♪ francine: turkey tensions. as relationsges with the u.s. deteriorate. senator bob corker and the president exchange insults on twitter. how will do -- how will this impact the chances of trump getting his agenda passed? the catalan foreign affairs chief calls for talks. we speak to spain's energy minister. good morning, everyone. this is "bloomberg surveillance

." we have quite a lot going on in the markets. we are getting breaking news out of china. reserves are little bit above estimates, but in mind what what we were expecting. -- but in line with what we were expecting. onto your markets. the turkish lira. a senior member of the catalan party calls for dialogue with spain. let's get straight to the bloomberg first word news. here's sebastian salek. sebastian: a senior republican senator has said donald trump's reckless threats towards other

countries could set the nation on the path to world war iii. president treats it often like a reality show. his support will be critical to the president on tax reform. after a massive rally in barcelona over the weekend, a the catalanr of administration calls for dialogue with madrid. the catalan president vowed to press ahead with his independence strike. angela merkel has a great to an annual cap for migrants into her country. it is the first policy fallout on the recent election. she had previously resisted sister from the csu

party for a migrant to limit. mohammed barkindo says output restrictions are rebalancing the oil market its, but further steps may be needed next year. he says there is a growing consensus that extraordinary measures may be required. pence walked out of an nfl game after a number of san francisco 49ers players decided to kneel during the national anthem. colin kaepernick started to protest last year to highlight of treatment african-americans in america. theresa may triggered speculation she may shake up our cabinet. she told the sunday times she

did not want to shirk a challenge and once the best people around her. -- and wants the best people around her. that leads to the question of boris johnson. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. the turkish currency after really should and's united states deteriorated -- after relations with the united states deteriorated. ben joins us now. thank you for joining us. how bad can this get? it is gotten worse than anybody expected. relations between the u.s. and turkey have been tense for several years.

the default position was always that these were two important partners, they have to work together, so this decision is a huge surprise. i think that is why we are seeing reaction in markets. francine: when we look at market reaction, what happens now? >> i think it depends on how erdogan response. it depends on whether they are going to deescalate or respond as he often does, further escalation. francine: thank you so much. benjamin harvey there. joining us now is peter dixon and william porter. thank you boyd -- think you both for joining us. when you look at istanbul and

these turkish-u.s. relations, does it mean markets today are starting to price in a more volatile geopolitical environment, or suggest that it was a flash crash because of the concern? i would tend to go with the flash crash but it is emotional ground was turkey. -- ground with turkey. as i said, it is emotional. this is all occurring at a relatively low level, a local employee allegedly at the consulate has been arrested for participation in the plot. i think the idea is that this can be sorted out as it goes up to the government. if they can't, then a pretext is created in order to deteriorate relations. the market naturally attaches a

risk premium. my instinct is that these risk of humans, like the morning -- these risk premiums, like we seen before, are overdone. i think we need more information to be confident. francine: peter, let me bring you two might be right dropped chart. just let me bring you to my lira dropped chart. lirat me bring you to my drop chart. peter: turkey has been the center of attention you politically for some time. you have the coup and increasing tensions between erdogan anti-western world. as soon as you -- between erdogan and the western world.

it may dissipate quickly, but -- and i think it is the market telling us we don't necessarily like what is going on with turkey. it may be turkey moving away a little bit from the western world. francine: do you believe markets have been ignoring the geopolitical concern? i am picking up russia and what it means when there is more liquidity in the market. of russia andng what it means when there is more liquidity in the market. peter: to some extent you have to ignore it. some have been trading at record lows. markets are banking on the fact that there was a lot of noise, that central banks will continue to save them. i am thinking potentially markets are being complacent. tom: william --francine: william?

the rallying call is economic trump politics. the demonstration of that was the clinton election. policys concern about and the effective tighter liquidity on the world economy. when he to the context on what that is -- on what is causing it. with shocks to do in a growing environment than a tumbling one. i don't we have the information yet. my instinct is this is a little bit of a storm entity cap. they danger it is -- the danger is it is something more significant. we will talk more about monetary policy next. --coming up, including plenty coming up, including the weekend war of words between president trump and a republican

senator. what it means for tax reform. later, catalonia calls for talks. the region. at this is bloomberg. ♪ ♪

francine: this is "bloomberg surveillance." let's get straight to the bloomberg business flash. sebastian: chinese bank shares have surged on mainland markets catching up. that is after the central bank's decision to cut the lenders reserve ratio. icbc jumped the most in nearly two years. deutsche bank's ceo has yet to

meet with his company's largest investor, but he has decided to do so. john cryan will sit down with hn a. meetingeen avoiding since march. two previous attempts for talks failed. john flint has been elected to ceo. the london based bank approved the appointment after the arrival of mark tucker last week. michael hickey is leaving at the end of this month after almost three decades at the company.

the botched response has an latest customers, regulars, and politicians. that is the bloomberg business flash. francine: let's turn to the u.s. where a senior republican senator has had president trump's reckless words to other countries could set the nation on the path to world war iii. , -- bob corker says the president treats his office like a reality show. they traded insults over the weekend. he will be critical for trump tax reform plan. let's get more on this with stephanie baker. feud broke out when corker decided not to seek reelection. what does that mean? is he speaking freely? reporter: he is certainly speaking freely. he seems liberated and able to say whatever comes to his mind.

trump interaction, it seems, with members of conference -- with members of commerce, it is hard to know who to believe. trump, sayings trump urged him to run, and when he announced he wasn't going to seek reelection, urged him to reconsider. it looks to me corporate has said i'm a i don't know why trump lies about his interactions so repeatedly. it looks like this is trump lashing out after criticized him on a number of points. -- after corker criticized him on a number of points. francine: what does it mean for trump's agenda? reporter: we see the president at war with his own party, which is remarkable, given the fact he needs every member of congress behind him to get things through

like tax reform. there is a 52-48 split in the senate. he just alienated one of his key allies as he goes through an intense period to get a number of legislative issues there. francine: stephanie, thank you so much. and william porter are still with us. what do you make of what we know that president trump will have to give to put tax reforms through? what would it mean for indices or treasuries? andr: i am not convinced stephanie is informing that this tax reform is going to go far. the biggest problem that we face is a tax reform that benefits the well off at the expense of the less well off.

in terms of how that is going to play out with trump supporters, it is questionable. the party has the cap -- has to carry the message forward. in terms of corporate tax or form, there is something to be done there. it is not going to make a huge difference to the market, because it is already in there. in any case, the tax reform doesn't affect the large majority of listed company's. the market impact will be a wash. it will be a political concern with the stability of the trump administrator. francine: a senior member of the catalan administer she has called for dialogue with spain. bloomberg, a warning that the crisis could cause economic damage to the whole of europe unless a solution is found. let's hear from a member of the

spanish government. we are joined from madrid by spain's energy, towards them, and technology minister. think you for giving us a little bit of your time. how do you see the catalonia question panning out? >> tomorrow, the catalan government wants to tell us something. we don't still no what they want to do. the best thing they can do is to stop, to abort this process may have started come a does it is not legal. second, it is not socially sound in the sense that independent parties didn't get a majority of the votes in the last regional elections. the third, it is bad for the economy as we are seeing many important companies in catalonia are leaving to other parts of spain i'm a because they don't like this uncertainty. catalan politics is leading that part of spain right now. francine: what are the chances,

given you are on the ground and followed the protest, what is the chance of catalan declaring independence tomorrow or later this week what are the chances of the prime minister sending and security forces? to talk aboute chances. it is up to the regional government to decide if they want to follow this craziness or stop it right now, go back to the legal framework, the constitution. it is not a banner of what they will do -- it is not a matter of what they will do or not. what they should do is come back to the legality. almost everything can be discussed. demands aare the valid counterparty for holding talks? >> as i told you, talk about what? do we want to talk about

breaking spain, changing the rules of the game? hundreds of thousands of people claiminghe streets, against this craziness of independence. we cannot talk about that. to talk about something that, we can do it in the normal conversations. regional governments have among themselves. not a practice in spain in the last 40 years. francine: you mentioned towards them in catalonia has taken a hit. can you quantify that for us? does it impact the regional economy? the impact, the economic impact? francine: yes. asking about the economic

impact. i imagine tors and has been reluctant to travel to catalonia. and has beentors reluctant to travel to catalonia. sm has beene touri reluctant to travel to catalonia. m tax.had a touris the effect of that was weak but important. we have measured them. we were happy that things were doing well in barcelona and the rest of catalonia. the political situation has deteriorated. we are still in it and measuring that. this is the one of their reasons things are doing well economically in barcelona now, because this situation right now is not good for the economy. people don't like to invest in a place where there is such uncertainty, because they have

had risk. if it breaks out from spain, it gets out from the european union. that is the main reason why this not happen. that is the reason for why i think the vast majority of spaniards think this independence alone never take place. thecine: given all of uncertainty we have had, is it still possible for spain to grow it 3% this year? -- grow at 3% this year? >> we are almost at the end of the year. catalonia is an important part of spain and is doing well. it is the same for the rest of we will be think around that figure with no problem by the end of this year, but let's not increase uncertainty. for the next year, you cannot

forecast that well. the spanish economy is doing well. economic and political uncertainty should be a drawback -- shouldn't be a drawback. francine: catalonia has little control over energy supplies. it is reliant on big spanish companies to do that. if it declares independence, would you consider cutting off energy supplies? you, it is so drastic a scenario that they declare independence. in theill be problems telecom sector, the financial sector, of course.

catalonia is where the richest parts of spain. the craziness of independence great summary economic problems, cutting off the catalan economy from the rest of spain and europe creates havoc in the region and the rest of the country. understand that it is so terrible a scenario, that they need to think about this. francine: just so we don't misquote you, if catalonia were to declare independence, you cannot rule out turning up the lights in the region? is that correct? >> sorry? the sound is not very clear. francine: if catalonia were to declare independence, would you rule out turning out the lights? i know you say it is too terrible to contemplate, but is it something --

>> no. what i am saying is the system is integrated, so it is impossible to know what might happen. the integrated system cannot be separated. it is immeasurable. it is impossible to imagine what might happen. even as everyone is focused on catalonia, spain has had a severe lack of rain. how could that hurt energy prices and the economy? >> we need water. it is true. we usually use renewable in order to produce electricity.

it is not happening this year. in any case, we have to deal with that. not always the weather is as we like it. let's hope this year we get more rain, more water the prices might come down. we have had very good prices in 2016. worst prices in 2017. whether and term, oil prices are the main factors -- francine: thank you so much. spain's energy, towards them, and technology minister. retail.

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republican senator has said donald's reckless threats towards other countries could set the country close on the path to world war iii. this.rker said the comments came after insults between the president and the u.s. senator. mass protest in spain, a member of the catalan administration has forced a dialogue with the administration. the standup -- the all of print came as the catalan president vowed to press ahead with independence. angela merkel agreed to an annual cap of 200,000 net migrants to her country. the first policy where support for her -- .he previously resisted this the confession allows her to to

pursue talks on a coalition government. is opec secretary-general saying restrictions are balancing the market. consensus growing that extraordinary measured may be required to stabilize prices through 2018. mike pence is walked out of an 49er me after a number of players knelt during the national anthem. he tweeted "i will not dignify any event that disrespect our soldiers or national anthem." global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm sebastian salek, this is bloomberg. francine: we have just heard from the spanish government mr. -- minister.

he urged catalan to come back to legality. and with us, peter dixon william porter, head of european crowded -- credit solution. -- what does it mean for credit for spain? william: i think your to put this all in a larger context. when we go back to the corker comment about world war iii, presumably he is reserved -- referring to the u.s.'s role as the deus ex machina between the two koreas. one between spain and catalonia. i don't think we can look at this as a purely spanish issue. you do lookthat, if across the euro area you have very similar situations. onhave these two referendum

-- in october, a very similar theme which is the country getting fed up. this raises real structural issues as to who is the fiscal transfer agent in spain. that role is opening up for contention. the real -- there are real fiscal implications. we think these risks are more fully priced because people will talk about italian instability and spanish fiscal instability is relatively new. is thew is that italy value trade in this situation and you can do the other side against spain. i think that's still good. ,he interim government spread that to me looks wide in a situation where both countries have similar issues. we charted the spread between italian and spanish

bonds. they are much more aligned with the -- in terms of their believe. the bigger concern for italy is the banks. do you buy into anything in spain at the moment? do you think that will go away as you worry about italy, or the other way around? peter: they don't keep me awake at night. interest tody's start calling in some of the italian loans. the extended strategy which is worked well for so many years will be allowed to continue. authoritiesitalian are aware of the dangers of pushing too hard. it's a concern, but i don't think it's something we can pull the pile down. with regards to spain, i'm with the minister on this one. we will have to see how serious things get before markets can

form an opinion on how to proceed. my guess is things will probably call down and we won't get too concerned about it. francine: i guess the concerns -- concern is our markets to complacent? this is such a theme. it's one of the biggest breaks in the wall of worry. if we have control over the terminal perhaps we can pull over and index. >> this is a curveball. itdet. and gpl. francine: this is like real-time bloomberg. william: this is italy getting to grips with his death with its situation in a way spain has.

spain just got a four-year lead in growth over italy. this is a deeply lagging indicator, particularly in italy. all these things are much easier to deal with in a growing economy and we had the luxury of nadal.g to sinenor either that with the german financial community that italy can grow 2% in the next year. peter: definitely no. is ofm: obviously this critical importance for the reasons i gave earlier, but this is a country that is getting to grips with things and the economics trump the politics every time. so much political chatter ahead of the first quarter election with these two referendum. italy's underpriced which means

europe is overpriced as risk. >> we will get back to you. thank you so much. up next on surveillance, merkel's confession. talks on coalition after the german chancellor agrees to a cap on migrants. this is bloomberg. ♪

♪ let's check in on your markets. rising the dollar most since 2008 against the lira. this is 3.6% in lira terms. these are one-day percentage

moves. the biggest move for the lira for the downside in 15 months since the u.s. and turkey suspended visa services for citizens looking to visit the other country. today's decline is a reminder of the underlying fragility of this $5 trillion a day affects market. this is turkish stocks today. falling as much as 4.7%, relations between u.s. and turkey deteriorating. the gauge dropping below 100,000 points, the lowest level since june 23. it's weathered political storms this year to post an increase, ontrack for the best years in 2012. still 12% below the record set on august 29 earlier this year. let's move to spain. businesses from

catalonia. the largest lender announcing it will move its legal base. odel doing the same last week. dell doing the same last week. posting astill negative number. option traders moving to sterling and have become bearish on the pound once again. month calls on the currency. pessimisticmost investors have nonsterling since the election in june. sterling last week at its biggest weekly drop since october last year. falling 2.5%. it comes after sterling surged by 3.6% in september. that is on a more hawkish boe.

busy morning, francine. francine: thank you so much, mark. angela merkel is agreed to a cap on immigration in her first concessions and last month's election. merkel's party will limit the number of migrants to 200,000 annually. they can move ahead to a coalition government with the free democratic party and green party. porter.th us, william peter, let me take up with you. this is the end of an era. we don't know who the replacement will be, we understand that maybe someone from the free democratic party. what does it mean for european economics? peter: i think in terms of the bigger picture, obviously the election results were a shot across the bow for angela merkel's policy of europe

housing them for many years. that in turn is significant. we might see means a little bit less emphasis on it --, which has been at the heart of policy domestically. i think there will be many people will be quite glad. he isct of the matter is done a pretty fair job of managing the german economy. it is going to be up to the next government to keep the economy on track without eliminating too many reforms which were put in place 10 years ago which cap the economy through a difficult time. francine: if you look at the heavyweights. both are leaving. can any one else fill that

vacuum? age, cometheth the person. these are always different in hindsight than foresight. yes.nswer is i don't know who it might be. for similar reasons i said earlier, these roles are becoming more important. francine: what does it mean for -- and looking at the spread between spain and germany, if you look at ecb policy, i do know for we are ready for some kind of loosening or qe tightening or is there just not for the ecbn bunds to buy? whole story. is a we've done some numbers and we think the market is distorted by about 50 basis points.

we don't have time to go to the calculations. i don't think changing direction on qe automatically reverses that, but that's the direction of travel. spreadsuld show been because it's a somewhat unique german distortion. italy in particular is going to blow up as soon as we start to reverse qe, i take vigorous exception with that because i don't think that is why italy is where it is. it's why is in germany is where it is. the scaling't think back of qe is necessarily going to turn the markets on their head, but one thing we have to bear in mind is that when the fed started its tapering, you could argue maybe we've learned our lesson and that it will

proceed smoothly. there is potential risk or stumbling blocks out there which will emerge as market sentiment -- up. francine: with the election of macron, you still have the , theynian separatists don't seem to be making much progress because on the economy. whilst these parties align economic thath make more sense, is there a danger that political risk in europe is at the forefront? peter: it is. very --en through a time in the past eight or nine years. debttrains on european europe in particular have been high. -- of allexit is the these strains. if the were a success, that would embolden since separatists in other regions.

playnk all is very much in with regards to the political risk in europe. we are set to see more nationalism in germany and other european countries. when germany's affected by some of these nationalist sentiments, you think it's a problem which we should pay more attention to. francine: both of you stay with us. move pasty tries to her struggles to make progress with negotiators. this is bloomberg. ♪

♪ francine: the u.k. prime will try to grasp brexit talks. she will tell the parliament is in the eu court. by graham chaps to remove her. dixon and us is peter william porter. both for sticking

around. william, you believe brags it won't happen. talk to me about how you get from what we have today to brexit not happening. william: it's been frustrating for game theorists like myself are either brexit being oversimplified or overcomplicated. let me give my interpretation. we heard the magic word with merkel, coalition. we are dealing with coalitions on either side. we've done the work on eu, we decided it will hold together as a coalition. that means the uk's in a game of chicken with a concrete block. when you do that, you of a choice. you will collide or swerve. if you look at this from the point of view of the politics within the u.k. as a player and it is complicated. we asked a couple simple questions. where does the consensus come from for a hard brexit?

it is not there. you can't say that a 51.9% referendum vote is it. the question is where does the mandate come from for a swerve? thatnk we can slowly see the u.k., rather than ordering a la carte from the eu buffet is now realizing how binary the choices. over the next 2.5 years, u.k. politics will revolve around whether a's work can be achieved. francine: the problem is you have a lot of pro brexit ministers in the cabinet and a lot of the experts told us it would be the end of the world and it hasn't come to fruition. if there was a swerve, how would that look like? would not -- it would have to go to referendum. peter: it almost certainly would. brexit means some very hard choices. so far it seems many of the

ministers who promoted that oren't recognized publicly simply don't understand what's at stake. they will be made to understand. there is no mandate for a hard brexit. the question is how do we get from where we are now. we need to see some proper fiscal leadership in the conservative party to face down parts of the party that are pushing for brags it. todership across the whole point out where we are going is economically dangerous. francine: isn't there a danger that the economic hardship will be slow slot -- so slow. would you only need boris johnson to be prime minister to be able not to brags it -- brexit? is he the only one who can

temper these talks? peter: he is so widely despised across europe it he would not get the concessions the u.k. needs. you probably need a change in political generations. what i suspect is we will spin out the negotiations for quite some time until we can rethink about what the strategy is. francine: if there is a second referendum, how can we be so sure they would vote to remain? convinced'm totally there will be a second referendum before the march 2019. fine andk. is doing , clearlyok less true if there is out. the new referendum would have to be very clear about the nature of the collision or the swerve that i described. theresa may effectively asking --

majorityk. votes in a to leave then it's all over. we will see. i'm convinced there'll be a referendum. the risk is whether it's in or out again. depending on how both sides play it. francine: what does it mean for markets, gilt and the pound? william: our firm has to go against all contingencies and is. sterling assets look cheap on my view. peter: if we continue down the path we are going, sterling -- scope forere is sterling to rally a bit. francine: thank you so much, fun to have you both on save -- onset today. bloomberg surveillance continues

in the next hour. we will be talking to jpmorgan's nicholas gartside. we have quite a lot to get through today. looking at minutes from the fed later on. we have loads of u.s. banks reporting figures starting tomorrow. we have jpmorgan and a slew of others. islook at sterling gaining theresa may is looking to reassert her leadership. rising, we have a pretty packed show coming your way. this is bloomberg. ♪

♪ francine: the lira plunges as u.s.ions with the

deteriorate. republican risk, the president and senator bob corker are in a spat on twitter. how will this impact the chance of donald trump getting his agenda passed? the independence bid in catalonia. good morning karen this is -- good morning. this is "surveillance." we have an interesting monday. a lot of numbers from u.s. banks. tom: it is beyond interesting, a lot of international elections, but i would not forget the jobs report and the bill gross friday wherehad on he called for the end of the great moderation. we will review that with kemal sri-kumar this hour. francine: first, let's get to

bloomberg first word news. taylor: public and senator bob corker warned that the present could set the world on the path to world war iii. that followed a twitter fight between the two. the president criticized him for not running for reelection. making toughmp is demands on immigration in exchange for letting so-called dreamers stay in the country. he wants congress to provide money for his border wall with mexico and to make dramatic changes to immigration policy. top democrats rejected the demands. merkel has angela cleared enough for talks on forming her next government. she has agreed to demands from for talks onaria an immigration cap.

the party alternative for germany won the most 13% of the vote. up her may could shake cabinet. senior conservative party officials that made the deal with foreign secretary boris johnson who has angered many. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: great to have you back. equities, bonds, currencies, commodities now. it is a mix post jobs report. the euro advance. oil under $50 a barrel. at 9.95. the dow, friday close, that is an extraordinary close.

we will get to the turkish lira in a moment. korean won, the news is it does not move. we will talk about senator corker and the president over the weekend battling. the markets don't show the rhetoric we saw over the weekend. let's bring in the bloomberg. excuse me, francine, i am sorry. oh mon dieu. francine: it is like you are away for a weekend, and you forget about me. first of all, european stocks are being led by equities in spain. there was a funny weekend in spain of massive demonstrations in favor of spanish unity. british prime minister theresa may now seems poised to reassert her leadership. we will have a look at what happened with the turkish lira because of that diplomatic spat. low from thee basket of currencies. saw over the we

weekend in the trading sunday into monday was a 4.8 standard deviation move. that is a huge move, a plunge in the lira. here is the coup attempt. it is a gradual depreciation of the lira. right here is the recent move out to 3.71. that is setting up where we are now in chronic lira weakness. talking about chronic lira weakness, let's look at the impact this has had on the markets. joining us is our turkey bureau chief, benjamin harvey. great to have you on this program. this seems like quite a low level dispute. can this escalate? will both parties try to temper it? >> it is totally unclear. we are waiting for some signal from the turkish president who

is heading to the ukraine. we were expecting him to speak at the airport. that press conference was skipped. we will wait for a signal from him of whether he is going to try to deescalate or escalate the situation. francine: what happened to markets? how much does this have to do with a direct impact from the diplomatic spat, and how much has it been exacerbated by what some are saying is a flash crash? move was inhe lira early trading in asia when there is light trading in lira. it is down significantly, down more than 2%. i would not attribute this to a flash crash. this is pretty serious for turkey, which is very dependent on foreign inflows. tom: within the news reporting, i saw that age-old diplomatic question, who started this? it looked to me like the trump administration began the

process, and turkey just sent the same boilerplate right back to them. is that through? >> that is exactly what happened. it was sort of the diplomatic version of i know i am, but what are you? it was word for word sent back to the u.s. tom: how will the foreign policy of turkey responded this? they have to not only respond to the u.s. but to other nations as well. describe your best guess as to how they will respond. erdogan hase how typically responded in these situations, he tends to escalate. on the flip side, we had a series great with russia a couple of years ago. toy have managed to work out the point where russia and turkey are now participating in syria, completely excluding the u.s. that is probably contributing to some of the tensions that led to

this decision. he does have the capability of reversing this. francine: thank you so much, benjamin. that is bloomberg's turkey bureau chief benjamin harvey. let's bring in jeremy stretch and nicholas gartside, international cio of fixed income at j.p. morgan asset management. how much lower can the turkish lira go from this point? >> first and foremost in picking up a point from the overnight session, clearly the turkish lira trading in the asian time zone is relatively limited. there is always likely to be a spike in terms of this diplomatic spat. when you're talking about a currency that has -- dollar liabilities also going up, this was always likely to be a weaker turkish lira. this was always likely to be an amplified move. clearly, when we had a spike at the beginning of the year, i

think that is an obvious level to look towards over the c ourse of the next couple of sessions, particularly if we take the position that escalation is likely because trump and erdogan are not once likely to back down. francine: what does that mean for the credit space? will it mainly play out in the currency markets? nicholas: it will very much be a currency play. you had a 4.8 standard deviation move. that is colossal on the currency. that indicates probably buying on dips. when you look at the credit space, the fundamentals are not that. turkey has a bit of growth now, so they should be supported. tom: jeremy, separate turkey from the other riffraff. there has been a sense of chronic weakness in turkish lira over decades. is it an emerging market?

a stronger and bigger market than hemorrhaging? is it a true developed economy that can withstand chronic lira weakness? jeremy: that is a very interesting question. clearly, we have had a number of political dynamics that have played out significantly in terms of the turkish market over the course of the last couple years. generally, the market has been able to ride through them, not with relative ease, but it has been able to step through them. the question is how quickly and how dynamic is the pressure going to be on the macro fundamentals. some of those fundamentals have improved from the darker days, but is there going to be a liquidity squeeze? that is the problem turkey is likely to see. if we are talking about dollar funding costs and liabilities continuing to climb, that will be the issue that will cost investors some consternation and

perhaps to treat turkey more as an emerging nation rather than something more developed. tom: here is the chart on turkish lira. it shows the success of mr. erdogan in 2002. excuse me. i am still fighting the plague, as you can tell. i need to go to the warm climate of london to get better. here is the weaker lira right here. erdogan comes. some nice stability. we roll on out to a difficult time. is there an equity opportunity amid all this chaos? >> possibly. the other way to think of it is from the bond side. it is in terms of the local currency, bonds relative to other emerging markets, you have an attractive opportunity. you have yields at 9%. that is probably the area with the best bang for the buck in the short run.

tom: nicholas gartside with us and jeremy stretch as well. coming up later today, a conversation with andres dumbarton. that is coming up at the 9:00 hour on bloomberg television and radio. francine lacqua in london. tom keene in new york. stay with us. this is bloomberg. ♪

♪ taylor: this is "surveillance." i'm taylor riggs. firedein company has harvey weinstein, after he took a leave of absence following sexual allegations that stretch back decades. the new york times reported he reached settlements with at least eight women who claimed

they were harassed. next ceoselected its according to the sunday times in london. it has asked the bank of england for approval to appoint john glenn. -- flynn. deutsche bank says of course their ceo will meet with their biggest investor. according to reports he has been avoiding to meet with the group, which took a 9.9% stake in deutsche bank earlier this year. that is your bloomberg business flash. francine: thank you so much. it is crunch time for catalonia as the region prepares to meet this week to consider its next move. yesterday thousands rallied in barcelona calling for a united spain. urging dialogue for both sides

and morning all of europe faces economic damage. the more conciliatory tone has that.- the regions -- debt. let me bring you to my chart, which is a spread between italy and spain. this gives you a better feel of some of the risk offs involved with italy. will this spread, or is this a domestic issue for staying? -- spain. >> when you look at spain, it is clear there is very much a de-escalation now. when you look at spanish bond yields, outright relative to italy and germany, the reality is they offer value. the backup we have seen, investors will use as an opportunity to buy more. francine: we also spoke to the

minister for energy and for tourism, this is what he said about the possible declaration of independence for catalonia. catalannk tomorrow the government, i don't know what they want to do. the best thing they can do is to stop, to abort this process they have started because it is not legal, and it is not socially independence parties did not get a majority of votes in the last regional elections. it is also bad for the economy. corporations and catalonia are leaving for other parts of spain. concern that investors could have is that they are not entertaining any kind of mediation. at some point will the spanish government have to concede a legal referendum to catalonia?

howt is difficult to see politicians can walk back from a challenging cliff edge they have set themselves. in an environment where the spanish government has pushed back against any idea of cessation of grounds, it is hard to see. in terms of the ramifications fiscally in the region of catalonia, there will be an attempt, and i think that is likely to play out. there will be some mechanism formulated, but it will be interesting to see how they can without easingt back on their hard-line stance. tom: well said. for those of us clueless on this, and i was impressed by the protests -- i guess they were pro-spain over the weekend. is there a middle ground? can there be some form of compromise? at spain,u look

catalonia has been part of spain for several centuries, but spain is a place where a lot of the regions have a lot of economy and self-government. onomy and self-government. there is already a framework where there is a lot of self-government. there is your avenue of compromise. that is what the market expects. the spanish euro is doing well today. is rationalet what to an outsider, where is the opportunity for the markets? >> we do get that degree of pragmatism playing out, and this has dragged the euro lower, which did make some question of whether the ecb can even consider tapering in an environment such as the yield spreads we see. that next an opportunity for a euro rebound. level does provide

some value if we do see any dips. reigns, thatf that will allow the euro to make some gains against the u.s. and sterling, the other currency where interested in with the political dynamics going forward. francine: we will talk more about brexit and the pound going forward. the latest issue of bloomberg businessweek has more on the stand up between catalonia and the spanish government. to learninessweek.com about the benefits to stay ahead of the competition. this is bloomberg. ♪

♪ is bloombergs "surveillance." i am francine lacqua in london. tom keene in new york. fors are reportedly pushing tougher rules. could land in italy where banks have 360 billion euros in exposure to bad debt. nicholas gartside is with us, so is jeremy stretch of cibc. guestsour previous wanted me to bring this up. this is italian bank debt. you can see since the crisis it has gone up and up. it has gone down.

is this something that will come back to bite italy in terms of nonperforming loans? >> this is a brilliant chart. it tells the story of the crisis. if you think of one of the stories of the crisis, deleveraging takes about a decade. you see that in this chart. that the proposed change -- when you look at the proposed change, that is an accounting change. banks need growth. have beenelves getting better, they need capital. chart whenositive you look at italy. it shows italy is now on the right track. tom: how do you play euro here? with all this international relations between spain and italy, what is your call on euro? >> we still like the euro. we think the euro should be on an appreciating trajectory.

aboundk uncertainties going into next year's elections, but those issues notwithstanding, we still like the euro and think it should still be making gains. in the last six months likely to stay? if we consider the ecb wrong back stimulus, if the fundamental story remains attractive, and it is not just german led, that suggests the euro is rather too cheap, it can continue to appreciate and will remain on the side of fair value through 2018. francine: how much is the ecb looking at hero? they would never say it, but this hurts exports. >> now. this course is convenient for the ecb, let's face it.

jeremy is right, we will see a euro idealuse in the for the ecb. that helps on the inflation side because one of the consequences of stronger euro is it has sucked deflationary pressures in. francine: sorry, tom. tom: go ahead. francine: i want your view on euro m in germany? -- euro, jeremy? i think we will go through 1.20. francine: we will be talking about rates with glenn hubbard.

♪ tom: good morning. bloomberg "surveillance." francine lacqua in london. tom keene in new york. we start with first word news in new york city. taylor: the secretary-general of

opec says extraordinary steps may need to be taken next year to stabilize the oil market. they are attempting to rebalance and oversupplied market with production cuts. betweenatic dispute turkey and the us has escalated. both sides have suspended the says for -- visas for the other side. that dispute has the turkish lira falling against the dollar. president trump has resumed his fight with professional football. he told vice president mike pence to walk out of the football game in his home state of indiana after football players knelt during the national. betweenen warfare

president trump and a senior senator of his own party. senator bob corker says president trump is leading the u.s. on the path to world war iii. the president called bob corker gutless for refusing to run for reelection. bob corker called the white house and adult day care center. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. it was an extraordinary weekend within washington politics. to the essay early in the weekend about general kelly and the loneliness of working at 1600 pennsylvania avenue. all of this crescendo toward the senator from tennessee. our global business correspondent in london, stephanie joins us this morning. let's take the back-and-forth and get to the reality. in my right that the white house is running out of votes in the

senate as they offend any and all? trump, and again we have at war with his own party, which harm like an act of self given that he needs every vote to getget if he wants his legislative agenda through. all of the things he wants to get done, tax reform, health care, nominations, he needs every vote, and it is a very tight as we know situation in the senate, 52-48. why he continues to do that is confounding to many people. tom: i know his schedule today is very light. what would you suggest for the people around the president to plan to call this -- calm the tweetstorm? busy as i know they

are often trying to do to keep him away from his twitter account. the reason why senator corker's comments hit such a sore spot is they have resonated. he has highlighted something that i think everyone realizes, that he is spending too much time on twitter making attacks that often don't ring true instead of focusing on the job at hand. francine: what does it mean -- are there other people within the republican party that will actually follow senator corker and say the same things? is this an effective move for the opposition? >> many still fear donald trump and his tweets as they go into the midterm elections. any congressmen or senators who are up for reelection will worry about picking fights with him. has obviously been

unleashed because he is not seeking reelection. you have reports over the weekend that steve bannon is organizing against anyone in congress that has crossed with trump. there are two people they need to worry about. it is not just donald trump. it is steve bannon. francine: does the president care? does he change his ways, or does the chief of staff make him change his ways to make him appear more in line with the rest of the republican party? >> i think we know that john kelly has been trying to bring him in and stop him from tweeting. that has not proved successful. trump views of some of these comments as very popular with his face, and he will continue doing that as long as he see's it resonating with people that support him. tom: to explain this to our global audience, this is about the republican parties. -- primaries. this is not about republicans

versus democrats. this is about getting into 2018 were many republicans have to go up against other republicans to get to the election. that is the backstory. >> absolutely. it is a fight between the conservative wing of the republican party and the more traditional wing of the republican party. i think there is a fight for the heart and soul of the republican party going on now. the this goes back to alabama election of tuesday last week. suggest president unilaterally without the advice of his team that he can extend the alabama success to other states with mr. bannon? >> it will be interesting to see how this plays out, whether the threats steve bannon has dangled over various candidates, how they will respond. how this will shake out with the electric.

-- electorate. francine: how does this play into dollar dynamics, jeremy? i don't know if it is just in the realm of politics or at some point it filters through the expectation of tax reform and into dollar. jeremy: that is the question literally. at the beginning of the year we had a lot they did to the reflation story in terms of fiscal reforms, and then nothing priced it at all, and then a small period where there were signs perhaps of some degree of resolution, maybe getting fiscal reforms on the agenda, which would be beneficial for growth. escalatingis fight again, it gets back to the original point about the second it looks difficult to get through anything in the senate. fiscal reform is on the sidelines, and we will not get the boost to the dollar would

might have otherwise got. nicholas: tweets are a fact of life now. we are getting more and more used to them. when you look at the actual proposals, a lot of people will vote on them as single issues. when you look at tax reform, there has been momentum there. we have gone from a one-page play to a nine page plan. there is a lot more detail. chart inme bring up a terms of the dollar shift. this is a summary of the summer, the summer that will not end in new york. it feels like july. many times, the textbook dollar rally. up we go with the shift. do you look at that chart and say we have a new trend established in dollar? >> i don't think we can go there yet. there was a mentality that the u.s. dollar has been oversold.

we have seen some of that process being gradually works through over the last few weeks. i think it is a dollar store, which is more significant to individual currency pairs. i think the road back we have seen with the euro will be temporary. i think we will see the u.s. dollar thing better against currencies where we are seeing expectations moderating in other jurisdictions. i think it is a case of a specific balance in the dollar and not necessarily a new trend emerging. i think it is the story of 2018 where we are likely to see the u.s. dollar underperforming against many of its counterparts. tom: let's get to stephanie baker on the u.s. dollar. ethics question -- i will say at the end of the day as people go through heathrow and jfk and want to make that exchange of currency and get something done, are we at the level of dollar strength where it begins to

impinge on european travelers? >> i don't think so. sitting in london, i have just watched the pound drop since brexit. depressing really that other people who were holding dollars are in a much better position. i don't think that will have much of an effect. francine: does this impact the fed policy decision at all? we have been trying to figure out if there was a real tax reform plan with details whether that would impact inflation or purely gdp. >> it is also in terms of the senate position because there are the empty fed chairs we need to fill at some point and recession thinning for the fed chair as well. there are any number of issues playing out here in the outlook over the medium term. in the short term, there is a high probability in which we

have consistently thought december remains in place. markets have come back to that assumption of the december hike. tom: stephanie baker, thank you for joining us. stephanie baker gives us political wisdom from our offices in london. we will continue with jeremy stretch and nicholas gartside as we get your monday going. as we brief you on bloomberg television, we can do that with you with francine lacqua. as you are stuck in your car, what better way to get briefed then bloomberg daybreak? this is bloomberg. ♪

♪ taylor: this is bloomberg "surveillance." i am taylor riggs. flight cancellation crisis has entered its fourth week as ryanair reports 20,000 flights being canceled, and ranging customers and politicians. coo michael he is leaving. underhe bank has a plan the sweeping new mifid ii plan. from some ofe them the roughly $1.1 billion in mifid's estimated compliance costs. walmart is trying to ease one of the major hassles of shopping in time for the holiday season. they are simplifying the return process through a smartphone app.

next month, walmart shoppers will begin to be able to begin returns using the application before going to stores. about 30% of walmart purchases are returns. tom: thank you so much. the nobel prize, much like baseball with a no-hitter underway. no one talks about it in the dugout. it is considered courtesy not to game it. so now we will game it with a pro. it is almost rude to try to guess who it is going to be. we try to avoid that. >> you think you have got it, it goes somewhere else. we will stay out of forecasting. tom: it has become more somatic. we saw that with the nobel peace prize. front and theme center after we saw mr. hart last year? over the weekend on bloomberg

-- suggested it could be climate change to be rewarded. tom: we have a number of guys in iraq it that we know are due. >> stanley fischer, john taylor, an interesting selection. caroline: tom: kevin warsh? that was a joke, folks. francine: how political is this? we have thomas piketty. that would seem to be a note to populism. sometimes they choose folks we have never heard of. >> they have a reputation in ai their political noses -- tweaking their political noses. writing very- was critical of george w. bush. that was seen as a tweak at the

white house. the people making that decision, a lot of times there just focusing on economics. a lot of work goes into identifying a theme and then backtracking from that. francine: in the past, does this really launch a career or is it the price at the top of a career? >> it launches a millionaire miles. you are immediately in demand. there is usually a book contract. there are a load of things that come with that award, also the prestige as well. krugman mentioned paul of princeton. you get many awards where one person or three people are awarded, and it is always a scandal of who is not in that group. >> and many times people are not

awarded because they have died, and it leads to a look back of their work. tom: we should note that the listen in? -- can we francine: tom, it is not a language we speak. i'm sorry about that. we will wait for the flash headlines to cross. the economic nobel prize lost? the blackiewed as sheep of the nobel family established after the ones we saw last week. tom: part of it is it is not considered a science. to be careful, we have chemistry and physics and the rest of it. there is great debate years ago is this really science at all or is it more art and smoke and

incense? this is a process we see of the announcing of the award. they go through some text. let's listen in. >> now for the 49th time. i am the secretary general of the academy. on my right is the chairman of the price committee. -- prize committee. on my left is also a member of the committee. this year's prize is about understanding decimal francine: i wonder as we wait for the name , the big takeaway seems to be more interest in economics when you look at dynamic growth it also fluctuations. >> i think economics is having a great moment as an issue for people on the street and the financial markets. a great moment if you're interested in economics. this is a great time for you. economic how much of

dynamics changed? actually, we have a name. tom: that is what i mentioned two seconds ago. richard saylor of chicago. this is wonderful for american economics. as you were talking, they talked about behavioral economics. i said, saylor. professor saylor and i went back and forth the other day. this is completely opposite of last year. this is a gentleman we all know. >> to be honest, i have a whole list of people who i did not know. we can talk about richard thaler. my much out of the mainstream and out of chicago. there is respect from this announcement. here is someone who has written his book that came out a couple of years ago and was a great success and has informed they political debate. nudge came out about a decade ago.

that was picked up by people like barack obama and david cameron in the u.k. the idea is that businesses and companies can nudge people into making decisions. this whole area is one that is very rich and interesting. it definitely translates to people on the street. what is wonderful about this selection is it does harken back to the economics of the united kingdom. mr. thaler is a great disciple out of the university of chicago of the historic work out the late gary becker. ignorells back to holistic economics that we often see out of england. francine: this seems to be more applicable in today's markets. he studies the behavioral economics of finance and also the psychology of decision-making, which is something that i have been interested in because it is the gap between economics and

psychology. when you look at this nobel laureate, what does it mean for the way we should view the markets? do you look at some of these things he has been studying, behavior dynamics and decision-making dynamics? tremendousad a impact in the united kingdom. that has had a tangible impact in terms of actually saving huge amounts of money. one way to look at it, this will probably help close deficits. francine: this is actual economics you can use. it is away from the mathematics into how you can make a stronger eye closing budget gaps. >> it is a move away from that there is a common metric -- ec onometric perception of the science if you want to call it science. it is a reflection of how the decision of every day life are

made and how we can influence them. i think that is relevant in a postcrisis world where the rise of populism is trying to be identified. i think it is usually an official in that regard. tom: give us a window into how bloomberg economics will cover this award for chicago today? >> it is wonderful. it has a broader story, consumer story. book, the tales in his misbehavior, is how nfl teams should not really pay much attention to the draft. they always select the star quarterback. perhaps they should not. lots of riches stories he has to tell. tom: i want to say that what is great about the nobel award, you get three levels about discussion of the winner. you get a quick synopsis,

something more in depth for the public, and then they have professional level discussions. the nobel website is support. -- superb. francine: it will be interesting to figure out why they reached this decision. that is something we will need to look at in terms of future dynamics. when we look at the way we view economics, we will talk inflation and the fed and the phillips curve, is there something else we should view differently from past textbooks? >> the reality is consumers are individuals. people do not operate as the classic economic man. they may make irrational decisions. that is a lot of work that thaler has worked around. making betterinto decisions and more informed decisions. francine: what does that mean in terms of currency dynamics? mentality ora herd

investors behave in a similar fashion when we see pockets of uncertainty, and hating currencies are clearly demonstrative -- haven currencies are clearly demonstrative of that. it is a worthwhile calculation of assumptions going through. tom: part of this is the greek letter on the right side of every equation we look at, a linear regression, a simple regression. there is that epsilon on the right side that is systemic risk. i would suggest mr. thaler and many other behavioral economists have always looked suspect at the messiness of economics. is this award a statement of how not failed us in the last 10 years -- math failed us in the

last 10 years? >> you made the point at the beginning of is economics a pure science. in math, if you can explain everything by that, it is a pure science. in behavioral economics, it is not a direct causal relationship between the math and any direct result. it is a potential announcement that the world as we know it from a macroeconomic point is as as definitive and direct it would be from a purely statistical standpoint. francine: once monetary policy is normalized full stop, or has it changed the way behavior happens? >> it has changed the way. think of the payroll release on friday. that is the most analyzed number in the entire world. it misses the estimate, and it

will be revised again and again and again. that is behavioral reaction. tom: thank you very much. professor thaler takes the nobel prize. thank you so much. in our next hour, one of our most popular guests and controversial on the resurgence of american economic growth. sri-kumar not only on our math but on the behavior of the american economy. we are looking forward to that. francine lacqua in london. tom keene in new york. much more for you, the yankees the tory us. this is bloomberg. ♪

♪ tom: this morning, markets drift to the downside in the turkish

lira plunges. reassessn needs to visa services to both nations suspended. the president goes after the senator from tennessee and the senator response. 1600days of our lives at pennsylvania avenue. cautious on a assessment of american economic growth in this hour, sri kumar. good morning this is "bloomberg surveillance. ." of the nobel prize, someone we know from chicago? francine: yes, someone who does behavioral economics. this could be quite significant. i don't know if we should read much into it but it's an interesting angle. tom: we will do much more on

professor thaler through the morning. here is your news update. taylor: a diplomatic dispute between the u.s. and turkey has escalated. testsides have now to suspended visa services for citizens visiting the other turkishafter the a turkisharrested employee for his part in the coup. senator bob corker warns that donald trump could set the world on a path for world war iii. he said he's treating his job like a reality show. it's a twitter fight between the two. trump accused senator corker for being gutless for not running for reelection and bob corker said the white house is becoming an adult day care center. president trump is making tough demands on immigration in exchange for letting the

so-called dreamers stay in the country. the president wants congress to provide money for the border wall in mexico and makes dramatic changes to immigration policy. top democrats rejected the demand and dreamers are young people brought illegally to the uss children. has won the nobel prize in economics which came out in the last 15 minutes. he was commended for his contribution to behavioral economics. this is bloomberg. tom: thank you so much. the nobel prize going to richard thaler of chicago, the phd out of the university of rochester. his work touches across summoning names we know in behavioral economics. i think the most extreme right one for bloomberg would be the more political types. workthe classic behavioral

associated with robert shiller. francine: you are actually right, he is the co-author of one of the global bestsellers on behavioral economics called from 2008 but a lot of his work was used by the u.k. government. it's a time where you can actually see a lot of his work in concrete economics with politicians using it. tom: a lot more accessible than some of the nastiness we see. let me do a data check. futures are up again, the dow , the euro stronger and a little bit of a swirl today. 9.96 on the vix. it secured very evaluation on the doubt and the dollar-korean yuan is not moving. i'm looking at

european stocks edging higher led by equities in spain after a week of mass demonstrations in catalonia in favor of spanish unity. also sterling has gained as the prime minister theresa may looks poised to reassert her leadership and the turkish lira is tumbling significantly. there are tensions with the u.s. right now, after an eventful weekend and who knows what monday will bring, kevin erilli is at the day care center in washington. that was strong language. how will the white house respond customer kevin: i think the administration was taken aback -- thesenator from outgoing senator from tennessee, senator bob corker, who is one

of their senators and congress that is very well respected in terms of the republican establishment. it's interesting he fired back against president trump during this. it kind of puts the rest of the amors that he was eyeing position in a ministration to rest. tom: this is warren summers writing -- i bring this up because the trump administration suggests that reductions from current levels will corp. -- will call for renaissance of hard work. i bring this up not because of tax reform or whatever. i bring this up because, isn't the president running out of votes in the senate as he offends any and all? kevin: that's why all those matters. when you look at senator bob

corker, he is a republican but if you so openly question the white house on this affront and look at what senator rand paul has said publicly about the tax time for different reasons, yeah, it's a numbers game. it hurts the president's ability to pass any kind of agenda. in terms of tax reform, many folks on capitol hill and the republican party still don't know exactly what they will be able to get done by the end of the year in terms of reform changes. francine: talk to me about steve bannon. he has been taking aim at the establishment which is probably an understatement since he left the white house. vendettan leash a against bob corker? kevin: bob corker is not running again so he feels he has nothing to lose at this point. yes, i can tiger that steve -- i cand that wing

tell you that steve bennett and that wing of the conservative party are setting their sights to reactivateying the grassroots, so to speak. we saw this the other week in the run off down south. that will make for some interesting political tug-of-war between house speaker paul ryan and the steve bannon wing. francine: will others join up --ker or will he be seen as will others join bob corker or will he be seen as a lone wolf? folks haveink already spoken out in the republican party against him and that has become the norm. look at senator john mccain or lindsey graham or rand paul or senator cruz during the health care debate or senator susan collins or senator lisa murkowski. these are lawmakers who have not always gotten along with the white house and as a result,

it's an impact on policy like health care. as you mentioned, that could be the foreshadowing for tax reform. tom: let's wander out to a tweet -- the vice president wanders out of the game. york footballnew giants, everyone would have understood. where does this go? what theven know gossip is other than you have to be kidding me. we are wasting the vice president's time on this. is it a small play we saw this weekend questio? kevin: republican say the vice president is standing up for freedom of speech and for the flag. politics and football?

, theis week four administration thinks this is a winning political argument. i will let the viewers decide. cerilli ins charge of football analysis. we will now look at monday issues and we do that with sri kumar. most of her audiences skeptical of economic recovery. let me cut to the chase -- bill gross says it may be the moderation is over and maybe we get stable or even higher rates. do you buy the turn for that minute or sustain your belief in tepid economic growth? growth is themic order of the day. tom: other indicators are doing a hockey stick with the yields

grinding up. 36the yields grinding up to and it was as high as 263 in march. we almost a 2% in the beginning of september. this is becoming a deja vu theation where you have yield not going up. the reason is because i don't believe there is going to be tax reform. i did a piece recently for bloomberg profits. tom: thank you for that. that the tax reform is unlikely to pass and this was a couple of weeks ago. with senator corker now expressing his views, he was one of the five republican senators who could switch over to the other side and he was on the president's side ahead of tax reform it now has gone to the other side. i think the prospects are poor. if you don't have tax reform and

you don't have anything significant on infrastructure, i don't see growth picking up. francine: if we have some kind of tax reform, will it help gdp? when do you expect that? >> if you do have concrete tax reform -- i don't think we are liketalking about reform 1986 that ronald reagan put in place. we are talking about pure tax cuts. the reason why it seems less likely that what happened in the 1980's is we also have a big deficit and debt problem with the government. deficit toe the increase and be unfunded by other cuts, that is not going to pass. to go back to the crux of your question, you do need the tax cuts, you do need more stimulus in order to get the economy going more rapidly. monetary policy just won't cut

it. if you don't have fiscal reform in the sense of directing growth,ures to push up you're talking about the same situation we have had in the past year. tom: that's a lot to look at. we are looking forward to this. of chicago wins the nobel prize and we will give you more on that all morning. bankg up, the bund is board member and one of the most cogent voices on europe as well. the 9:00 hour in new york, stay with us, this is bloomberg. ♪

francine: this is "bloomberg surveillance." the u.s. has to tensions with turkey to contend with as both sides have suspended visa services for citizens looking to visit the other country. ais is an escalation in series of diplomatic disputes between the nations after governmentrdogan's arrested a turkish employee for alledge and involvement in the 2016 crew. theinitial response was turkish lira plunging to a new low. great to have you on the program again. what do we know will happen next? we understand mr.erdogan canceled a news conference for today. will they try to defuse the tension or will it escalate? iswe will see, erdogan traveling to kiev and expected to speak from the airport and didn't but he will hold a press conference later this afternoon.

that's when we will get the first reaction from turkey. francine: if you look at the market reaction, what does it mean for europe going forward? >> it's obviously quite negative. this was a big surprise. turkey and the u.s. have had obvious tensions of the past several years but nobody expected it to get to this point where they are effectively banning citizens for visiting in a country. about the airbase? will this affect military operations for the united states of america within turkey? >> it could, that remains to be seen. the airbase has been a spot of contention not just with the u.s. but also germany which has decided to withdraw its troops. that's a major decision. the interesting thing about this statement is there is no ultimatum, no conditions attached to it.it was open ended so one would suspect

conditions between the two countries could be negotiated. is: a delicate question -- there a belief in turkey in the government that this ruling came out of the white house or two they believe it's out of a traditional state department to spawn -- diplomacy in washington? >> that's hard to say. the inclination among senior turkish officials has been giving president trump the benefit of the doubt. two weeks ago, trump was speaking highly of erdogan and calling him a friend. this will come as quite a surprise. on the other hand, is hard to imagine the u.s. would make a decision of this magnitude without having president trump and/or secretary tillerson signed off on it -- sign off on it. francine: thank you very much. this just go part and

parcel with emerging markets? justa riskier business because of the political risk out there. >> i think turkey is an important country in emerging markets. clearly what happened to the turkish lira you talk about today and the developments with the united states are significant. emerging market investments are far beyond just turkey alone. you are looking at other countries which are improving, growing rapidly. brazil comes to mind, india is another and mexico is a country again which is coming back to the fold after the difficulties in the early days of the trump administration. there is still a lot of life left in emerging markets especially if the fed is somewhat more dovish than expected which is the case. flowsng-market debt should do very well. the other side of your question the strategic location of

turkey and there i would say it's more important. it is on the border with syria and it's the entry area for people who go to join isis. from that point of view, not to have cooperation from the turkish government and if something happens to the races in turkey, that would be, to me, more significant and emerging market investing. with thisll come back discussion. richardtalk about thaler of chicago, wonderful news. up, dean hubbard on radio this morning. this is bloomberg, stay with us. ♪

tom: good morning, everyone," bloomberg surveillance." let's go back to friday, and important conversation with bill gross. in the midst of the conversation, he dropped a bombshell on a shift in the market. 2.40, i move above think there is a chance that this long-term bull market in and bondbroken investors should be on the defensive as opposed to the offense of. tom: let's introduce a bill gross chart. this is the classic 10 year yield.

bill gross was talking months ago about a 2.6% yield. sri kumar brings it down to a shift. if we see the yield come up to %, that gets the attention of mr. gross. as an economist, can you parse long-term shifts that closely? >> i don't think you can, you have to look at fundamentals. been -- hass not not happen because we really back. march, the 2.623% in bond bears were very happy. they saw it as the stopping place before 3% and instead, we went close to 2% again and rushed to cover their shots. i see the situation continuing to be similar. your chart which is -- which is a great chart shows that the peak in the tenure bond yields took place along with high

inflation during the carter years and the early reagan years and we have been coming down ever since. you had a blip in the second half of the 1990's and that happened as a result of the tech boom and the pickup and the pace of economic growth but today is 2017. you don't have growth pick up. my study is always the fundamentals. inflation and growth says and i don't see the bond yield going up. francine: when do you see inflation actually picking up? >> it actually picks up when the lending and aart big way in the consumers are spending as well. the 2008he effect of crisis still prevails. and thes are concerned

income distribution in the united states is worse than with money going toward equity investors and penalizing the wage earners and the wage earners of the principal consumers and unless that changes, we -- they are not going to consume and if they don't consume in a big way, inflation will not go up all . those are the fundamentals i will watch. into that whenve we come back. you are limited by a briefing in the morning. you continue to bloomberg radio. into bloomberg radio.

francine: this is "bloomberg surveillance" from london and new york. let's get to first word news.

the secretary general of opec says extra very steps have to be taken next year to make the oil market stable. his is oil producers are succeeding in their attempt to rebalance and oversupplied market with production cuts. in germany, chancellor angela has cleared at an obstacle for talks on forming her next government. to seek an annual limit on migration. in the past, she has resisted demands for migration caps. wonanti-immigration party almost 13% of the vote in last month's election. british prime minister theresa may could be planning a shakeup of her cabinet. the move would be designed to reassert her authority and the governments in fighting that has hurt brexit talks. senior conservative party officials would make a deal with boris johnson. he forged his own path on brexit. global news, 20 four hours a day, powered by more than 2700

journalists and analysts in more than 120 countries. this is bloomberg. ♪ francine: think is so much, never a dull moment if you follow british politics. we have just spoken to a spokesperson of theresa may. i think he was talking in westminster. he just said theresa may has full confidence in boris johnson and philip hammond, her chancellor. that's occurring to a spokesperson for theresa may. spain, it's crunch time for catalonia as the parliament will meet this week to consider its next move. thousands rallied yesterday in barcelona calling for a united spain. the energy and tourism industry echo the sentiments. >> tomorrow, the catalan government wants to tell us something but we don't know what they want to do. we have told them the best thing they can do is to abort this process. legal and secondly,

it's not socially sound in the independent parties do not get a majority of the votes in the last regional elections and it's very bad for the economy. many important companies are in catalonia and to other parts of spain. they don't like uncertainties. catalan politics is leading the part of spain right now. francine: with us now is ofathan fenby director european research and joins us from paris. great addition to the program. what we want to hear is how you think this will pan out. diffusionthere is a of tensions in catalunya and they don't declare independence, it seems hard for the spanish government at some point not to legitimize a referendum in catalonia, am i wrong? no, you are right but that's

in the long-term. for the moment, the central government in madrid is not going to give way. they have made that absolutely plain. they see this as part of a wider spanish story at a time when the economy is picking up. you saw the huge demonstration for national unity against independence in catalonia yesterday. the question now is whether the independents have pushed themselves too far and whether they can step back and say we will cool things down and still want a referendum but maybe in six months or one year. when you look at the nuances of spanish politics, what was the clincher? we saw demonstrations for unity and heard from people within the of the apologies for the police brutality the

previous sunday. does that make a difference in people's hearts and minds? >> it does make a difference at the margins. the overreaction of the police gave the independents some wind in their sales that they might not have had otherwise. it led to a broader and more militant stance. what's probably sinking in his how impossible independence would be to catalonia at the moment. how with the economy work? how would the financial system where question mark how would the eu work question mark how can you get out of the eu? and the eurozone at the same time. we have seen two big banks moving their headquarters out of barcelona. this is an idea for the independents but we don't tickets thought out and it has grave consequences. francine: we also spoke to the head of foreign affairs in the catalan government. >> we are always going to be at the negotiation table. to start, we need another part

to negotiate with. we will be there. francine: well they have to negotiate in the end? >> yes, there will have to be some kind of contact between the two. is madrid will not give any ground at the moment. it's very well for the m's to say it takes two to tango and we but it'se together important for the central government and the first step toward negotiations. this will run and run. tom: you are definitive on china and france. if you were to write a definitive book about spain, what would it say? what with the subtitle d? -- subtitle b? center rulese the but the margins fray. tom: we will go with that.

the critical issue here is how much is this link to a spain have another time and place whether it's a spain before world war ii or a spain after. can you do that or is this a separate the lyrical debate we are having now? >> no, you are right. this is an historical heritage, is -- a historical legacy. the cattle lands feel they have been badly done by the rest of spain. there are memories going back -- catalanse lands the feel they have been done badly by the rest of spain. the government feels that they went through the hard times after the euro crisis and spain has taken the harsh medicine. they are now coming out with strong growth rates in the don't want to let the cvatalans interfere or spoil that. you have history up against the

present day. francine: when you look at macron's vision with more eu and theion and germany independence cause of the ct atalans, does macron have a chance of pushing it through? >> i think the things you listed are happening. europe is not as united at it would like to pretend to be. in britain, we got scottish question and we may have a northern island question, too. it's interesting talking to people in paris. i think the macron administration thinks this is a moment where progress can be made on the european front, the hangover of the euro crisis is dissipating and it's time for some forward movement. at the same time, that would have to be done [indiscernible]

catalonia,scotland, whether this is protestant, catholic, tudor england or scotland today or catalonia today, it assumes a europe that escapes velocity. it we really say europe has together? can the growth of economic europe lesson these burdens? that europe isnt slowly turning the corner. the emphasis is on slow. it will not be rapid. the fact that macron was selected rather than lepen was a positive forward. the alternative for germany, the party got a 13% vote in the german election but you are still looking at angela merkel who is the most astute politician on a global scale

agreeing to a limit on immigration so that she will be able to get other things done. the fiscal stimulus is not uncommon in europe. you even have that in the u.s. and that does not make for an and toward a unified region. i see the french election to be critical. ithink the german situation, think is still positive despite the election results and i'm waiting to see how italy doubles up next year. francine: thank you so much. thank you both for staying with us. of bloombergsue businessweek has more on the standoff between catalonia and the spanish government. week.com and subscribe to access insights. this is bloomberg. ♪

this is bloomberg surveillance. oscar-winning movie studio weinstein company is fired cofounder harvey weinstein who is taking a leave of absence over allegations of sexual harassment that stretch back decades. the new york times says he reached settlements with at least eight women who said they were harassed. he said the report is unfair. the bank of england is asked for permission to appoint a new cbo -- ceo for hsbc.

the ceo said he would retire next year. deutsche bank says the ceo will meet with his biggest investor. he has been avoiding a meeting na group.a's h he has faced skepticism about the turnaround strategy that was unveiled in march. that's your lumber business flash. tom: thanks so much. ride butre an airplane if you can get through in one of the great rides it took a few was will china dominate the 21st century? plenum comingw up, do you need to update your book? at the risk of being proved

wrong and appearing cocky, no, because my basic argument is that the politics of china will always stop china dominating the world and it's likely to become more than case after the congress next week which will be a powerfest. it's showing off the power established over the last five years and putting his stamp on china. china a more federal now or are the cities still regional powerhouses? are likef the cities shanghai. as we saw in chong ching which is a huge mature opelousas, nobody quite knows how many people there are, they got rid of the communist party boss and now he has been thrown out of the communist party come accused of all kinds of wrongdoing. they want to keep these regional centers under strict control. francine: what's the biggest

risk to the chinese economy? sector withnancial the roller -- rollover we have seen the last couple of years? >> i think the debt has been spread out. as is still a long-term problem. the addiction to debt in china has not gone away. the best they can be done is to plateau out on the debt but that's something that has been played out the last couple of years. the danger would lie in a simultaneous housing, property, real estate serious decline in combined with a lack of confidence in the currency and outflows taking place because of that and the two could interlace with each other which i think is the biggest central danger in china over the next couple of years. , how do you view

china? and shanghaieijing two weeks ago and those issues continue to dominate the chinese financial scene. difficultiesy the of late 2015, early 2016 capital outflows you referred to did not pan out is because foreign-exchange controls on capital flows have been made very stringent in the recent months. that has worked. foreign-exchange holdings with the central bank have increased as we found that even today that the reserve increased slightly in the currency is actually appreciated against the u.s. dollar. the chinese have also in a fitted from the fact that the u.s. dollar has had a week stretch which is always good for the chinese currency on the other side. the real issue is what happens people's congress

and some of the discussions will extend into march of 2018. afterwards, will be xi jinping -- that's when he would be ready to take slower economic growth and deal with the debt issue. is 260% and a really has to be dealt with. the correction is likely to come in the 18 months, not before the people's congress. tom: what is the chinese dilemma? t what is arilemma for china right now? what xi jinping is trying to do is build up a new kind of based on the is party states. this is a political project which is xi jinping is pushing through. at the same time, he has to deal with the dilemma or the trilemma

of keeping the markets reasonably happy with china because china is exposed on various fronts. you got this gradual process of trying to consolidate state power. forget communist, this is not a come in state as such, it's state power while at the same time pushing ahead with the evolution of the economy toward higher value added products, more modern technologies and keeping the markets happy. that's quite a balancing act to carry out. tom: thank you so much, we greatly appreciate it. to tell you about tv . this is a great way to get your morning started. you've got your terminal and all the wisdom on china and france. you come over here and pull up a section and here is the deal -- not only do you get the chart of the 10 year with the bill gross cance, you can feel -- you

use that chart for your morning meeting. you can get smarter off of tv , there is no downside.

surveillance,

dynamic to ge on friday, they moved the bodies around. this morning, they elected the board of try on partners and will be the voice of impatient shareholders saying let's get it going. this comes out after we saw john rice, a good friend of surveillance believed ge, that was announced friday. significantfind g a -- i find ge's it difficult it's almost a proxy of u.s. industries. gdp is what we need to keep an eye on. tom: we saw the idea from jeff sprague, the idea that the dividend would be at risk if they underperform. that's a loaded statement. that's not from us. francine: coming up shortly, it's bloomberg daybreak.

i know you have a packed show, what are you most looking for. david: we will focus a fair amount on tax reform as you might expect. we will have glenn hubbard on who is from the business school but had served in the white house under president george w. bush and has been outspoken about how successful this tax reform plan of the president will be. he is also up against larry summers. we will talk to mr. hubbard right after you do so we will listen to what you have to say. tom: thank you so much. we look forward to speaking with dean hovered. here is the single best chart. we will talk about richard thaler of chicago. as you know, this was the battle of the haverhill science over mathematics. bring up the chart. go, is the explosion, up we

jumped in at 1980, right at the peak. behavioral science was invented in the crucible of what the hell's going on in 1980? >> that's exactly right on the quantity of economics has its limits. the 1970's and the beginning of the 1980's and whether you talk about richard thaler in terms of the work that was done, the haverhill science took over from there. behavioral science took over from there. they're are trying to recognize the shift in terms of the nobel rise this year. tom: here is what we used to know. it's a constraint in the utility curve. that's what we all learned in school. that came out of any number of

19th-century beliefs and got us through the early part of the 20th century. all pay fed at attention to mr. thaler's world? >> they ought to pay attention because they used the quantitative economics and what you end up with is janet yellen's mystery as to why inflation does not pick up. the answer comes from behavioral economics. it's why the consumers are not spending and it cannot come from the quantitative side. the fed should be paying attention to the new nobel laureate and in general to behavioral economics. when you look at market dynamics and theories coming into play, apart from treasuries, what is the most distorted market out there? >> treasuries are a distorted market. then various credit markets are also distorted.

hi yield bonds for instance because the spreads are extremely low. that is part of the distortion as well. distortion number three, the european bond market with the ecb purchases and then you have which has the quantitative easing as the ratio of gdp has exceeded 100%. the distortion begins on the quantitative side but it's affected treasuries and high-yield and various other areas. tom: thank you so much, we are out of time. the turkish lira is 4.8% standard deviation move. there it is, stay with us, this is bloomberg. ♪

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jonathan: president trump takes on one of his own, senator bob corker takes them on. a diplomatic spat between the united states and turkey escalates, sending the turkish lira on a wild ride between nine-month low and catalonia continues to call for talks with spain. spain once catalonia to risk economic chaos if the region continues with its pursuit of independence. from new york city, good morning. bloombergcome from daybreak. we are getting you set up for a new trading week after four straight weeks of gains on the s&p 500. the story in futures is positive, up 2/10 of 1%. in the fx market, a weaker dollar story, a euro is a little bit firmer. bond market, because of columbus day, the treasury market is closed. bunds are your gauge for the bond market and yar