eking out even modest growth will be inflationary. news.e other is good i'm not sure this is entirely coherent yet. tom: excuse me. i go to two ideas here. one is that we had a visitor yesterday, and his great work, bring up the chart, this is a huge constraint for governor carney. this is real wage growth in the united kingdom negative. can you explain to me how a bank can become more constructive considering negative real wage growth? rupert: backstory is the inflation side of that real wage growth, the immediate shock is going to pass through, and they

see a tight labor market, and they think wages can continue to grow and put price pressure. i lean towards the implication of your chart, which is in this environment where there is an enormous business uncertainty, i cannot see person's brain is -- british businesses agreeing to wage increases. i think it is unlikely the labor side of the bargain is going to be pushing for outsized wage increases, particularly in europe were we have businesses jobsnions prioritizing over wages. francine: this is bloomberg. ♪

♪ tom: "bloomberg surveillance." francine lacqua in london. tom keene in new york. this depressing article on retirement.

megan murphy, what are you thinking about? are you kidding me? retirement, forget about it. we are not doing it. that's it. let's go to -- she is never going to retire, taylor riggs. taylor: not happening. a security summit with other european union leaders, talking about a key issue, citizen rights. >> we value the contribution they have made into the u.k., their contribution, i want them to stay, and we have been negotiating on those rights. i also want u.k. citizens in other member states to have their rights guaranteed as well. britain is said unconditionally committed to the security and defense of europe. and --ing to win support

i'm doing it only benefits the wealthy. tax billill be a great for hedge fund managers in florida and the descendents of wealthy people. for everyone else, i'm not sure. >> do you think it gets done in 2017? >> i don't think this bill gets done. it says itsaid while will grow jobs, it reduces spending on new equipment. a person familiar with the angry says the white house has begun an internal review of private female by staff -- email accounts five staff. -- by staff. elaine dukes says the relief effort is under control in puerto rico following hurricane maria. says helpthe island is scarce and dwindling. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries.

i am taylor riggs. this is bloomberg. francine: thank you so much. eu leaders are gathering in talent to discuss the future. angela merkel expected to take the lead. theresa may will also be present. yesterday the chief brexit negotiator signal positive progress had been made. a recent all shows the satisfaction among conservative party members in britain. anthony gardner, of rupert harrison blackrock. we are looking at live pictures. we are seeing someone talk to theresa may, and she is flanked

by the premise are from italy. it seems like every day there is a negative story saying now the davis.not like david they may say he is an obstacle to brexit. at the same time, this is posturing. >> there is always going to be some posturing in any negotiation. the atmosphere has improved on eu citizens rights. they said important progress has been made, in particular the offer to have the agreement in applicable u.k. law. the question is whether not eu law should be applicable in the transition and thereafter. there is still the money. they are far away from any agreement on money, the $20 inlion -- the 20 billion

this budget cycle is far away from all the money that is talked about beyond 2020, the pensions and all the other liabilities. ov polls: how many you gg did you look at when you were in office? rupert: daily. many, many. it is a theoretical question of whether theresa may will leave the party, it is almost certain she will be replaced. structurally the u.k. is in a weak position due to the article 50 process. people have been underestimating the progress that has been made. what we have seen is a lot of that come to fruition. behind the scenes, a lot of progress is made on citizens rights. are notthere

sustainable demands. on finances, there has been a closer position than the noise has been suggesting. what was needed to unlock it was this conversation on transition. that unlocks the choreography of how you talk about finances. tom: you have a wonderful linkage from academics to business. what does all this mean for multinational and transnational businesses? how do you synthesize the migration across the channel, across the north sea? specifically with regard to migration? more playrate nationals, will they migrate to london, will there be a new london? anthony: i have a lot of ceos come through my office when i

was ambassador to the eu, and most of them told me they were taking decisions rest on their worst expectations for brexit. none of them said they were going to dramatically reduce their position in the u.k., but they were telling me they had to diversify in the event that there was a hard brexit. many of them are doing that. they are setting up -- as they should -- subsidiaries, as they should. they are diversifying and hedging bets. nobody i met believed this would be a disastrous outcome. you know the bureaucracy of brussels and the tediousness of eu institutions -- is there appetite for them to change? do they need to reconnect with voters? anthony: absolutely. that was macron's speech.

people can criticize it for being too expensive or too many ideas in it. it was that vision, the understanding that this is a window of opportunity, 18 months to 24 months germany and france acting together to undertake important reforms in the eurozone. one can be skeptical of whether some of those ideas will succeed, but there were a lot of ideas in their that will probably happen. i think banking union is one area i think additional progress will be made. francine: what did you think of emmanuel macron's speech? i think at times it was written for another election outcome. rupert: i think he dialed back of the -- a bit. these are crucial things that need to get done before we get the next downturn in europe.

institutions are not ready to encounter any kind of difficult economic environment. eu leaders love to talk about institutional changes. it does not set parts feeding in most of europe. it is can governments continue to deliver low unemployment and growth. i think that is more important than whether he makes progress on, defense or other issues. -- common defense or other issues. tom: where does the united states fit into having a constructive outcome in these important european debates? anthony: that is a great question. they have dialed back the rhetoric, which i am happy about. the original fears of this

administration trying to undermine the eu are now no longer true. we need to continue to say the eu is a critical partner, we support the continued integration among the eu, and we want to continue partnering with the eu across the world. in some instances that will not be possible, such as climate change and iran, but on northern africa, foreign aid, and many other instances. we need to be clear that we believe it is not just a trading block, it is more than that. tom: this is critical as we see these wonderful images of singing in estonia. we have an administration that does not seem to understand the border of finland and russia and all that means. what do we need to do to inform

and administration that it is than just about trading in business? anthony: some of it is a heavy gospel exercise to explain -- a gogical exercise to explain how important it is. without the eu, we would not have been able to roll out and renew very tight sanctions on russia. again,kans, i would say are an important area. we cannot afford to leave a vacuum in the balkans. whether it is five the russians or the turks or others. by the russians or the turks or others. to answer your question, what this means is a mind change in

washington to explain that soft power is not -- hard power is not the only game in town. soft power is relevant. our military gets this point and believes we need to focus more on our diplomatic skill set and foreign aid as well, which is up for reduction. tom: let's continue with ambassador gardner, former ambassador to the european union, and rupert harrison with us from blackrock as well. thank you for watching. migrate and myself through the weekend. on bloomberg radio, you are captured in your car, a morning briefing on bloomberg daybreak. they do a terrific job of getting you set up with the morning news. they are quite good at that. this is bloomberg. ♪

♪ francine: "bloomberg surveillance" from london and new york. let's talk about trade worldwide. this is what we're saying between angela merkel and president trump. it took four days, but they have finally spoken after her election victory on sunday.

president trump congratulated her and wished her well in her fourth term. the discussion included iran and north korea. with us is rupert harrison of blackrock, former chief of staff of george osborne, and anthony gardner. thank you for sticking around. rupert, when you look at the german election, one of the president trump said he would take on a new role. angela merkel might put her chief of staff for it interim position. >> this is the question, fundamentally, the end of an era, an amazing individual no matter what you think of his views on fiscal policy, but is angela merkel keeping this position free for the market

liberal party in germany as part of coalition building? this announcement makes it feel like she's keeping this open as part of negotiations. i think it makes this progress toward institutional reform in europe, more risk sharing, progress on banking union, that will be much more difficult with the ftp in germany. usp's is no more bailouts for greece. i think it is a fly in the ointment of some of the optimism. francine: we have a great line, just managed to speak to the german deputy government suppressed spokesperson, and she says they will not deny that all meyer will become the internal finance minister.

thessador, when you look at indications of the german election on sunday, what does it mean for u.s.-german trade relations? anthony: the real impact is on europe. it is also because of the score the alternative for germany had. 13% is a significant chunk of the seats. all of these areas are going to push the government to the right. we saw what was happening in the u k, the real impact was well beyond their polling at 10% to 15%. i think the impact on europe is going to be much more important than the impact on u.s.-german trade relations. those will continue to be troubled as we all know because of the trade surplus germany has. that is a great

point, that the impact is not just a makeup of the coalition. politicians are not going to take the view that we need to be more pro-european, but we need to protect our flanks. tom: we have a history from the atlantic charter, we have wto, and we have this strange idea of regional blocs, is europe going to be a bloc? bloc.y: they are a are a i think you will continue to see the application by the u.s. in its sponsorship role of free trading, and the u.k. is already signing free trade deals with the world, which they did with japan. there has been some discussion in the united states of us walking out of the korea deal, which would advantage eu exporters in korea.

we have already walked out of tpp. bilateralbusy signing deals, which is the right way to proceed. tom: anthony gardner, thank you so much, former united states investor to european union, and rupert harrison with us as well. francine: we are getting breaking news from someone who speaks to the program quite often, his mandate has been extended five years. on thee bit of movement krona. i am looking at the best cross to look at. this is someone who seems to be trusted by the market. we have had interesting discussion on what he sees inflation, the impact the fed tightening has on his economy. here. have euro-krona

we will have our team make a t-shirt out of this as they did with euro-yen. you can see stronger euro, weaker krona. francine: you can also still that chart on tv go directly. we continue with the ambassador and rupert. you can send a question to us by clicking beneath the video screen. we have been talking loads of currencies. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." i'm taylor riggs. meet next week with london regulators to resolve a dispute that has the service at risk for its ability to operate in the city. inr has about 40,000 drivers london. you can read all about it online. the wall street journal is closing down print editions in europe and asia. the final print edition in

europe will be today. the final asian edition a week later. europe started in 1983. that is your bloomberg business flash. tom: i am not going to mince words, that is a huge loss. sad news for all within business journalism. let me show you what it is about. francine and i know we have the best guest like rupert harrison at blackrock. here is charlie stein. bring it up. i really do this. charlie stein is the number one guy on portfolio managers in boston. a quiet franchise by charlie stein. here he is writing about david arrows active record in chicago. ball arrows hit the out of the park once again.

if we get more volatility, can active crawl back? >> it has been a good year for active managers. we think the environment is going to continue to be beneficial. it is the kind of environment where the 16 was extremely difficult for active management. you get market moving by big correlations. take a look at two-year yields for the number of reversals we had in that period. what we have seen premarkets more recently is much lower correlations across all assets. that is an environment where stock pickers should be able to do well. this is definitely a positive environment. francine: what happens when central banks start normalizing? is there a risk that there is a correction because the market follows this herd mentality of not being sure what they are looking at? rupert: i think there is a

better correlation of lower risk across assets. if we get into a time where central banks are driving volatility across asset classes, that can be another boost. tom: a great and of the quarter rethink as we look forward to q4 2017. one of our most popular guests, the guy on low rates and inflation, gary shilling for the entire hour. stay with us. this is bloomberg. ♪

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see how much you can save when you get unlimited on a new kind of network designed to save you money. call, visit, or go to xfinitymobile.com. tom: this week, yields have moved higher. to the great

moderation, and end to the great disinflation? emailed the lower rates. -- he nailed the lower rates, gary shilling. all is quiet on the volatility front. heads i win, tail you lose, trump, tax reform, and it passed path to amiller: -- miracle cured i'm talking in new york, francine lacqua in london. what is theresa may doing? francine: she gave a short saying that the u.k., even after the brexit happens, will continue to support eu leaders. so she is out there, flying the

flag, if you will, to get a better budget deal. tom: live pictures from estonia this morning. here is our bloomberg first word news with taylor riggs. 's campaignalonia for independence came to a head on sunday. members of theresa may's conservative party do not agree ministern the prime should quit. she should quit now or in the next year. 38% say after written leaves the britain'snion -- leaves the european union, scheduled for march 2019. 500 people have been arrested in a nationwide sweep that targeted so-called sanctuary city.

a spokesperson says those people had criminal records in the u.s. pass hn said he could tax overhaul, despite his objections to the president's comments on white supremacists last month. global news 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. am taylor riggs. this is bloomberg. francine tom? we will talkties about in a moment. flat futures. $1.1800. will talk with gary shilling about hydrocarbon. francine? francine: a little bit of pressure.

investors can use that to figure out what the tax cuts in the u.s. means for the rest of asset classes. .s. government bonds but what i want to focus on is the krone. five years at the helm of the risk bank. traders have been on this. a lot have been looking for signs that the central bank was move away. kevin cirilli come our chief washington correspondent, knows that game one of tax reform analysis will lead onto many many elite quarter, even years come up discussion. -- kevin, up with the what did you learn? kevin: the big takeaway is that the freedom caucus is not going i amst the framework, so

interested to see how december plays, tom and francine, especially if they try to get major parts done by the end of the year. remember, mid december is when they have to raise the debt limit and avert a possible government shutdown. there is a lot of little theater over that. we were speaking with someone last night who says he does not think there will be a lot of drama with, and that is good news. tom: those talking politics and those talking global wall street, justin fox of bloomberg view is brilliant. he kneels to the dallas cowboys. president knows about kneeling, tax cuts for jerry jones and others. 500 pass-through entities, pass-throughs' share of business income in the u.s. has risen

from 13% in 1980 to almost 40% now. corporate tax revenue in the u.s. has fallen from 2.6% of inss domestic product 1979 to 1.7% now." philadelphia eagles fan, so it kills me that we are talking about the cowboys. but it is incredibly controversial here inside the beltway. later today, president trump will be speaking to the national association of manufacturers. we will be there to bring it live. he will now have to take himself not from the rally crowd to the stakeholders. that will be interesting to see how he plays to the different constituency groups that are so them to be able to pass tax reform. francine: when do we have more details, kevin?

of course we know the tax cuts but approval from congress, we are lacking in detail, which means investors do not really know what the administration will prioritize. here is the bottom line -- the president is used to having to deal with health care. he allowed his staff to go right to congress. with tax reform, he will have to do with manufacturers, ceo's, silicon valley -- all of these stakeholders entrenched in this battle. you will notice the president is trying to take this tax talk to these different groups to bring them into the conversation, which is very different from a strategy that we saw with health care. details will be risen at the community level, francine, but a frustrated. are tom: tell us about the emotion as congressman's belief returns -- congressman

calise returns. kevin: what a profile in courage a couple of months after that shooting grips the capital. the congress, the staffers on both sides of the aisle, it is a rare moment of these days to get a moment like that, and it is unfortunate that it took a tragedy. feeling thisanity in washington. happy friday. tom: i hope you find humanity with the philadelphia eagles. thank you so much. kevin: thanks, tom. garywe now turn to shilling. if you do not know who he is, someone said he is the inventor of maryland chief economics years ago. stanford andfrom years ago figured out that inflation would go down. let's get right to it today.

the worry is the inflation will go up again. the worry is out there. will i hear from you "the market ." wrong gary: i have been saying that for 37 years, tom. tom: when we change her tune? gary: if something really will take a that massive amount of government spending. the economy creates too much demand, and you have a tremendous amount of fiscal stimuli that has the same effect. we called the depression babies, the numbers that gary shilling talked about, folks, 1% in 2% some of these are fears about subdued economic growth, so you bring those numbers down? gary: not necessarily. there is good deflation and bad

deflation. you can have low interest rates if you have so much productivity, so much growth that the economy is growing but yet there is an excess supply. that is what happened in the late 1800s when the american industrial revolution was in full flow. again, new technologies creating tremendous volatility, , which ofced cars course have been on the roadss factories on and washers, dryers, radios, appliances, i think we will see that kind of productivity. my feeling is we will have these deflation, deficient demand. that is the supply. francine: hi, gary. will the phillips curve ever come back? whichthe phillips curve,

the fed still believes in, the phillips curve basically says that as unemployment goes down, inflation goes up. the natural pattern has happened since the great depression, and that is that both have gone down. inflation has gone down with unemployment. one of the problems is the unemployment rate is not a very useful number because it measures the number of people who are looking for work as a numerator and not a denominator. you can have a lower unemployment rate as people drop out of the labor force. retiring postwar babies but other people who did not think they could find jobs. we already globalized economy. these numbers in the u.s. are really not the whole story the way they used to be -- by a long shot. francine: right, but gary, when china thet china, is

only country that can actually import inflation to the u.s.? gary: [laughs] that is a good point. hada and globalization have a lot to do with the deflation we have now on goods, and durable goods prices in this country are declining at a 2% or 3% annual rate -- they happen for the last five years -- but the service rate will tell the story. as a matter of fact, i am doing a monthly newsletter on that. services are more and more spending and goods less and less. that happens in developed countries like the u.s. and developing countries like china. as you get richer, you have so many cars in your driveway, but you can spend in less money on travel, recreation, and so on. you look at what is happening in education -- that was rising 7%, 8%, now it is to present. medical -- now it is 2%. medical services, the same. parents and kids are deciding

paying out for education is not worth it. tom: who would you want to have as fed chair? gary: besides you? tom: i cannot do it. no bowties. gary: i would like to say someone who is not in payroll. i run a small business. we have to many acquisitions. that is the problem with the phillips curve. with a theory, hey, that will work, but in reality, it does not work. tom: much to talk about this morning with gary shilling. key, gary cohn is he in or out of the white house right now? i do not even know what the mood is on. alix steel, david westin, and jon ferro will find out in the 7:00 hour. this is bloomberg. ♪

francine: this is "bloomberg surveillance." we just heard from hsbc that the chairman mark tucker will become the chairman on october 1. we knew he would be starting in the fall, british for -- autumn for british listeners. the first thing for the chairman to do would be to find a new executive. they are ramping up the hunt for hsbc. tom: very good trade transitions in banking. hsbc was a little issue in london as well. right now, single best chart, we will do it early in the hour because gary shilling is with us. this is the career of gary shilling, and this is an extraordinary chart.

years -- volcker years on down. where in here did you say you guys are all wrong? gary: that was in 1981. tom: he was the laughingstock of wall street. you see what passes here. to be clear, you are way over on the right side and you are going under 2% inflation? what will drive is there? gary: globalization is certainly one. wages because of globalization and because most of the jobs being created now are in low income areas -- hospitality, retail, and so on. because you have declining commodity prices, extra supply in the world. it is physics friday.

let's go to first derivatives. stanley fischer's altra economy, a poor rate increase. the stability of the economy because we are up, up, up, or can we afford a few more rate increases? been while the fed has raising rates come along treasury yields have been going down, and it really raises two questions. one is -- is the fed credible? their lack of ability to forecast in the last five years is marked, let's put it that way, euphemistically. the other point is a lot of forces are acting on long rates that really do not have to much ado with what the fed is doing in the short run. possible deflation in the future is one of them, and of course there is the safe appeal of treasuries. tom: friday is when the gloom articles come out.

how do you respond to people who say go to cash, get out of the market, gary shilling is right? yet i know that you own equities. gary: oh, yeah, because as you say, markets can remain irrational, i have to remain solvent. equities are going up. why are they? i think initially starting in march of 2009 was because of the first bailing out of wall street. where does the money go? it went into stocks, not goods and services spending. qe i think stopped in october of 2014, and stock is still gone up. why? right now, maybe it is just momentum. maybe there is just nothing to trip them up. but they are a frenzy. am i saying it will in thing tomorrow? you could have said that

tomorrow, two years ago. -- mi my saying it will end the bank tomorrow? endm i saying it will tomorrow? you could have said that a year ago, two years ago. the problem is you can have fixed income, and this can be low if people will not accept it. tom: will you be quiet and let francine get in here? gary: i will! i would rather talk to her than you, tom. francine: you believe there will be afrancine: correction. what will be the pattern for it? gary: there are two ways that we better markets usually associated with a recession in modern times. one is that the fed basically says the economy is overheating, we're going to cool it off. they do not want to precipitate a recession. but in 11 or 12 tries in the

post-world war ii period, by my shark landingn was in the mid-1990's, otherwise the recession. is the that at that point now? maybe. they are raising rates. they are also trying to unwind their portfolio. they still have trouble with soft landings. they are adding the unwinding of the huge portfolio on top of that. they have never had the. that is a brand-new experience. what are the odds of pulling that off? very good, but that could be years down the road. the other way get a bear market is a shock, like the.com nine the 90's.in -- mid-1990's. there?e a big shock out they are never clear until they happen, but i do not see one on the horizon. we are just cruising for a bruising.

francine: [laughs] gary, thank you so much. we will get back to gary shilling. with formerll speak treasury secretary jack lew, that is at 1:00 p.m. this is bloomberg. ♪

tom: good morning, everyone. "bloomberg surveillance." tom keene in new york, francine lacqua in london. getting you ready to the fourth

quarter of 2017, and a good person to do that with is a. gary shilling. within your newsletter is the future of the fed. you said earlier you want somebody at the fed knows how to sign a payroll. that would be cap and worship -- worsch. does he fit the bill? francinegary: yeah. there is nothing wrong with a phd economist. i think we do need somebody who has more feel for markets, has been involved. still believes in the phillips curve, the idea that low inflation -- that low unemployment ought to provide high inflation. that has not happened.

if somebody looked at reality, they are just not looking at reality. tom: is it providing stability? gary: no, it is probably expected. are they going to follow through -- tom: on the balance sheet. we will come back. us. shilling with this is a phenomenal issue of "bloomberg businessweek." yes, he is on the cover, joshua bannon.green on you need to update on mr. van bannon. i believe he won in alabama. it is finally ♪ autumn in new york ♪

this is "bloomberg surveillance." francine lacqua in london. tom keene in new york.

catalonia comes to a head. or so will try to hold a referendum. they -- barcelona will try to hold a referendum. they are in defiance of a constitutional court. a lot of international investors will say "we do not care about this," but actually investors should start paying attention to the catalina crisis. reporter: they shouldn't be. we have 48 hours to go until the boat happens. the catalonias are not backing down. vote to they will breaking news over the past hour, the government breaking down an effort to not happen because they are seeing a real escalation of events over the last hour. we have on reports that they came to address the nation to try to reassess the findings that everything will be fine no matter what happens on sunday.

it has clearly escalated over the past hour. francine: i guess there are a couple of reasons why people should pay attention to this. first of all, any clash in catalonia could hurt the spanish economy. spain has huge debt -- sotos catalonia. and -- so does catalonia. and it could cause collateral damage. maria: absolutely, especially for an international audience. ,o many people have accounts but said confidence from the icp to public banks and other issues. theythey vote on sunday, will be given their independence in the space of 48 hours, and it will have to be negotiated, the debt, it is a do not want to renegotiate, they may not pay. there was a referendum back in 2014. nothing happened.

a regional election in 2015, nothing happened. a lot of investors are thinking well, we have seen this, nothing has really taken place. but again, we have never seen this kind of escalation before. the emotionhow has of this election, how is the spanish, how is the barcelona economy? maria: one thing we need to keep in mindmaria: if that the spanish economy has seen a real turnaround. ins movement was started 2012. the economy was going through a really tough time. now spain is outperforming the euro area. the situation here is that catalonians are not getting enough spending and infrastructure in the regional government and so on. they do not feel like they get tom: tax deal.

maria, thank you so much, maria o with us, reporting on this matter sometime in late october. right now in new york city, taylor riggs. taylor: theresa may is in estonia for a security meeting with european leaders. we value the contribution that eu and other countries have made in the u.k. i want them to stay. businesses want u.k. in other european countries to have their rights guaranteed as well. taylor: mays says she is committed to the security of europe. president trump's tax plan falls creating jobs growth and will really only benefit the wealthy. >> this will be a great tax bill

for hedge fund managers in florida and the descendents of very wealthy people. it will be great for them. for everybody else, it is rubbish. i do not think this bill is getting done. theor: chanos says while administration is driving companies to create jobs, it is doubling tax deductions for spending on new equipment. the relief effort is under control and puerto rico following hurricane maria, but supplies are dwindling in some new york talents -- some towns. global news 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. i am taylor riggs. this is bloomberg. francine, tom? tom: thank you so much. she is the rarest of rare commodities. by president obama.

carlo --istopher jia christopher giancarlo. gary shilling is with us as well. we were talking earlier before we went to air, the idea that a montana wheat farmer completely falls on your world in chicago. talk about the futures market for the weak farmer. christopher: absolutely. as you said, tom, when a kansas farmer goes to a grain elevator, he goes to the price of a cash product, and that is true of all of our derivatives markets, setting a price table from the heat in the hose to the interest rates we pay on a 30-year fixed-rate mortgage. so the markets, although risky, ouralled

risk-hedging. tom: the more controversial regulatory institution and finance in america, how would you better the reputation to derivatives? christopher: we are pursuing a really forward-looking agenda that looks to balance market regulation against strong american growth in american prosperity. tom: within that is the perennial idea that you should merge into other regulatory entities. is this the independence chase for your chicago? christopher: it is not just chicago -- it is new york -- it is global. derivatives away from capital formation. that is why the cftc and the sec are not merged. liquid,on is the most sophisticated, largest river of markets in the world, and it is

the reason why americans enjoy, as a standard homeownership tool, a 30-year fixed-rate mortgage. because if you have that level -- yes,in the markets francine? francine: how much do you spend time talking to regulators abroad? u.s. you say that regulators listen to the market more and or a little more sophisticated? christopher: absolutely, francine. from 10ust come back days meeting with my counterparts in london, in paris, in switzerland at the basel committee and also in estonia, where i know a number of european leaders have just come from. we have been talking about the importance of harmonizing what we are doing in our state with what is going on in europe, especially with the new role a lot of regulatory reform. so yes, we spend a lot of time with our european counterparts looking to harmonize. francine: we have not had one

ceo on here saying "we are still figuring out pricing," and what they are really worrying about is whether u.s. banks will actually get away with not imposing qe2. can you give us any enlightenment on the? christopher: absolutely. implemented reforms that came out of the g20 accords in 2009, which was a response to the 2008 financial crisis, you might call that u.s. reform version 1.0. europe is now rolling out their version 1.0. we are looking forward to see how it goes, and then we will be moving forward in what you might call our version 2, looking for reform against strong economic growth and prosperity. francine: what do you tell ceo's that come on the show and compare this to wall street banks? put forward our

regulation, as i said, and we are looking to see what has worked and what has not worked so well. europe has been coming out this a little more painstaking. they used a number of what we might call experimental approaches in a number of things, from research to benchmarks. we have to see how those go. those are not issues involved in the financial crisis. but they have a very comprehensive reg reform. ask you if you were in the las vegas scene of "the big short," but i will ask you at that time, how do you guys police synthetic derivatives, the financial engineering of some would "rocket," how do you police cbo squared the next time around? christopher: our goal is to look at manipulation in markets, and

the muni ablation of the underlying -- and the manipulation of the underlying markets. the cftc moved in strong in the libor scandal. the cftc was on the cutting edge of that. so we are not shy about moving into markets when it needs to be done. much, mr. you so christopher giancarlo, the cftc chairman during a coming up, an important discussion on the state of research on wall street. do not forget, your morning briefing in your car, "bloomberg coast-to-coast, in major cities and on syria met -- sirius xm radio. stay with us in new york and london. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." an increase in the interest rate of the bank of england maybe coming. it has been on in the relatively near term, it could expect interest rates to move. meet next will with leaders in london. the ride-hailing service at risk of losing its ability to operate in london. it has 40,000 drivers in london and 3.5 million users who use the service at least once every 90 days. "the wall street journal" is closing print editions in europe and africa as a result of shrinking advertising. the asian edition was launched in 1976.

in europe starting in that is 1983. your bloomberg business flash. tom? francine? you so much. if we wells fargo bank that is too big to fail. it is also boosting his research capability. joins banking, the headline, and a stunning report sena moving from isi to wells fargo. iara --uld suggest a aiera. is your ai technological work with aiera going to put the securities?out of business -- the, and we did the

securities out of business? ken: no, and we did it more as an exercise to see how it is adoptable, is it now for most people, do you need to be a data scientist to employ it, and no, you actually do not because the tools are becoming more accessible, and ultimately come up what does it mean for our jobs? if you look at this trend to a , it willfferent style mean very different things for every platform, for every industry, for every geography. makenk for us, we want to sure we understand this more deeply for our clients, and second, can we use the technology to do maybe it at her job for ourselves in terms of our current role? it'sto be clear here, if buy, hold, sale from a black box, or do you hold it over for you and mike mayo? is the difference is

that is not a black box, to be honest. we take a different amount of information, we collect 48,000 articles of data per day, per stop, and she condenses it down in terms of what she thanks stopped,ost for the that she runs it through a language understanding in order to synthesize it is to understand. tom: but she is not sallie krawcheck, legendary of sanford bernstein. what is the intellectual input of 48,000 articles? ken: that is why the reports get written, and then there are links to the original articles. what it removes is buyers from extent. tom: which needs to be removed. ken: sometimes. starts toows skyrocket and sore, for us to be able to stay on top of that and the able to move ourselves to it went to talk about the more --

to a point to talk about the more important industry drivers that should matter to our clients as opposed to being more reactionary. for now, what she can do it is a weak out. she does not have the opportunity to predict a year outcome of the way we are looking, six months, 12 months, but she works continually. it is more about the styles changing van vleet productions itself. predictionsntha the -- than the predictions themselves. francine: we had a guest who was skeptical about ai's and had gone full throttle about how helps your risk appetite for the markets. how much of a role in the market will ai play? ken: even in the markets right now, you are seeing ai play a

bigger role. you see it playing a bigger role than we follow, particularly with the internet. digital,ok at video, messaging, etc., what you can do with data as a new style of compute is pretty incredible. to detect small patterns within data that you could not detect before and really aggregate some understand, and kind of repurpose those signals in ways that was not possible. is us, the biggest take away when we are talking about this style of compute, it is unsupervised. iera is not a robo advisor. she is not programmed. she is writing her own program based on the data that she has seen unsupervised. if you look at the dispatch compute, as it becomes unsupervised and increasingly generally adaptive, you will see computer leaders with efficiency in data collection, they will be

able to move -- you will not only be able to drive increased performance within core businesses, but it will create a bridge for them to move into new industries. that is why we are looking at some of these massive companies with intact and we are seeing them flow and accelerate on a larger basis, i think. francine: how many jobs will she take over in the financing world , 5, 10 years from now, how many jobs will be gone and replaced by robots? ken: that is a tough question. i do not know that any of us know the answer to that. i think what is important though that we are not afraid to ask important questions of investors and we are not afraid to use those technologies to do our jobs better for our clients. i think it is a slippery slope in terms of what the technology can do, that is important on many levels. tom: we will continue this discussion. gary shilling will comment as well. ken sena with us from wells fargo. tv , i've am not artificial

intelligence unless i am babbling away. that is artificial intelligence right there. you come over here, you can bring it up. it is a gary shilling chart. it is beauty if you can bring it over to your bloomberg. this is bloomberg. ♪

tom: if you are a part of global wall street, it is "bloomberg surveillance," it is about your future. gary shilling with us, who has been right about the past, the present, and the future perfect. of wells sena with us fargo, this is -- fairly on ofaking terms with mike mayo help me comeaiera, of physics guy, extrapolation. it is about going out into the future. how far can you extrapolate out looking at all that is out there, how far have you tested?

ken: right now, what aiera has tested, she can take the last eight hours of data and predict eight hours forward. she can take the last day and predict eight days forward. the validity tests are showing above 70%. now it is mid 70's. are thes tests mid-50's, so a little better than average. tom: you have a question for ken sena. ago, aver a century great wall street wizards set up a camp t alongside steel mills in pittsburgh, and he was able to predict steel production. the company started publishing the reports come and he was out of business. ai is wonderful, and i am not saying it is not, but does it have a lasting competitive advantage?

because everybody copies it, and then you are in the same boat. ken: right now, the commodities around it are definitely accessible, so it is being democratized, it is a , especially for icloud servicing platform making the tools available. things,one adopts these ai comes down to the amount of data you have and the amount of computer efficiency that you have. so really it is the intensity of the spec leaders who have the most input around the data and the data that matters, and they are investing in the best computer efficiency. drivers movingto forward. we are trying to make it, you are moving an important file to some extent in terms of the programming developer, the computer scientist, and you do not need it in the way you used to. you used to need a lot of data scientists. it sounds a lot more evolutionary than revolutionary from what you are saying.

ken: no, but the revolution is this, what has been around for half a century or so, you have hit a critical threshold in only the last few years in which case the amount of data that is being collected mobile edition internet addiction, etc., is allowing mobile -- mobile addiction, internet addiction, etc., is allowing it. francine: we need to have you back, whether ai makes a poor mentality. tom: of course very important into the fourth quarter of 2017 and the future of global wall street. ken sena, thank you. gary shilling, thanks. sterling changed. this is bloomberg. ♪

dollar best month ends in

the red after the tax plan will increase the deficit. a training rage. stocks posted record highs for a eighth straight quarterly gain. inflation fails to pick up vincent tempora. u.s. results are on the. david: welcome to bloomberg daybreak. we are right here with alix steel. jonathan ferro is off today. alix: we made it to the end of the month and the end of the week. the s&p is flat. euro-dollar is higher, up .2%. the 10 year yield goes nowhere. crude takes a break. it is steady as she goes into the end of the quarter. take a look at rent, bull markets are up.