catalan credit warning as s&p puts the region on negative watch. comments about's puerto rico's debt could simply be wiped out spooks wall street and the future of the fed. jerome powell gains favor as trump's pick for fed chair. good morning, everyone. this is bloomberg "surveillance ." we certainly have a very packed

show but first things first. a couplet to spain in of minutes but this is what your markets are doing. i want to keep a little bit of an eye on the euro. euro little changed as the catalan president prolonged uncertainty over the region's next move towards independence. want to get you to treasuries, study. european equities edging lower. with investors looking for the release of the meetings from the ecb. let's get to first word news. sebastian: catalonia's president has kept the rest of spain guessing on if and when he will declare independence. he reiterated an offer of mediated talks while attacking king felipe vi. king made his speech, the politics of rajoy's government

that has been a catastrophe towards catalonia and ignored the millions of catalan that you not think like them. it ignores the catalan that have been victims of police violence. the treasury secretary up puerto rico was calling on provide billions of dollars in emergency funds. on tuesday, donna tim suggested the u.s. commonwealth might wipeout its debt. puerto rico has beaten down benchmark -- u.s. president donald trump has said he has "total confidence" in secretary of state. in response to reports that the secretary of state referred to the president as a moron. rex tillerson says he was committed to the role. global news 24 hours a day powered by 27 journalists in 110

countries. this is bloomberg. francine: thank you. the stakes are rising in catalonia. s&p said the escalation of the crisis could hurt the credit ratings. how is this uncertainty affecting spain's economy? yieldsx has fallen and on spanish bonds have risen. we welcome the spanish economy minister. minister, we want to focus on the business side of this and the implication for banks. first of all, investors want to know whether there is a last-minute mediation chance between the spanish government and catalonia. >> good morning. well, first of all, i want to make a point that i think is very important, very relevant. the independence of catalonia is not going to take place --

illegal.ecause it is and the spanish government guarantees that the enforcement of the law is going to be perfectly implemented in spain. secondly because it is irrational. catalonia has always been part of spain. the two economies are very interconnected. the connection between spain and catalonia is ver y profound. the catalonia government has a lot of autonomy. they are a very prosperous community. i think it is important to say that the independence of catalonia will an detrimental to catal society. and the spanish government is not going to allow that this could happen. are defending the rule of

law. francine: minister, you also have to make the country come closer together. how can you solve this? is financing enough to get catalonia back in the fold, or is it too late for that? >> well, this is not a wasting of mediation at all. this is a question about enforcing the law. the rule of law is very important. it's report not only in spain but all over europe. catalanthat now the government is out of the limits of the spanish constitution and outside the law. the main reason of that is because the group of the catalan government that is calling the shots is a coup, a radical group with a lot of anarchists links and bonds, and they are setting the agenda. and this is going to be

detrimental, and is something the people have started to realize is happening. francine: there has been real real talkas there been at the cabinet level of implementing article i55? talk about want to complete instruments. what i can tell you is the spanish government is going to respond firmly and with prudence. but we are going to enforce the law. we cannot accept because of the radical approach of the regional government and the coup, that this could have a very negative effect on the catalan society. we are going to defend the interests of the catalan society and the rest of the spanish people. we believe that legality is key. we believe, also, that the catal an society has started to take

advantage of the recovery of the spanish economy. the spanish economy has been growing 3% over the last three years. catalan economy is outperforming the spanish economy. and we cannot accept that because of the legality of government and because the radical approach of certain groups, this process could be derailed. you talk but minister, about legality but given how bad the intervention was to stop the illegal referendum, how confident are you that if the cabinet were to choose to implement article 155 that this would be done in the correct terms? all, you know,of i think there is an important point that was -- in the discussion that the european parliament held yesterday. is that the rule of law is the main point that we have to

enforce. it's the legality we have to defend. there is nothing acceptable outside of the legality. we have been totally open to debate with the catalan government but always it has to be within the framework of legality and the framework of the spanish constitution. if we except any short of let's say mediation, what we are excepting is a dangerous precedent for spain and the whole of europe. francine: what i'm trying to understand is would be the same police that when in on sunday? -- went in on sunday? >> the spanish government has different instruments. in order to enforce the law. you can be totally sure that people will be hearing spain -- be totally assured that we are going to use the estimates we have available in order to enforce the law.

that is the first principle. i'm not going to second-guess what the regional government of catalonia is going to do but what i can tell you is that the spanish government is fully convinced and fully determined to implement the rule of law with all the instruments we have available. francine: minister, both prime ministers of france and belgium have errors your prime minister to open negotiations with the catalan government. you mentioned that there were some conversations you had with their european counterparts. are they more worried about being heavy-handed or that this could be seen as a precedent? >> i want to put it very, very clear. this is not a question about mediation, of arbitration. this is a question about a government that has the obligation to enforce the law. our regional administration that is out of the law.

because it is following the negations and the agenda of a very radical group. so, i think there is nothing to negotiate. withouth, you know, the full respect of the rule of law. theif they are back to spanish constitution, if they start to respect the boundaries and limitations of the spanish constitution, i can assure you that the approach of the spanish government has been to have an open dialogue with all of the regional administrations in spain. this has not been the case of the catalan administration, unfortunately. to discussot open any kind of solution within the boundaries of the law. they called an illegal referendum. they now are thinking about the possibility of, you know, a unilateral declaration of independence. i can assure you that if that would happen, the response of

the spanish government will be very clear. francine: let's talk about some of the banks. catalan lender's have been pulled into volatile politics. we've heard that some clients have tried to move assets. an idea ofe us the flows you have been seeing over the lack six days? >> well, the first thing i have to say and i think this is quite relevant is that these letters, the financial institutions, our andreign catalan spanish and european institutions. while they have indicated that as this process goes on, they are open to locate their headquarters to other places in spain. this is a clear indication about how insance is the regional government of catalonia. the independence of catalonia could take catalonia outside the union outside the eurozone.

andould effect the flows the quality of the savings of the catalan people. so, that is why we are fully determined to defend the entirety of the unity of spain. and this is something we are going to put very clear. francine: minister, at this point can you allow -- thatcan you rule out deposit outflows have accelerated? here the, you know, main point is that, you know, these institutions are quite solvent, are very strong. and they have clearly indicated and they have conveyed the message to the marketplace that the are going to defend interests of their depositors, the bondholders and the clients of the banks. and i think that is a very clear indication about the objective

that they want to maintain and to accomplish in the near future. beyond short-term reactions, i can assure you that this, the management teams of these two blunders are fully committed with the clients, depositors and shareholders. francine: what happens in the event of a secession, which i understand is something that at the moment you are not envisaging. can you reassure depositors in catalonia, how do you reassure guarantees?h your finance ministry would step in? >> well, first of all, the secession is not going to take place. that, this is not going to happen. this is something that is very important. the spanish government is not going to allow the independence of catalonia.

it would be totally, it's totally out of the question. as i have said before. so, i do not contemplate this scenario. i know perfectly, you know, the approach of the catalan government that is out of the law and totally irresponsible. so, the determination of the spanish government is very clear. we are going to fully enforce the law. fully determined and committed to the unity of spain, because we think this is the best for the catalan people and for the spanish people. francine: i understand, minister. you said that very clearly, but how do you deal with the depositors? if there is a run of the banks in catalonia, what happens? >> again, this is not going to happen. catalonia is not going to independent, i can assure you.

this is not a scenario we have contemplated. we are fully committed, i have to repeat, to take all the actions and use all the estimates of our -- at our disposal to avoid that. francine: i understand. longer-term, do you worry about the shift of business from catalonia elsewhere regardless of the outcome? >> if you look at the recent evolution of the catalan economy, even during the summer, very resurvey, the catalan economy has been outperforming t spanish economyh. the reason why is because investors to not believe in independence was a credible scenario in the near future. well, so far, even, you know, yesterday we had some leading indicators, pmi's, i can assure you the evolution of the economy is not bad. there is a lot of uncertainty in the marketplace now but the recent evolution of the catalan and spanish economies has been quite positive.

we are outperforming our peers. our exports are growing at a rate of close to 10%. capital expenditure is there. so the commitment and the target of the spanish economy is to maintain the pace of this recovery for catalonia and for, you know, for spain. francine: minister, i understand at moment you do not want to contemplate it turning ugly with the banks, but how often do you speak with the heads of the catalan banks? what are they asking of you? >> well, maintain talks and conversations with these banks. the only thing that i can say is that, you know, they perfectly theyey know perfectly what have to do to defend the interests of their depositors, their shareholders and the

clients and they are fully committed with that target. i talked with them, you know, and not only recently but over the last year's. -- last years. that is my obligation to listen to the financial community of spain and globally. but i can assure you that they have the ideas here and that they are fully committed to maintain the interest and to ir depositors and shareholders they're going to do the best for their institutions. it's important not only for spain but also for catalonia. francine: minister, what are your plans for debt issuance at this point? today, we have an option but my impression is that for spanish bounces going to be quite important and quite high. francine: do you worry about the spreads? have you had conversations with

the bank of spain or the ecb? do you worry that the spread between german and spanish bonds is widening too much? >> well, we have seen a certain widening. something around 15, 20 basis points. think theow, i reaction has been quite moderate so far. the reason behind that is the strength of the spanish economy, the commitment of the government to the efforts. well, i think that even the situation of the spanish financial system really guarantees that the evolution of the economy, despite the noise and the problems that we have in catalonia, is going to be performing very well. francine: one last question, because i know you have to get on with the day job. spain's debt repayments to not seem at risk that moment the when do you envisage it becoming a problem? see any sort not

of problem. we are reducing our fiscal deficit. our treasury is coming down quite clearly. and simultaneously, we have a recovery that is firming up and is gaining momentum. and, well, i am quite confident that the spanish economy will outperform our peers. francine: minister, thank you for your time to bloomberg. that was the spanish economy minister. a pretty strongly which. the message was pretty clear. -- pretty strong line which. -- language. sebastian: controlled by the russian billionaire owner is trying to raise $1.5 billion in an initial public offering. the company which owns coal stakeand estatein -- a in russel. to man sachs has agreed

lease out the building and frankford ahead of the uk's departure from the european union. -- in frankfurt. two people, it is renting 10,000 square meters, enough for 1000 workers. deutsche bank's head of investments is leaving the banks asset management unit as the lender reorganizes the business ahead of an initial public offering. he'll depart by the end of the year. the unit's ceo sent a memo. the cio of active products will head the investment group. a spokesman declined to comment on behalf of deutsche bank. that's the bloomberg business flash. francine: now, puerto rico's benchmark bonds hit a record low after president trump suggested

the commonwealth may wipe out it $74 billion debt. bond prices erased some of their losses after administration of visitors -- administration officials walked back trump's comments. well, for more, we are joined live by bloomberg's paul dobson. and the global market strategist from j.p. morgan. paul, thank you so much. how big a deal is this? trump says something and everything crashes. >> yeah, well, i think i t's more interesting for international investors than it puerto rico not a market where there are many people from asia or europe investing. it's mostly hedge funds at this point. what's interesting and why it matters little bit more is two reasons. one, this is an unprecedented move in the muni bonds market

and unprecedented comments because the idea of wiping out bondholders completely is unheard of in his -- that's one reason why international investors have started to favor it more in the last five years. billion worth00 of holdings outside of u.s. thestors are drawn in by relative stability. francine: when you look at the muni markets, is puerto rico the biggest risk? >> puerto rico is definitely out there. and obviously the kind of tragedy of the hurricane made it that much worse for those investors and for their markets and for the island as well. there are other pockets of risk around the u.s. of things that international investors might not a been so aware of as they started to step in.

for example, chicago, new jersey, connecticut, all of them thathigher yield premiums are teetering a little bit. so, if you are an international investor it is a risk you might not have thought of. francine: does it go to the wider concern that the markets have to deal with when it comes to president trump's sometimes words? >> that is the bigger theme is that investing does come with political risk at one of the top forefront of the markets. so, if you do have global political events that affect things like yield or spread on government bonds, then you do have to have a bit of that worked into your investment. francine: you're an investor. i remember when one of the first thing he tweeted about toyota and the repatriation of money into the u.s. and stock prices -- we don't know how to deal with it. >> there is a lesson is that --

in that things can be said in any realm of politics, brexit or u.s. foreign-policy and until things are implemented it is hard to make a long term investment case. the puerto rican bonds is that where you see the price has regained based on the rest of the administration saying this is probably not as feasible as initially pointed out. francine: is there one person and the administration that seems to be in charge of this kind of communication? [laughter] paul: i don't think anybody really knows who in charge. there is so much risk out there. this can happen or be implemented almost on a win. -- a whim. the voice of reason tends to be slow to catch up with the tweets and that raises the risk and, thereofrefore, the premiums. ni market is the mu

different because you have a different type of investor? >> we are far more interested in the u.s. market or u.s. investors are focused on muni bonds. it is a slightly different, more home grown investor that invests in the muni market. francine: i don't know if we call it a risk, as an investor, you look at the risk of central-bank policy normalization, the trump trump administration, we do not know who will choose from the fed next. how do you look at the pitfalls? is it more difficult than 18 months ago? >> you have to look at the long-term. for now, there is this sea change of central banks pulling back the money they have been giving out for free since 2008. so, watching how the bond ecbets react to tapering is going to be interesting. u.s. german bunds and

treasuries going to be as low as they were in the past? probably not. francine: thank you. up next, theresa may coughs and spotters through a big speech yesterday. this is what the markets are doing today. the euro seems to be little change. nhe catlan president -- catala president has renewed concerns about independence. we just spoke with this finance minister of spain. he says catalonia will not be independent. a look at u.s. treasurers. they seemed to be steady and nudging theities touch lower. this is bloomberg. ♪

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delivers consistent network performance and speed across all your locations. hello, mr. deets. every branch running like headquarters. that's how you outmaneuver. francine: this is bloomberg "surveillance." let's get to first word news. sebastian: catalonia's president has kept the rest of spain

guessing on if and when he will declare independence. speaking on television, he reiterated an offer for mediated talks while mocking king felipe vi's condemnation of the referendum on sunday. >> the king made his speech, the politics of rajoy's that has been a catastrophe towards catalonia and ignores the millions of catalans who do not been like that and have victims of police violence. sebastian: puerto rico faces a government shutdown at the end of this month. the treasury secretary is calling on crime is to provide billions of dollars in emergency funds. the cabinet ton provide billions of funds in emergency funds. president trump suggested the u.s might wipe out its debt. donald said he had "total confidence" in his secretary of

state in response to an nbc news report that rex tillerson referred to the president as a moron. earlier in a news conference, tillerson said he was committed to the role. global news 24 hours a day powered by 2700 journalists in 120 countries, this is bloomberg. francine: thank you so much perjury some a has t -- thank you so much. theresa may's big moment at the conservative party conference was hijacked by a pricer that -- a prankster. that triggered a chronic cough. as many as 30 of her mp's are prepared to sign a letter calling for may to quit. joining me are my guests. i think a lot of people are in

support of prime minister and a lot of people are not in support of the prime minster. are we hanging too much on a speech? >> it's a newsworthy event. it just happened. it is unfortunate from her position by the bigger picture is what is the u.k.'s position on brexit. that affects industries and business based in the u.k. and europe. biggera focus on the picture, does not look like brexit negotiations are going well for the u.k. at the moment but it is too soon to tell. we focus on trade is the biggest issue for the ok rather than anything. that -- for the u.k. it comprises most of the exports to the european union. francine: deeply people are focusing on internal politics of the conservative party, whether there is a second election the jeremy corbyn, instead of focusing on brexit negotiations? >> that's a fair point.

i felt sorry for theresa may pretty optics were terrible. you had the stage all -- falling all around her. giving a voice to the voiceless. she demonstrated quite a lot of humanity and you will find the public will warm to that. somebody trying to plow through a job in very difficult circumstances. bigger picture in terms of what happened to the conservative party, the point is who is going to replace her? every moment you have a situation of visually assured destruction is if either of the euro's deficit wing wants to launch a coup, they are faced with the prospect of jeremy corbyn. the memories of the june election are clear in people's minds. while it looks fragile from the outside, it's probably more stable than people give it credit. as you mentioned, the crucial things remain the technical

detail of the brexit negotiations. the talks are ongoing up until this council summit that we get on the 18 of october. what barnier says out of the press conference, that really will be the direct, what the market takes for the next direction in sterling and u.k. francine: we were looking at euro-pound. you said probably not right to look at catalonia the moment because there is the referendum and a lot of pressures from spain driving down the euro. this is an easy speculator, looking at pound. do you believe we have touched the bottom for pound? >> no. there is room for sterling to weaken against, one of the cross as we can look at against the dollar. it's dependent on what the negotiations do pan out to be. reasons is one of the from an investment point of view we are much more comfortable not he ftselarge bets on t

100 versus the ftse 250 because you have a relationship between mid- caps and large caps doing well in sterling is weak. which is why we are closer to benchmark for sterling-based trades. francine: this is a better chart to look at. they're long on at pound for the first time since may, 2016. what is your view on the pound? >> there are two things going on. one is the bank of england is about to hike interest rates in november. that is not because growth is strong in the u.k. demand is slowing. it is because they significantly revised down the supply side. they revised down potential -- they are worried growth.flation and wage in that has been exacerbated by the migration. one of the bank of england, what i think the politics are in a better position than they were before may's speech. what may's florence speech was

trying to give certainty for businesses and markets over the transition. and basically say we will pay the money if you give us the transitional deal. we'll wait and see how successful that is. if we were to get political commitment on transition by around about the turn of the year, think maybe october is too early, but around the turn of the year, that will be positive for sterling. francine: isf the hike comes in november, is it a reversal of the cut that we had in august? question.a good there is no credibility and having a one-off hike. it has to be a hiking cycle. the reason for it is not to reverse the stimulus from last year. they are worried about inflationary pressures in the labor market building. francine: do you agree? >> the u.s. fed did a hiking cycle a year. do they message continuing that the u.k. economy is strong enough to handle the rate hike? probably not. they are great to make sure they

have a little bit of cushion for when the u.k. does face a slow down, somewhere to cut from. francine: thank you so much. up next, place your bets. how the race for the next fed chief is affecting the dollar. this is bloomberg. ♪

francine: this is bloomberg "surveillance." now, the future of the fed. markets are taking their cues from -- with investors making bets on the future of fed leadership. owell speaks at 9 a.m. in new york. e affectingrac positioning around the dollar and treasuries? our guests are still with us.

endi, this is the key question but when you have the shortlist you have such different ideas of policy, hawkish versus dovish, does the market trade sideways until we have a name? wein our discussions that have, boisterous chats around the desk who will be the next chief of the fed, we have to take a pinch of salt and think there is a such a wide range, different backgrounds. of these potential names on the shortlist that it is hard to make an exact path of where those dots are going to go. what we do know is that this year and next year when expectations are for the fed. that is grew continue on the balance sheet unwinding. -- to continue on the balance sheet unwinding. to hike in december and two to three next year. that we focus on as more of a certainty. >> it is not obvious for two reasons.

some of the outside candidates might be seen as more hawkish. if you look at what janet yellen has been saying, there has been a shift away from inflation towards financial stability, probably more hawkish than the market was expecting. it's not clear maybe powell is appointed. if you do get somebody from within the fed, they're going to be that much more dovish. the other point from the near-term market perspective is that whoever is appointed is not going to say very much while janet yellen is still in charge and will be deferential. i think we'll have to wait quite a long time to know what the are goinghair's views to be. i do not think will impact the decision-making before the end of the year. francine: do you need to take a bet. even jeffrey gundlach thought it would be, do you need to take a hedge on who it could be? is there a chance we are reading it wrong? we should be looking more and what the president wants in

terms of regulation. >> you do want to have some ideas as to who it may be, but for the the year term, it will be difficult for somebody to come in and shakeup what it has been planned for the next 18 months to tow year -- to two years. near-term, we think yields are going to go up. we are not that positive on core government u.s. bonds and we still are watching what happens with the balance sheet unwind. and what parts of the curve are moving in different directions. that would happen whether it was janet yellen that would stay for another five or 10 years are not. >> we're constructive on the dollar. further to that point, there are few things that dollar supportive. the dollar move we have seen has got more room to go. one is position remains quite short rate secondly, as was mentioned, i do think they are going to deliver on a hike this year. next year we will have to wait and see but sadly this year. thirdly, we still have the wonderful potential tax reform in the u.s. very little is priced at the

moment. so, whether or not you believe that will materialize, it is probably more stoke for the moarket. some indications suggest very little expectations around that. francine: if the tax reform does materialize, does it impact inflation at this point of the economic cycle or does it work more gdp, or does that have no benefit from the fed? >> whose absorbing the corporate tax reduction. the s&p 500, the large one, even the small ones who can benefit from a tachange in the tax rate. there are a lot of nuances as to how that plays out and inflation because of competitive pricing that forces companies to pass through some of that reduction on to their consumers and the price of their goods. we'll have to wait to see. there's quite alike that has to be done in washington to get the corporate tax reform through and

push through, but all of this wrapped up into one, there is a de, but thatupsi is not been priced in for 2018 and 2019. there's still some positivity for the equity market. francine: thank you so much, both of you. next, will the global oil glut persist as prices slip back? we talk crude next. this is bloomberg. ♪

francine: this is bloomberg "surveillance." now let's get straight to bloomberg business flash. emma: thank you. spain's economy minister has rejected any suggestion that catalonia will become independent. in an interview with bloomberg, he described the region's government as insane. >> how insane is the regional government of catalonia? the independence of catalonia c ould take catalonia outside the union, outside the eurozone. it could affect the flows, the

quality of the savings of the catalan people. that's why we are fully determined to defend the entirety and the unity of spain. metals business owned by a russian billionaire is planning to pay $1.5 billion in an initial public offering. the company would trade in london and moscow. bethe ipo proceeds, it would the biggest share sale by a russian company since may 2013. goldman sachs has agreed to move offices to a new building in frankfurt ahead of the u.k.'s departure from the european union. the bank agreed to lease space in the city's financial district. it's renting 10,000 square

meters of offices, enough for 1000 workers. a spokesman for the developer declined to comment. that's the bloomberg business flash. francine: thank you so much. let's get on to your markets with mark barton. mark: the spread, the difference in the yield between spain's 10-year to the highest since able to a six after getting 20 basis points this week. well done with your interview. s&p global ratings last night put catalonian debt on negative watch. the widening we witnessed has been halted. the is the bibex, price-to-earnings spread. the bottom line is the difference in the spread, the gauge is rising, the ibex, 4%, the most since november. ibex trading the biggest discount in the stoxx 600 since august 2016. this euro-collar rise -- euro -dollar rising for the fifth day

in six. simple moving average on the weekly chart to close below that the bearishdded to technical signal triggered by the value at the start of the week but the euro is at 117.77. and this is the spread between the u.s. and european volatility. the spread is starting to widen slightly as you can see just there. in light of events in spain, and line with historic average, the fered line ahead of the french election. the european fear gauge has risen 5.4%. 1.3%.x is up a mere francine: thank you so much. in the meantime to we have a spanish action in our interview and demand for spanish five-year notes seem to be rising. the spanish 2022 bonds averaged 0.53% at auction.

it could not have been clear from the economy minister saying that he, under no circumstances, sees catalonia becoming independent. from with us is our guest jpmorgan stanley. the concern from investors is what happens to catalonian bonds. wider implication is that the political risk is once again at the forefront. we now talk about independence of regions. how do you play that in the market, do you? >> we as medium-term investors, say we should not be playing the political risk. there are opportunities traded week to week because of the spreads moving around because the equity markets that are dealing with volatility but in the long-term, we look at those waiting, the msci europe index, spain comprises 6%. that is not much larger than the much larger markets in the european region, still carrying on. lifting the spreads, we have to bund. german political results have

been positive or more positive compared to spain. we tend to think that this is a big event but it is not something that is going to derail the growth of the eurozone and our confidence in european equities. francine: first of all, this is the chart, the spread between spanish bonds and german bunds. that over thew last 24 hours coming down a little bit. can this be a blueprint for the rest of eurozone? if something were to happen with catalonia, what would you go into? >> it is a tough one to call, because of how a region of a country in the eurozone removes itself, the monetary and financial stability applications could be quite large. and something we have not necessarily modeled. but we do always look at risk, for example, and italy, the euro -- t speculation on the rise earlier. it has softened in that more people in italy are in favor of the euro.

but i suppose like with anything investing when -- we are monitoring this. it does not deviate from our positivity on the region and the strength of the economy and equity markets. francine: are you worried that the euro is becoming overcrowded? . there has been such a shift in the last six months is there for the room for euro to move? >> the biggest thing underpinning. past week you've seen the euro ost french5 to 120 p election to after the german election. investors were worried about political risk. some of the fund manager stated political risk in europe as the highest above china or the u.s., but in terms of what we are at now, we do not think the euro has that much further upside to do a continued rally as it has this year. the ecb should support that is it starts reduction of asset

purchases next year, but is it going to have that 10% increase, probably not. francine: the ecb start scaling back q.e. with conviction. >> there's two things. they are running out of that 33% issuer limit. germany is the top one. is importtantly, it for mario draghi to know that european growth has been strong. gdp growth numbers, inflation was lower than 2%, much higher than two years ago. there is a lot to be comfortable and confident about with the eurozone economy. that is what we expected to talk about with this month's meeting. it's the strength of the region. francine: what about valuations and european equities? a lot of the times it seems that valuations were depressed. these are companies that are selling abroad. the focus has been on european companies or is there too much focus on the? >> no. the domestic demand store in

europe has been strong enough to support companies that focus revenues from internally, within europe, valuations look compelling compared to some of the other indices across the world. 's within that, you can find regions of european equities that look more attractive and a lot of the investing that we do is very much looking at how copies are going to deal with t strengtheninghe euro. how are they going to manage global forces and get the right kind of revenue streams from abroad. francine: what is your favorite place? we were going to talk about oil. but is there something out there that is unloved? >> we've been talking about european equities are that is one. we like emerging-market debt in local currency. where do valuations look the most attractive? in the local currency markets of e.m. near two standard deviations below the long-term average which includes the asian financial crisis. the upside is more possible than the downside, to find local bonds they can give you a real

yield. francine: that seems like a chart. i'm going to get it done asap. thank you so much. now, bloomberg "surveillance" continues. tom keene joins me. we will give you more from our exclusive interview with spain's economy minister. we asked him about secession and the banks. we did not talk or get an answer on deposit amount -- deposit outflows. he ruled out any mediated talks with separatist leaders. we'll focus on that next. this is bloomberg. ♪

francine: future of the fed.

for the fed chair. president trump's comments about the puerto rican debt swigs wall street. catalonia on negative watch. spain says independence is out of the question. this is "bloomberg surveillance." i'm francine lacqua. tom keene is in new york. your interview with stanley fischer is still being talked about. we need to talk about the fed implications. in europe, there was a lot of talk about brexit, the future of theresa may, and catalonia. tom: the prime minister's speech. saturday night live has no other materials any to work with other than that event yesterday. i can't wait to go through our segment on british politics today. francine: although a lot of people are saying it made her

also look maybe human, so she may be will get some play on the fringes. emma: the girlfriend of the las vegas shooter says she did not know he was planning to hurt anyone. it was marilou danley's first public statement after she was questioned by the fbi. a tripid he sent her on to the philippines and sent her money there. to amendea has plans its trade treaty with the u.s. the trump administration has been critical with the deal. the u.s. is south korea's second-largest trading partner. it is the first time making from saudi arabia has ever visited russia. with -- king salman is meeting with vladimir putin and russia.

in spain, the president of catalonia is keeping the country guessing about the breakaway region's next move. he spoke last night, but did not say when or if he will declare independence. catalan voted independence in an illegal referendum on sunday. he has agreed to taking part in -- with theks in spanish government. the spanish economy minister rejected that offer. >> we would be setting a very dangerous precedent for all of europe. of that will have more interview later in the show. inbal news 24 hours per day more than 120 countries. this is bloomberg. tom: thanks so much. equities, bonds, currencies,

commodities. up.ks up, up, up, the curve not moving much. bureau with some strength. i think oil has moved one penny over the last 24 hours. next screen. extraordinary vix. it would be amazing to get back the vix.andle on sterling with some real weakness. francine: sterling with some weakness. the euro is edging higher. spanish stocks seemed to be recovering as the cattle and president seems to be keeping -- catalan president seems to be keeping investors guessing. the finance minister of spain says independence is out of the question. gauge seems equity to be edging slower. i was just going to say, it

is a real stew as we go into the jobs report tomorrow. francine: the dollar is looking for direction as markets continue to reaction over spec -- react over speculation about who will be the next fed chair. now is the rbc head of global strategy. also here onset is simon french with us for the hour. adam, when you look at the next fed person, how will trump choose, is a loyalty or is a policy? adam: i think it is policy that dominates. -- overstatetay the importance on the market generally. the fact lose sight of that the chair is one person on the fomc.

the fed chair matters, but it is not game changing in our view. in all likelihood, the dollar is still the key normalization play, whoever sits in that seat going forward. we are positive on the dollar and we probably would not change that direction. adam, are we focusing too much on monetary policy? adam: i think that is a factor. not just a u.s. phenomenon, of course. we see the same thing in the u.k. that is perhaps not surprising, when we are, in many countries, at a turning point in monetary policy dominating the agenda for fx. tom: this is the most elegant

chart we have shown through the summer. it is absolutely gorgeous. the bloomberg dollar index. adam, is it for real? does rbc capital markets feel dollar strength is in the offing? you have to believe both sides of the trade. beyond the december move, there is a hike priced in. on the other side of that, in the u.k. and on the euro, markets are underestimating political risk going forward. evolving and rolling into next year, we think both of those currencies have to price in a larger political risk

premium and that supports that strength of a trend of a stronger dollar. from our perspective, yes, it is for real. francine: adam, thank you so much. joining us for the hour, simon french. i'm sure tom will bring up that gorgeous, elegant dollar chart in just a second. overall, is dollar going to trade on what we know so far or are they going to speculate on who the next fed chair is, given the administration is difficult to guess? simon: i think the question is salient. will the chair p.m. pointed -- appointed on monetary policy basis or financial regulation? i think it will be appointed on financial regulation. havehite house feels they some pathetic year -- a

on deregulation from the fed. whether donald trump the prospects of the u.s. economy in --m from a weaker dollar traditional economic theory would suggest a weaker dollar would support his base, but i'm not convinced that will guide his appointment of the chair and the wider set of vacancies on the fomc. francine: it is unlikely that the person would say anything until janet yellen steps down, if it is not her. from the market's point of view, do we wait until we are a couple of months into the job or are we going to see pricing now? simon: i don't think by design, but by coincidence. i think we have as good a set of forward guidance from the one c we have had in years. , the upbeat in

recent sessions. the current chair has actually bought a bit of time for her successor. as you go forward, you look at they018 trajectory, can put on the foot break and the handbrake simultaneously? that is less necessary if you are driving an automatic car, but to keep the analogy going, can you do that? i think the guidance depends on who sits in the chair and whether they hold a hawkish view on low interest rates. does the job stay tomorrow matter? i know it is all about wage growth and stanley fischer and everybody else are looking for tangible inflation data. are we just waiting to get closer to that december fed meeting? simon: i think in terms of the

disruption we are expecting in terms of the weather events, the headline jobs number will come second fiddle to wage data, but i do think that it is an important jobs report from the perspective, if we get an upside shock on wages, there will be a lot of reappraisal that will give rocket fuel to the dollar the beautiful chart -- i want to see that again, by the way. tom: you are killing me. [laughter] simon: the reason again is because of potential big inflection point, if wages start to push up to 3%. tom: we want simon to stay around, so we are going to show you the bloomberg dollar index. i will throw it out on social media for bloomberg radio, but this is actually really good mathematics of the sort of summed dollar trade worldwide.

that is a gorgeous charge. we will look at that today. we will also look at that tomorrow. daystay clearly -- jobs linked into a central set of expectations. it is good to look at that. us atm gross joining 8:30. we value that conversation with bill gross. stay with us. ♪

emma: this is "bloomberg surveillance." the biggest russian ipo since

2013. the company plans to raise $1.5 billion and will trade in london and moscow. goldman sachs has found a post-brexit home in frankfurt. they have proposed to lease financialhe city's district. goldman has 200 workers in frankfurt already. the british owner of legoland has approached seaworld about a potential deal. merlin entertainment has made a bid for part of seaworld. aat could pose a part -- problem because seaworld proposed an outright sale. tom: this is puerto rico. this is a stunning chart which really shows the move, the abruptness of the move. i'm not going to pin this all on president trump. i think that would be unfair. this is the long-term decline of

the 8% puerto rico bond. per $1000 bond. almost a, 2, 3, 4, 5, 6 standard deviation move. that is by any definition panic in the bond markets. paul is with us. wonderful to have you with us. what have we learned about these bond movement? are the losses being bought or do the people who own this paper wait it out? paul: that is going to be one of the good questions. obviously, a lot is in the hand of hedge funds a recovery funds. i think what we heard from the president yesterday, the possibility of wiping it out completely is something we are not used to.

that helped to exacerbate the sharp drop in prices that we saw. tom: can we blame this on the politics? can we blame this on the president? unfair toggest it is go right after mr. trump this. am i right? paul: the majority of the losses were incurred before he opened his mouth because there was a natural disaster that has taken on infrastructure in puerto rico and has caused a lot of damage. even before that, the bonds were in deep and there was plenty of arbitration going on. that said, i don't think that anybody was expecting they might end up with zero, particularly as some of the bonds have declined at positions within them. what does it mean for risk overall?

is the risk of puerto rico isolated? rico i think that puerto is very much a unique case in the way that it ran out of money and the fact that it then got hit by the hurricane damage. it bondther hand, investors start to hear these kind of possibilities about , that can move to a higher risk premium for a whole bunch of other over the more distressed bonds out there in the municipal world. francine: simon, this raises questions. we don't know how much of this is due to president trump's exact words or nervousness on the markets anyway, but how should investors and economists take at face value what the trump administration and the president himself said? question marks a over what he in fact meant by cancellation. you don't get briefing docket --

documents following every market moving statement from the president. six standard deviations suggests we do have to take seriously the idea -- we have been focusing on sovereign debt for so long -- certainly since the 2012 crisis. we need to take seriously the idea that default in the municipal markets out of the politics we have seen over the last 18 months. parts of the world where sovereignwhere the level is not the appropriate way to look at some of the default. tom: i want to do some high-level math. we do that on thursdays before job stay. this is gorgeous. the trend makes itself. down we go. six standard deviations almost on puerto rico. this goes back to mexico and the

shock of sequential crises in the 1990's. is this butterflies flapping in puerto rico? the old phrase which stanley fischer lived in 1998. is this the beginning of butterflies flapping, whether it is puerto rico or catalonia or others? i think bond investors of a sovereign and municipal level need to get used to this. not only will we get specific events in regions, but we will experimentation. it is an extension of extraordinary monetary policy. for a number of geographies, they are going to get policy advice about what the market reaction would be from their ,ancellation and whether that particularly in geographies

where the debtor's and the creditors are the same people, whether this was one of the ways to normalize. tom: this is fascinating, folks. it goes back to the history of to the, mexico, on financial crisis. this is wonderful. paul, think you so much. simon french with us. david gura and i are having fun, fun, fun till your daddy takes your t-bird away interviewing washington's finest. we are going deeper in our interviews. today, the congressman from illinois, with david gura and myself. bloomberg radio. looking forward to that. ♪

francine: so. >> excuse me. we will never hesitate. speeche: theresa may's went wrong yesterday in ways that no one could have imagined. simon, i'm not really sure what to do with this. there was a lot of talk. she was coughing. it kind of went wrong. she looked human. i have half the people saying she looked human and the other half saying, this is close to her actually having to resign. it changesn't think

my view that destiny is preordained. nothing yesterday changes are timeline. the u.k. threw two q1 2019. i think the conservative party already concluded that at the end of that time scale, they will need to replace her with someone else who can fight for the 2022 general election, if that is the timeline of the political cycle in the u.k.. while it was terrible optics, the three things that happened, the coughing fit, the collapse of the stage wording behind her, , but you are ,ight, with the public parliamentarians much more hard-nosed in this regard. they will see it as confirmation that there is a timeline they need to work do for her future. francine: in 20 seconds, what does it mean for how you look at for the markets? simon: i've talked to you and

tom about sterling dynamics quite a lot about -- over the last six months. labour government is a possibility. if the conservatives remain in power, a harder version of brexit gets put to the fore. francine: simon stays with us. for more bloomberg stories, be sure to pick up the latest issue of "bloomberg businessweek" on digital and newsstands in the u.s. look at the lawyer who took on big tobacco now taking on big pharma. this is bloomberg. ♪

♪ york,rom london and new go to our with us. right now, with our first word

news on las vegas come here is emma chandra. emma: republican senators are ready to consider a device that contains semi-automatic ones and to fully automatic ones. the number two republican in the senate says lawmakers should hold a hearing on the device. three u.s. army special soldiers who were killed and two others wanted. authority say they were attacked by al qaeda forces. the u.s. soldiers were on patrol with troops in niger as part of a mission. will run outays it of cash by the end of the month if congress does not come up with billions of dollars. the u.s. commonwealth bankrupt government is burning through the cash it had before hurricane maria struck. and puerto rico does not expect to start collecting sales tax at least for another month. the trump administration wants to repeal former president obama's signature plan to fight

climate change. the environmental protection agency will argue that the claim power plan exceeds legal limits. there are specific carbon cutting plans. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm emma chandra. francine: thank you. the stakes are rising. couldys an estimation hurt the credit rating. will applynt said he the results, but stopped short saying he will trigger secession. spain's economist minister on the matter. insane is the region of catalonia. take catalonia outside of the

union and outside of the eurozone. it could affect the current flows in the quality of the savings of the catalonian people. we are fully determined to defend spain. francine: we had a interview with the minister, talking about the catalonian banks. investors are trying to figure out what that means for deposit flows and the bonds. it prompted investors to exit bonds issued by the two biggest lenders. for all matters catalonian, we are joined by antonio who is an intelligence deputy director and of research. thank you. antonio, when you look at catalonia -- we had this interview with the finance minister. he said it is illegal and most

op-ed. and then you have this about how to get out of it. , the roomshort-term is extremely limited. both sides donley to as solution. on the catalonian side, they have to show they are achieving independence. seemed like he was looking for a way out, but is not going to get it. he needs to show to his voters that he can get independence. there is room for -- the room for negotiation is very limited. francine: we have had great trees/we have had great interviews. i don't know how this gets sorted, if i'm honest. >> nobody does. there is a lot of

decision-making in spain. it is difficult for people to see the end result. the idea of resolution is to rethink the federal model in spain. you cannot accompany the different amounts in the different regions. i see wages increasing. it will lead to a reaction by the government. tom: antonio, in america, we would call it the silent majority. thomas the middle ground in spain -- tell us the middle ground in spain. even the middle ground in barcelona, is it there? >> there is a middle ground, but it has not been mobilized until now. in catalonia, their strong support for some kind of referendum. the polls show this, but not a lot of support for -- the middle ground has been silent.

this is the problem. when you have a situation the polarized politics, the middle ground always suffers because the politicians on both side become very entrenched. voices are not heard. tom: simon french, where is the spanish economy within europe, and overlaying that, where is the catalonian economy within europe? simon: the spanish economy has picked up quite nicely. we have seen on forming loans come down significantly in the banking system, which has seen unemployment rate come down. eurozone leaders -- actually, at a federal level, the spanish economy has done far he will. the challenge is that spain is not immune to a global trend. influence isear of

brought to bear at other tax receipts are spent and how they get to make decisions, and how that rubs up against the federal requirement for global solutions. this is something that underpins donald trump's selection. . we will see more of these in terms of an exit strategy, we have to talk about devolution. they have to look at that and say, can i return some of the 11 billion bureaus to the catalonians? meanine: what does that for investors? i have a chart looking at spanish and bonds, the spread there. if this a concern that is dealt with in a messy way, it affects other european countries? simon: it does, but not while the ecb is active.

we get to see what the ecb governing council has been considering. it is barely a pimple on the chart if you look at the spanish 10-year and the spread on bonds. these are tiny moves. the people who are suffering potentially are the equity holders on the spanish banking 11tem, which are seeing billion bureaus knocked off the value of those stocks. tom: i want to pull up a chart very quickly for antonio. this is the catalonian paper, that looks different from the puerto rican paper. it shows the might of the catalonian economy. 1.10 on the bond. we go down to 100. this pullover speaks -- this rollover speaks to the financial integrity of catalonia, does it?

antonio: sure. is sentiment of spain controlling the finances of catalonian. not allow default on catalonian debt. they have already strengthen fiscal controls. with the referendum, they are taking control over the finances of catalonia. there is very limited risk that catalonia will default on its bonds. tom: wonderful briefing on catalonia. antonio and simon, we will continue. much more to talk about. it is your morning briefing on "bloomberg surveillance." thank you for being with us. moskow, and karen even better, you said to need to -- i said you need to listen to bloomberg radio and watch it.

♪

♪ francine: this is "bloomberg surveillance." tom, we must talk about the middle east where the russian president says his country is ok with opening a deal with opec until the end of next year. his comments of the strongest women get that the kremlin is willing to list prices. the visit underscores a shift and strategic direction of saudi arabia. let's get back to simon french and antonio baraso. simon, when you look at the new putincs with vladimir

almost being the king maker, a job that no one has succeeded so far, give us more of a sense of underlying changes that economists are not sorry couldn't pricing. simon: we have not priced the role that russia has looking south towards the middle east, but east towards china. alliances, how they are a counterweight to these countries that have pretty dominated the strategic decisions. in terms of the potential of russia and saudi taking back the role of the swing producer -- and in other shows, we talked about the u.s. taking on that role -- is that inflection productionh marginal

where we no longer look at drilling rates, but we look at the strategic alliance. arecine: what kind of role they going to play in this? there were strong times between the e.u. in the middle east, and now they have taken aback bench. antonio: they are playing a secondary role. the u.s. has been focused on domestic matters. i mean brexit, for example. the elections that took place in some of the last few months in some countries. they don't have a consistent position. you look at the middle east and geopolitics, that is a opportunity to project power. huge issue at of syria. margin, simon,e is a dominant oil power? russia likes to talk about their excellence. i remember and immense mystery

about russian will production. it seems to have weathered the oil crisis quite nicely. when you look at the production rates, it is able to be a big player in sufficient player -- opec has to get agreement from russia going forward for output cuts. otherwise, the investor market just will not buy the sustainability in terms of pushing for higher will prices. russia is front and center and opec cannot count on that role. francine: what is your take on the russian economy, simon? a lot of it depends on oil. probably make sense -- it probably makes sense that they are getting along with saudi arabia. but they need to diversify? simon: it does. gas particularly.

if this key, not from the perspective of fx revenues in the continuing supply, but actually from an international/investor perspective, investing in the petrochemical space. that is a strong signal, how russia plays on the frontier with europe, actually will determine whether the kremlin can be successful in attracting foreign capital. francine: the last two to three years is absolutely dominated by putin's policy when it comes to crimea and the ukraine, now the middle east. now that we have a stronger angela merkel and a emmanuel doron, how do we -- how they deal with russia?

we will know what happened with the french election. they don't have a from a position with russia. i don't see a huge diversion in terms of for policy that is an implemented in the past. i don't expect huge changes in leadership at the european level. tom: one of the good reasons we like to do this show, is every day i stumble on things i don't know what is going on. let's bring up the bloomberg. this is one of the coldest things about the bloomberg search engine. you can get to what you want right away. dodgreen is saudi arabia, will production, and in white is the uprise.

and russia will production. what is so important are these moves down in saudi arabia. the is a graphical image of elephant in the room where saudi is trying to manage oil production, while the white line is putin just putting out the oil every day, every day, every day. those are starkly different behavioral patterns on how to make oil. francine: they certainly are, tom. dynamics,n about oil i remember covering for opec for 10 years where arabia was the kingpin, but now you have all of these shale producers in the u.s. in makes it difficult to see where the price of oil is because we don't know what the breakeven point is. simon: i would never tell tom how to do his chart. [laughter] simon: but i would suggest he adds in a third line for u.s.

production, which is honing in on the 10 million barrels a day. you have all three king makers in the oil market, pushing production higher. the saudi is the only one taking a strategic viewpoint, and i would argue russia and the u.s., i'm sorry, a global, strategic viewpoint where russia and the u.s. are taking a national anwpoint pumping at ever-increasing rate. there is an amount of the u.s. shale market that is breaking even. that continues to be a strategic call for the u.s. government to make themselves self-sufficient so they can be in terms of their oil specialty. francine: thank you very much for joining us. we will be back with simon french. if you have questions, you can log onto tv . you can pull up the charts.

you can add a line to the chart looking at oil. this is bloomberg. ♪

♪ francine: this is "bloomberg

surveillance." i'm emma chandra. u.s. oil exports hit a record high last week, but will last long. refineries are still recovering from hurricane harvey. lower demand forces crude sellers to seek overseas markets. the boom is expected to subside once u.s. refineries come back online. in spain, the possibility that catalonia will declare independence is expecting one bank to leave. they will approve a new headquarters. shares suffered their worst loss in a year. tom: thank you. , we are goingch to do this chart. this issue came inflation expectations -- this is u.k. inflictions -- installations

expectations versus the u.s. overhears 2007. -- over here is 2007. showing the challenges of the bank of england. simon, how wide is that inflation cap between the united kingdom and the united states central banks? simon: it is a big inflation gap, but a lot of this is sterling-led. core inflation remains fairly persistent around 2%. if you price it off the five-year guilt spread, you will see inflation below 2% come cpi inflation that is. , which runs at one percentage point higher. you see u.k. core inflationary pressures is very benign. you don't see a wage spiral coming one-off appreciation. that will enable the bank of england, if it goes in november, to do one and done.

then it can sit back and see how brexit productions -- brexit discussions continue. tom: help us with economics one-on-one. the idea of a one off shift in a currency versus the persistency of that shift. do you really by the idea that there was a shift in sterling and it is all over? i don't buy it for a minute. simon: it depends on the transmission mechanism we have had in previous cycles and if it is still intact. if you speak to any central banker, they will tell you there are models that assume a transmission between a one off depreciation and persistent echoes and consumer prices. those are broken. you have central bank is -- you have central bankers acknowledging it is broken. it is not something the bank of england is going to worry about

unless they can work out a feasible model that will precipitate above target inflation over a two-year horizon. francine: does that mean if the fed hikes, it is not a trend or just a reversal of the cut in august? simon: the bank of england was to get the monkey off its back because of the criticism it received. 25 basis points, they want to reverse it raised on the criticism. with inflation running at 2.9%, they cannot afford to sit tight. francine: we are looking at .rade weighted bureau on euro dollar, it is coupled from the spread between bonds and treasuries, which sterling has been in lockstep with that investors spread, and this is

why, bring it back to a conversation we had -- the trajectory for sterling is really linked as to whether i am right in terms of one and done, whether they are going to join the fed in terms of a hiking cycle. tom: simon, thank you so much. in the next hour, we will drive the conversation forward with these correlations, these linkages within the market. mark chandler joins us. really looking for to his view on dollar. mark chandler's view on a new fed come 2018. from london and new york, we stay with us. this is bloomberg. francine, it is gorgeous in london! ♪ who knew that phones would start doing everything?

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record highs against her only weakness. if the dollar swoon over? there is a job stay tomorrow. there will be wage data. cross your fingers and hope the fed -- crusher fingers. -- cross your fingers. the fed hoping for -- to rise. theresa may is on the political precipice. good morning, everyone. this is "bloomberg surveillance" live from new york. i'm tom keene. francine lacqua in london. francine, i mean, but prime minister may, her hammers got to be going, that her handlers got to be going, this is the best date ever because it showed how fragile she is. francine: i don't know if it is fragile, but there was a difference between what people

in westminster will think of that speech with things falling out. you can see behind her, her having a coughing fit in someone handing her a piece 45, and how much it resounded for people who saw a more human side to the prime minister. tom: all you can say is that it is a slogan behind the prime minister that someone was going up. that.ndlers did not work it dropped like a bomb. there you go radio for a difficult name for the prime minister. right now, here is emma chandra. president ofn, the catalonia is keeping the breakaway region's next move. he spoke last night, but did not say when or if he will decline attendance. cap to long -- catalonia voted

back in dependence on sunday. in an exclusive interview with bloomberg, the economy minister rejected that idea. sort of except any mediation or arbitration, we are sending a very dangers president for spain in all of europe. emma: we will have more of that interview with spain's economy minister latest in the show. girlfriend of stephen paddock says that he -- that she never believed he was capable of doing this. paddock that stephen center on a trip to the philippines in march for money. says it plans to stop the presses for amending the treaty. the trump administration has been critical of the deal,

blaming the trade deficit. it is the first time i king from saudi arabia has visited russia. with vladimir putin in russia, wanting them to extend an agreement cutting oil production. the visit underscores a strategy. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm emma chandra. tom: thank you. many do a data check. -- let me do a data check. the euro was a bounce off. oil goes nowhere. let me have francine talk about sterling. getting an f.

francine: pound is still swirling around the u.k. prime minister enter leadership in the wake of that conference speech yesterday that we were talking about. euro trading unchanged. spanish stocks are rebounding. the nation successfully sold bonds as economy minister was pouring cold water on catalonia's independence. tom: thank you so much. this is one of the great, little books of 2017. the political economy of tomorrow. this is a twisted book on economics and astronomy. marc chandler has risen a jewel. i cannot -- marc chandler has written a jewel. i cannot say enough. what i want to do marc is show the old school, celebrating 50 years of economics. here is a vice-chairman yesterday. >> this is a choice clearly of

the president and administration and the decision is up to them. there are candidates whose names are in the newspapers. appropriate for me to get into deciding who is going to be the next chairman. i think the phrases socialist on ami. is the social astronomy of the new fed will be radically different from what you and i grew up with? qe will continue to be a key issue. the balance sheet will not go where it was previously. but drive the federal reserve will not change. we don't have a tailored rule. people are reluctant to add a blind rule. tom: that was something that the vice chairman. read betweenng to

the lines. he delicately traced around rules. can we possibly become rules-based if the political independence of the central bank is threatened? marc: not sure if that is challenge. when trump was a candidate, there were comments about the federal reserve. thes influenced the fed old-fashioned way to the power of appointment. people are mistaken that the federal reserve is more of a technocrat function. one of the leading politics as governor powell. he is the only republican that has been on the board for some time. you cannot tell that he is a republican or that there is a difference between him and chair yellen. francine: this is crucial. puts policy trump over loyalty when it comes to making the next fed chair, the policy he would look at most of regulation is that a monetary policy? marc: i do not buy that. the federal reserve has

supervisory and regulatory functions. it seems to me that it makes sense your top regulators defense regulation. powell defended regulation. so, i don't think regulation is the key issue here. obviously, he wants people that are sympathetic to the point of view of stimulating the economy. i cannot imagine a more dovish federal reserve chair and janet yellen has been. i think of anybody will be more hawkish by definition. francine: right. more hawkish, and yet, it depends on how you view inflation, right? if your outlook on inflation and whether you think it is backward looking are not the pen somewhat the fed does next? marc: there are key differences between the candidates for the chair. it is not so much about whether they raise rates at the december meeting, where they think the rate is. i think the key is how they are prepared to deal with the next

financial crisis. -- if somebodyes like more and really objects to qe, it is not clear who will be in the best position to have a vigorous response to the next crisis, which sooner or later, we can count on having. tom: this goes back to your book of the planetarium that we're dealing with. the you have confidence that the new people running the planetarium are not going to make that telescope spin, and make everything blurry? do you have confidence in the talent in the -- do you confidence in the top the president has to pick o? macron, merkel, and may have lower support rating among the domestic population the trump and the u.s. that becomes the new axis. tom: that is a brilliant

insight. that letter him, letter him, m. we will discuss this with marc chandler. there is a lot to unpack a merkel, macron, and may. key wage data. we will stick -- we will speak to bill gross. this is bloomberg. ♪

♪ " in "bloomberg surveillance. london. sometime the microphones are open, and i said -- and i heard francine saying, tom keene is such a more on.

moron.uch a [laughter] chandler talks about -- none of us have ever seen this. how long can secretary tillerson survive? , when theer yesterday secretary of state rex tillerson giving what was not his first press conference, we saw he tried to reset the relationship. there are some speculation they have a good cop, bad cop dynamic with statements they make toward korea, but no question what you saw yesterday, rex tillerson really defending the president. does this damage any sense of dialogue with other nations? like the day-to-day doingss of foreign policy out of the white

house? kevin: democrats will say it does and administration will say it doesn't. there is something to be said about the good cop/bad cop dynamic on north korea where you have the secretary of state is working with back channels, and the president trying to embrace the perception of unpredictability with his rhetoric. we have seen that not just on geopolitical risk, but in terms of the relationship with congress as well. francine: is this something the president does on purpose? or is it a slippage of the tongue? and we are seeing people trying to keep the president on track? kevin: candidly, there is a bit more purpose to it than meets the eye. but at least in terms of foreign it'sy, and i think that even take a look at his twitter account, they are a bit more just scripted, so to speak, but on other issues come on water

cooler issues of the day, for example, most notably, the divisive nfl rhetoric, that is off-the-cuff. know, it has in terms of form policy, there is a much more coherent strategy. tom: kevin, thank you so much. really appreciate the early morning visit before you start a long, long day. john liebert does the same thing with the eurasia group. washington.sport of john, how fractured is the cabinet? bad: i don't think it is as as it looks from the outside. i think there is unity amongst the cabinet members, you know, i think tillerson is here to stay. mattis is absolutely here to stay. jeff sessions has tried to quit, but the president told him he could not. you are going to get some negative headlines and it will look happy from time to time,

but for the most part, i think these people will stay at their jobs. tom: heaven for bid we will talk about policy prescription. tax or form, stumbles in the last few days. is tax reform dead on arrival, or is there a chance to get a cogent debate going? have i think the signs we seen in the last two weeks has been pretty good. i feel fairly confident they will get a bill passed probably early next year. and at the pace they are moving, they may be able to hit this year, although that is a remote chance. look, you got the budgets moving in the house and senate and agreement between the highest levels between the senate, house, and administration. they want a corporate cut tax rate. they want to reform the international system. the challenge is trying to find a way to pay for part of that,

and they have an agreement that they will not pay for all of it. the revenues and dynamic growth will help close the gap. i believe they will get there eventually. the bumps they feel along the way will be when you are writing the complicated parts of the federal code. francine: what does that mean? is it six months to a year from now? are they focusing on detail? john: i don't want to put too much detail out if i was the leadership. look at the state and local tax reduction. your groups organizing to spend millions of dollars. you got a whole campaign, industry built up around it. they are -- deliberately not putting out many details. so,in the next month or paul ryan is talking about

putting out attacks bill in early november. the next challenge will be getting a conference budget agreement. there is a lot of disagreement between the house and the senate to what the budget should look like. but that is the next big political challenge that we will see unfold in the next three to four weeks from is how they are going to get to an agreement of the 2018 budget. francine: i know tom was to go to the gun control debate, but do be having a idea on of the president chooses the next fed president? i don't know if there is a bobby group -- lobby group. i think thek -- white house is holding their cards very close to the vest. i don't trust all of the names being thrown out in the media. i think there are some dark horse candidates that we don't know about. president's chief economist is a former scholar and bank staffer.

think there is a process going on that we are not pretty to. tom: for a global audience, very quickly here, could there be a shift in the timeless gun debate on the united states of america. it is the romance of the west in the fields of america versus an urban east. that is the image. will there be something different this time around? john: we have not seen the gun debate change despite many of the mass shootings we have seen in this country. i do not think this las vegas incident will cause any further change in kind of the sclerosis around this issue. if you look at the state level, a lot of states have been loosening their gun control restrictions over the last five or so years since the sandy hook shooting. that is a sign of where the policy of gun control are.

are a big part of a lot of american family's lives. i think the politics of doing anything about this are too difficult, not because of the money, but because of the voters don't want it. john, thank you for that briefing this morning. we are going to come back with marc chandler. don't forget, bloomberg radio. francine pulling the short straw will join us on "bloomberg surveillance." stay with us. this is bloomberg. ♪

♪ is "bloomberg surveillance." ricowe must look at puerto and their benchmark bonds that hit record lows. president trump says the u.s. commonwealth may wipe out the municipal bonds. bond prices raised earlier losses after officials quickly walked back trump's comments. the move comes when a time of record low interest rates around the world have unleashed unprecedented tied of cash. we are joined by paul thompson. and also marc chandler. thank you both for coming on.

paul, how much do we know about the direct impact that president trump's words had? this was already fragile market. paul: yes, bonds were already in default. the impact from the hurricane was factored into the prices. the knee-jerk reaction was extreme. that wasn't something the markets are used to. there was a rebound and recovery. it is clear that it would be for a difficult that the president would wipe out the bonds. but it puts another extra layer of risk into the markets that people did not know was there before. francine: marc, what does it tell us about the ownership of these muni bonds? one of the features is foreign investors have been buyers the municipal bonds, even

though they don't get the tax breaks that american citizens would get. also the exposure point of view -- i fully agree, and look site the domestic funds have been liquidating, reducing the exposure to puerto rico. tom: let's break up this chart. we show this in the previous hour. price for puerto rico paper. this is the largest trading down. marc chandler, everybody wants the sequence of the financial crisis. is this discrete or could it rollover and to other global markets? it raises think questions about the municipal bond market. one of the key components about tax reform is getting rid of arts eight deductions. -- one of the key components about tax reform is getting rid of the state reductions. saltyou really wonder, is

going to be dead or not. paul, give us the update on puerto rico. move --'re waiting to things don't tend to move very quickly. we will be watching for price reaction. to 38.$100 bound down that is a remarkable drop. thank you paul dobson. continuedler will with us in new york. this is bloomberg. ♪ who knew that phones would start doing everything?

entertaining us, getting us back on track, and finding us dates. phones really have changed. so why hasn't the way we pay for them? introducing xfinity mobile. you only pay for data and can easily switch between pay per gig and unlimited. no one else lets you do that.

see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit or go to xfinitymobile.com. ♪ we welcome all of you worldwide. those of you curious about the conversations, we have francine lacqua in london. i'm tom keene in new york.

right now, with our first word news unless they could, here is emma chandra. emma: in response to the mass shooting in las vegas, republican senators are ready to consider limits on a device that contains -- that turned semi-automatic firearms into fully automatic ones. the las vegas shooter used a bumper to turn it into a fully automatic rifle. wantsump administration to repeal former president obama's signature plan for fighting climate change. the environmental protection agency would argue that the power plan exceeds legal limits. targets based cut on commissions on power plants. in niger, three soldiers were killed and two others wounded. authorities say they are probably attacked by al qaeda forces. the u.s. soldiers were on patrol with troops from niger as part of a training mission.

they would like to have a united not the uniteds nation's relate to intervene. spain is a very distinguished member. and of course, we would like to be able -- we would like to have a member, which is united and therefore, strong. and of course, were the constitution and the legal regime instead of law is one that is dictating events. emma: global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg. francine: thank you. spain talkingth about the unrest in catalonia. mother finance minister told us he has ruled out any mediated

talks with leaders. we spoke with him earlier in an exclusive interview. >> the independence of catalonia is not going to take place. it is out of the question. first, because it is illegal under the rule of law. it is something that this -- law isorcement of the going to be perfectly blended in spain. and secondly, it is irrational. catalonia has always been a part of spain. economies are intertwined, they are connected with spain and catalonia. it is very profound. the government has a lot of autonomy. it is second to none. they have a lot of sanctions. and they are a very populous committee. and finally, it is important to say that independence of

catalonia is detrimental to the catalan society and the spanish parliament will not allow that to happen. we are defending the will of law, and we are defending catalan society. francine: joining us from hundred is -- joining us from madrid is ben. a lot of the questioning i try to get out of him was that deposit flows because you have two lenders in catalonia, and people may get nervous about that. what do we know about these banks? >> well, a few minutes after you spoke, the news broke of a meeting this afternoon. risk ofsaid there was a catalan movers moving out of the region, he obviously knew what was going on.

they're going to discuss this afternoon to move further down the coast. you're clearly seeing the impacts of the instability, and the financial system. francine: what does it mean for investors overall? a lot of people are watching catalonia. the minister was very clear. they will not negotiate a referendum. and yet, unrest and investor angst is still out there though. >> yeah, the one thing that was missing from the minister's comments was any idea on how they were going to solve this issue. you asked him if you had to revoke catalan self-government, how you enforce that? they sent the police in last weekend, and you know, the scenes of violence went all around the world. if they had to try to suspend the regional government, will they use the same police force? we don't know and they cannot tell us.

refusing mediation does not get us a way out. tom: i think i have a passing understanding about why south carolina said we want to secede. what is the singular reason that the people of catalonia want to walk away from the spanish experience? very difficult question. that i think they are a historically distinct culture. they were very upset during the financial crisis as stepanek -- as systemic violence went on. hase then, the whole debate become increasingly toxic. there was no discussion on why catalonia should be independent. it is just about why madrid is repressing a right to vote. tom: ben, thank you so much. we greatly appreciate the

reporting from spain over the last few days. with us, we are with marc chandler from brown brothers. -- there ist what no discussion of spain leaving europe. they want the e.u. experiment to work. marc: that is true not only of spain, but any country since the referendum. pro e.u. sentiment has actually risen. the point about catalina -- the point about catalonia is about this anti-elitist wave. this is just a spanish expression of it. it looks like it will come to japan next of their election later. what is happening in catalonia, no one would allow a part of its country to break away in a unilateral referendum.

the u.s. does not tickets are asleep. tom: the dirt on marc chandler, he hates wait traded industries. we look at wait traded euro and dollar. euro, where does germany what the euro? were to spain and greece the euro? are they linked to merkel? marc: spain is one of the strongest economies in the eurozone. it may be by post germany. -- it may be rivals germany. tom: are they the korea of japan, excusing, the korea of europe? marc: probably, yes. the economy is growing strongly in the pmi's. are stronger than expected the problem that catalonia is having -- in italy, spain's economy is strong. areof spain's gdp khamenei

talking about transfer payments to other parts of spain. onncine: i am so confused whether we're talking about spain or carolina. let's have a simple discussion. marc: the market under vendor estimates -- the market under estimates what will keep the market together. i think spain is going to stay in and i think italy is going to stay in. the eurozone is going to get bigger before it gets smaller. other countries will join before another one drops out. francine: what does that mean for the euro? the euro right now is being driven by micron and merkel is putting the top in for the euro. we have a strong fourth quarter for the u.s. dollar. tom: i love what we have gotten

out of our madrid and barcelona news bureaus on this historic moment for spain. marc chandler will continue with us. and don't forget, bloomberg radio, after your briefing on bloomberg television, wander to the automobile and turn on karen moskow. look for "bloomberg daybreak." this is bloomberg. ♪

♪ [coughing] theresa may: excuse me. we will never hesitate to act

where things are operating as they should. let this party celebrate the wealth creation, the risk takers -- francine: that was theresa may's closing speech. it went wrong in ways people couldn't have imagined. may had a chronic cough that left her struggling to finish her speech. enter big moment was overshadowed -- enter big moment was overshadowed by a prank. her speech captured the attention of the media. european newspapers have jumped parallels to -- york.handler in new the concern i have is that sometimes we are not nuanced enough when reporting things like this. a lot of people from grassroots believe this made her much more human. what do we really know about the power struggle from within the conservative party? know thatnly -- we do

while may was speaking, sterling had rallied. at the end, falling when may spoke, and it continued to fall through the morning session. we are sitting at the lowest level sterling has been at since september. that is the driver right now. a lot of people did not have confidence in may even before the speech. outside, her speech has reinforced that idea of weak leadership in the u.k., struggling with brexit. is the discrepancy interest rates, the market is pricing in a strong chance, like an 80% chance. that is not changed, even though sterling has come off several sense in the last week or so. is hawkish,rc, it

but i do not know. it is basically a kind of move to a politicized the bank of england? i don't know if it was politicized in the first place. they talk about inflation rising. is that inflation is probably peaking shortly in the u.k. economy does look like it is weakening. service sector pmi was stronger than expected. tom: then we go to calculus with marc chandler. euro -- sterling, this is what francine looks at constantly. euro-sterling, this is what francine looks at constantly. marc, it takes to a doubt to tangle --it takes two to tango. is it sterling are urodynamics? marc: it is primarily a the key sterling.

the euro was really flat this week. the euro broke down last week. tom: but this is critical. everybody got wronged. the weaker dollar through the summer. is a surprise for next year euro dynamics? marc: i don't know. tom: does draghi get in here and make a big shift? marc: the highlight of october will be the japanese election. i think draghi will announce a tapering. i believe it will be a greater tapering, meaning reducing the amount of the divide, but extending it longer. that was the key from earlier this week. the chief economist from the ecb talking about duration. tom: let's go from the tripod of euro-sterling to the dollar. what is your call on sterling-darlow -- sterling-dollar? marc: i don't even know what i am having dinner tonight whether

that i don't even know what i am having for dinner tonight. we have seen a correction to that big rally that the dollar had since 2014. the up trend will continue for the dollar driven by interest rate differentials and diversions of central bank policies, polly see sheets -- balance sheets. tom: interesting. francine: marc, is the only way of looking at dollar trade weighted dollar? marc: from the federal reserve's point of view, adjusted for inflation is a proper way to look at how foreign trade impact the economy. i don't think trade weighted helps very much. not at aadjusted in is trade weighted basis. tom: that was brilliant.

one view on the strong dollar. let me go to tv . this is important. if you are on global wall street and lost track going at chama's speed, youhandler's can go back. you can click on a previous segment and go out and see the chart and see the conversation with mr. chandler. even better, a bonus round, you can steal the chart over to your bloomberg. this is bloomberg. ♪

♪ >> this is going to happen -- this is not point to be independent, i can assure you. committed to take all the actions and use of instruments of our disposal to avoid that. francine: that was a spanish economy minister speaking with us earlier in an exclusive interview. he said a referendum on catalonian banks will not happen.

tom, he did say that a lot of banks were looking at possible exits from that region, and say they may move out of the region at the push for independence continues. a couple of minutes after the interview, he said that they are looking at a new headquarters. tom: absolutely fascinating. coming off the comments by the king of spain, a remarkable 48 hours. i am trying to get up to speed on catalonia as quick as i can. francine? francine: tom, i think the money question is if you rollout any sort of mediation talks with leaders,? how would you resolve the conflict? coming up shortly is bloomberg daybreak america. david joins us. what you have for us? david: we will have part of your interview. if we get lucky, we may have you on the show, francine, to talk about it. this is budget day.

republicans are deciding this is the path to tax reform. we will have the ranking member of the house budget committee. he is one of the key people to say doesn't get down and what will we know -- he is one of the key people to say does it get done? tom: looking for to that, david. time for single best chart. what a joy and an honor to speak to the vice chairman of the fed yesterday, stanley fischer. we are going to link marc chandler with the job's reports and the extraordinary improvement in employment. to your world that is linked into the work of irving fisher from three generations ago, the fisher effect. tying in together interest rates and inflation in this economy.

marc: in general, but fischer has knowledged, stanley fischer has acknowledged, in the post crisis, we don't have a good sense of what drives inflation. we have models. the point is, we are in an unknown. we thought we knew how inflation was driven. up thinking inflation was a monetary phenomenon, but people are expecting higher inflation to the dynamics of the labor market. tom: not to be gloomy, but this goes to the end of vice-chairman fisher's speech, saying watch out for the never say never. we are going to relive a fiscal expansion to a deficit to gdp. is that the exactness base that is out there over the next three

years? marc: we get some fiscal stimulus on top of the trend. will that be enough to give us a boost in inflation? it is possible, but that is the old model of inflation. we have two parts of it. a confuses it. we have goods inflation, that is falling. we have service sector inflation, medical costs, lawyers. my barber is not going to cut my hair at a cheaper price no matter what the dollar does against the euro or the sterling. because of that, we put these numbers together and things deflation is bad, but deflation on goods is good. ands productivity-led innovation-led. what kind of inflation are we having? francine: hold on, marc. the last thing we want to be is like japan. marc: i don't think we have to worry about that. japanese inflation has been

rising for the last couple of months while he was inflation isn't falling. i wouldn't say we have to be like japan, but it is an interesting issue. all countries are struggling with the same thing, low inflation. the u.k. is the exception. but it is just a short-term blip as the base effects wears out. francine: all right. thing thatis the one you see distorting the markets? marc: the biggest distortion is coming from this discrepancy between what the fed is telling us. the federal is telling us will raise rates three times next year. in the market says it will not do it. the market is skeptical about even one time next year. there is the discrepancy about what the market is pricing in and what the fed is doing. francine: all right.

marc, answer me this, if we have tax cuts 15% to 20%, does that help with inflation? marc: i do not think so. i don't think inflation will because by giving corporations more money. corporations have $2 trillion in cash on their balance sheets. the reason they are not investing is because there is no need for it. should an automaker like genomic another car factory? about 70erating percent capacity. francine: marc chandler, thank you so much. this is bloomberg. we will have plenty more on finance and economics. ♪

>> debt plunges in puerto rico.

they face a government shutdown by month's end if they don't receive emergency fund. catalonia on when it will declare independence. and the hard work begins in d.c. republicans are set to take their first concrete steps towards delivering a major tax cut in the u.s. from new york city, for our viewers worldwide, good morning, good morning. a warm welcome to "bloomberg: daybreak." i'm jonathan ferro alongside david westin and we welcome back alix steel. futures are dead flat after continuing that winning streak yesterday on s&p 500 and closing out wednesday once again at an all-time high in the fx market, euro, dollar back. really new surprise action in foreign exchange in the g.t.x.-10 space. alix: lots of movement happening