♪ francine: the region's president has due to address lawmakers in brussels today. will he declare independence? japan's industrial scandal, nissan and toyota. how far will the scandal go? the ceo of deutsche bank said to be losing support out of investors just seven months into the latest plan. good morning, everyone. this is bloomberg surveillance. we have a pretty packed show for you. we will have currency checks. also coming up, a great

conversation with the chairman of estee lauder about sustainability. this is the picture for your markets. bonds, edging low. the dollar is dipping. treasury ahead of the federal reserve's last meeting. when you look at the euro, it's mainly drifting on the back of what investors proceed as a possible risk of catalonia. you can see the common currency in europe gaining for the third straight day. let's get the first word news. >> the u.s. has blamed turkey for the instigation of the crisis between the two countries and a resolution will be needed on why americans were detained in this year. the u.s. ambassador to turkey issued a video statement on youtube. the embassies stop issuing

nonimmigrant visas which prompted a metallic terry -- retaliatory response by turkey. theresa may has one support. gois johnson and michael praised her strategy after outlining contingency plans to leave the eu without a deal, asking businesses to prepare for the worst. may said it was in the eu's court, although that has been rebutted. as election campaigns get underway in japan, the labour party is not sure if the donald trump administration is stable due to the many personnel changes. the tokyo governor comments came even as she affirmed the importance of the u.s.-japan alliance. she also criticized prime minister shinzo abe's economic policy. >> economics is not sufficient. i believe further boosting the engine of the economy for the private sector standing on our

own feet as a much healthy weight rather than relying on extraordinary policies of fiscal packages. >> global news 24 hours a day in more than 120 countries. this is bloomberg. francine: thank you. government determination to break from spain faces its day of reckoning. they need to consider a declaration of independence which make cause backlash and economic isolation. let's go to barcelona where maria has the latest. where the possible scenarios today? maria: good morning. regionalon the catalan president who is meant to address parliament at 6 p.m. he could go for a symbolic declaration of independence where essentially he says the

valid and will work towards a republic. however, no deadline, no unilateral declaration. that is what the platform wants because they fear it will create economic chaos. on the other side, we know he can also go and press ahead. the unilateral declaration, catalonia becoming a republican the next 48 hours. francine: what does madrid do after that? is it a done deal they declare unilateral independence? maria: absolutely. they have made it crystal clear from the beginning. yesterday, the deputy prime minister and the justice minister said if we get anything that remotely looks like an article of independence, we will

invoke the article 55. it's clear that a lot will depend on what is being said here but if they have to invoke the article, they will. francine: thank you so much, maria. joining us on set in london is the unicredit bank head of strategy research. welcome to the program. how do you trade on the back of catalonia? do you wait on something to happen or hedge? guest: i think the two messages that the market has sent -- first of all, i don't think they are perceiving it as a broad-based think that will have any effect. you can actually see that. outside those in spain have barely been affected. even spanish assets have not penalized extremely. if you take a look at spanish spreads, they are trading in the

middle of this year's range. i don't really think there is a -- i amere other than optimistic that in the end we will not have chaos in catalonia and albert any potential -- avert any potential independence in which i think spanish bonds will become quite attractive. for the moment, largely because there is a lot of headline news -- francine: what happens if there is chaos in catalonia, worst-case scenario? vasileios: i think than the natural thing to expect would be significant selloff in spanish bonds. potentially the periphery will send off, but i think i will expect the spreads not just against germany but also portugal will widen. francine: does it actually impact ecb policies?

this is a simple chart looking at the spread between spanish and german bonds. does the ecb run out of options? vasileios:this is a simple charg i don't think that under reasonable set of assumptions that this will impact ecb's policy. at the end of the day, we had another -- a number of businesses that have pre-committed with i don't movi. in the end, there is likely to be a disruption in the fastest-growing economy in the eurozone right now, but it is unlikely we will have a meaningful slowdown. perspective, i don't really see it as a game changer for the ecb. francine: what is a game changer? is it euro level? vasileios: they look at it, but there are number of things. we have to realize ecb is not potentially glued to the bloomberg screen -- they should be. francine: that is a mistake right there. vasileios: i think what matters

for the ecb is trade with europe. this year, we have seen a significant divergence between gains and trade in bureau and trade in the euro-dollar, because of that has depreciated. i don't think 1.20 represents a line in the sand for the ecb, to the extent that trade euro depreciation does not get out of hand, i think the ecb will remain relatively comfortable. it is about 4% day-to-day which is still a but nowhere near the gains we are seeing in the euro-dollar. francine: do you think trends in european growth are strong enough to put one side to the populism? i don't know if you call it populism or extreme parties that have not had a huge impact simply because the don't have their economics in line. vasileios: i will take a step back. i think that there has been a

rise in what we call either populism or extremism, or far right parties. i don't think it has been such an increase to the extent that it -- advertisers are communicating the media by analysts. i have think the potential consolidation of the forces that were there in the first place and they simply gathered the forces together. to the extent that this consolidation was the result of growth in the eurozone and to the extent now that we are coming back into far more whichnable growth importantly is the case for pretty much most eurozone countries, i think yes, it does a blowe power to dent into the consolidation of powers. francine: because we are still waiting on the answer from the

german finance minister, will you be buying any bonds or is that shaken at the moment? short-term, you can stomach some of the volatility, i am still very optimistic in the eurozone and therefore i don't exclude from optimism peripheral bonds. francine: thank you so much. he stays with us. you should also stay with surveillance because we have plenty coming up, including theresa may outlines her contingency plan for brexit. later, we will go live to johannesburg to speak with a inding candidate to replace the african national congress. this is bloomberg. ♪

♪ francine: good morning, this is bloomberg surveillance. let's get straight to the bloomberg business flash. kobe steel has released an industrial scandal that has reverberated across asia's second-largest economy. falsifying data related to strengthen durability due to aluminium products used in cars, planes and maybe even a skate -- space rocket. they used materials from kobe steel that were subject to qualification. boeing said nothing to date races any safety concerns. deutsche bank ceo john find is losing the support of some investors seven months into his turnaround plan. of the banks of three largest stakeholders said they want to see a turnaround in the next three quarters to continue to back cryan.

an external candidate may be the best option to replace him. a spokeswoman declined to comment. sheresa may kicked off -- thi year's luxury rebound is set to continue. sales grew 10% on an organic bases helped by an increase in leather. news.e on the francine: thank you so much. the u.k. prime minister theresa may will outline contingency plans for leaving the european union. she made enough overtures to brussels and that the ball is in their court. referring to the eu demand, the eu commission says that the ball is in the eu k court. i don't know how to cut through the noise to try to understand exactly what is going on. can you? vasileios: i will try.

francine: please say yes. vasileios: i can say we are definitely trying to do that. i think at the same time we have to acknowledge that over the past six months that we had a number of backing off as far as the u.k. is concerned. initially, we had the acceptance of the sequencing. right now, may is talking about money settlement, settling the amount of money owed to the eu. i think gradually, potentially at a slow pace, it is becoming clear to the u.k. government that they will be the one that will have to make potentially all of the concessions as we go forward. i think this is what the market is doing to a certain extent. we have the dollar rebound in the september 7. the only currency that has stayed flat and slightly

appreciated has been cable which has been supported by the bank of england expectations for november rate hike. i think from a market perspective, it is very difficult to trade cable, sterling against the dollar. it will be subject to a lot of headlines and it also has a lot buthe dollar attached to it i remain bullish. thecine: this is eurosterling and the money chart we are looking at and you can see that. the question is if theresa may, if she needs to negotiate and actually lose out and give in, does she stay in power? if she does not, what comes after? there seems to be a million scenarios. vasileios: absolutely. you have to ask yourself the lose out,f she does job?anyone else want the

francine: johnson wants the job . vasileios: it will be an job? awfully difficult situation and a big burden politically to carry on. basically being the one that proclaims defeat as you go into negotiations with the eu. i don't know how the political landscape is going to pan out. all i do know is i still maintain the view that on one an economic perspective, the u.k. is the one that will lose eventually at all these negotiations unless we get a second referendum or whatever. then u.k. stays within the eu. at the same time, sterling will be subject to a lot of headlines. the problem we have with sterling -- fundamental models thrown out the window -- we don't have a fundamental output because we don't know the extent of the damage of the u.k. economy. eurosterling will remain appreciating, largely because uncertainty will generate a coming out, close of the u.k.

close to the eurozone. thecine: thank you so much, unicredit head of strategy research. thank you for being with us. we will bring you an exclusive interview with charles evans tomorrow at 1:30 p.m. u.k. time. anstill to come, south african secession. the leading at candidate to take over as head of the national congress. this is bloomberg. ♪

♪

francine: this is bloomberg surveillance. let's turn to south africa and the developing race for head of the country's ruling african congress party. the successor will be chosen at the national congress in september and become the party's presidential candidate in 2019. joining us live from johannesburg is one of the leading candidates. thank you so much for joining us today. you have announced you are running for president in december, why? guest: well, i have been indicated theyey want to see me occupying that position. i have to indicate my readiness and acceptance of that. playieve i have a role to in assisting the organization to

rid itself of divisions, infighting and build unity, but the unite everyone about organization so we can deal with problems of irregularities and fight corruption. ensure there is a clean government and building the economy. i believe there is a huge contribution to be made. francine: your competition includes the current south african deputy president. who do you think can win? do you really think you can win? mr. mkhize: well, i believe that i have the right qualities to be able to make it on the job. i have given the anc the opportunity to select the best amongst us. francine: will you be able to keep the party together? mr. mkhize: i believe so. if you look at my forecast, talking about building unity, stopping the infighting, and also reviving the organization around its founding values of

i believe society, that is where we need to forecast quite strongly. if you look at the similar role in the past where i worked with leadership, we were able to take a lot of lessons on how to deal with frictions, divisions and how to tolerance.one around there is vibrancy in the youctures of the anc that can criticize and criticize must be taken seriously. we can renew ourselves with our conduct with our constituents and our people. i think it is possible to do it. i like a speak about what can be done. anccine: do you think the will go on in the national election of 2019 -- if you become leader of the anc, what is your mace -- may message?

is there an angle you need to make sure that people get to vote for you? mr. mkhize: i think that the african national congress coming from the conference needs to reach out to all the constituents in south africa. the businesspeople, the religious community, the traditional leaders, the youth, the women, civic organizations to say to them we need to bit work together, rebuild of that vision of a broader, united nation of south africa with a strong and vibrant economy where we can deal with the problems of jobs, unemployment. grows show our economy but also ensure the people that have been left out, people participating, the industrialists. i think that is what the country needs. to move and ensure all of us moved together. i think we can reach out to the people to build a country

through the african national congress. francine: what is the view of the government on businesses? mr. mkhize: firstly, we want to be able to show strong action on corruption and make sure there is good governance in government. stateso the issue of capture with it has been allegations of undue influence. that needs to be investigated so we can approach it and make legislation to prevent them. also take action where people punished, punished, investigated, prosecuted. we need to work in that direction both in government and within the party. many to take a very strong stand against corruption. i also know the anc and all of its members and leaders, everyone is serious about fighting it. we need to be optimistic. there are good people in the

organization to approach corruption. francine: the president has been implicated in a multitude of scandals. do you think he needs to finish his term and how do you rate his leadership overall? mr. mkhize: look, i think there has been a lot of achievements, a lot of challenges that happens to a person in that position., the anc will have to take a position on what happens to the president. of the an course, when the matter arises, it is up for the anc to take deposition. francine: much of the talk has been about redistributing existing wealth. how would you go about it? mr. mkhize: this is about -- looking at the history of the country, a lot of have been left out of the economy. are very scarce among the indigenous people. their access to finances, opportunities, to market is

limited. me to open that up and make sure our economy is able to grow on the basis of a broader base of ownership so even the peasants of investment must not have a new -- you look at the procurement reforms, open up new suppliers. that is what we are trying to do because of the stability of the country going into the future will rely on the broad participation, ownership. it will mean a lot of skills transferred, technology transfer, managerial skills transferred -- all of this is important. i think it is about building a more, much broader base for the economy. there are also areas we believe there have been restrictions people have not been able to participate properly and this needs to be all been up. this is about broadening the participation. francine: i'm looking at a chart

using the bloomberg terminal and we can kind of seeing going in in a zigzag. what do you think investors want from south africa to invest safely, to go back into the country? investors: i think would like to see a stable environment politically, where there is peace, regularity of elections and everyone knows it is stable. secondly, we need confidence in government in terms of its know whatgime so they to invest in now. the economy will be stable as long as investment lasts. endings without any undue influence, delays. at the same time, the systems can allocate -- the financial institutions are strong, because it usually a strong. all of these are things we need to build on. what we need to correct there is a sense of.

-- uncertainty. what do you think needs to happen? issue, there needs to be the ministry in the private sector, there is a lot of discussion. the idea is the use transformation at the same time they restructure. the industry must he able to manage, that is something possible between them. the courts need to intervene. there must be a cooperative arrangement that gets us to agree on what it should actually be about.

need to facilitate resolution of this matter. we're hoping it's time to encourage the mining industry to look at. let's be patient with each other. much or: thank you so your time. general the treasury with the amc party congress in africa. thank you so much. we have some breaking news out of the u.k.. production is a little the other than expected. construction out but is a little bit better than suspected. this is why we are not much of an impact on the pound. private -- and to wait

for a trend to emerge and let's get -- to first word news. considersia independence spain. they have said the dispute cannot be a basis for secession. three more companies are leaving the region. they are shifting their legal had orders to madrid. this is the only firm left in the benchmark. the u.s. is lame turkey for it to get the latest crisis between the countries. at were to turkish employees an american outpost were detained? the white house and state department are silent and the ambassador issued a video's. they stopped issuing visas in

turkey that roiled markets and prompted a retaliation. the u.k. prime minister has one support cap ethics of her brexit policy. horse johnson praised her strategy after she -- boris johnson praised her strategy. he said the ball is in the use court, though that is then rebuffed. region of napa and sonoma, wildfires have killed 10 people while 20,000 have been evacuated during the the blazes are sweeping through one of the most scenic and treasured destinations, threatening thousands of people. the wine industry through 23 million tourists and sold $30 billion in retail last year. selection campaign gets underway in japan, she is unsure

if donald trump's administration is stable due to all of the personnel changes. said this asernor she affirmed the importance of the u.s. japan alliance. she criticized shinzo abe's economic policy. >> it is not sufficient. i believe further boosting the engine of the economy, that is the private sector standing on her own the is a much better way then relying on physical packages. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. francine: thank you so much. this is what the biggest duty companies in the world with a market cap of $40 billion. it has a wide portfolio of rancid or house hold name spirit

--. 25thwill have their anniversary of their breast cancer campaign. they cocreated the pink ribbon for breast cancer awareness. he is the chairman of the company. he also teaches at the wharton business school. thank you so much for joining us. i see you got dressed or the occasion. it's amazing it's been 25 years in your company created the ribbon, which is one of the most recognized things were doing good in the world. what have you achieved? tried raiseago, we the conversation and discussion about breast cancer and the impact it has on so many women around the world. that led us to fund research to help find a cure. and so, arik divvies have gone

from just saying we support the researchers who are helping us find it your. in 25 years, to give you an you what we have accomplished, a 1man diagnosed with stage cancer had a chance of living. they have done an extraordinary job of getting the goal of finding a cure. just as importantly, the treatments of those who are a intrusivese far less than they used to be. often a woman won't lose her hair. instead of it in a life sentence, it's something we will find a way to make work. those are the things we are most proud of. we will talk a little bit about development goals in. francine: is this what consumers

are asking for? >> we have to set a direction that motivates our employees to engage our consumers and discussion. our employees appreciated because 95% of our employees are women. 95% of arc tumors are women and this is it issue they care about. women andtomers are this is an issue they care about. francine: how do you measure success? does it impact the tumor behavior? help you keep your employees because they are part of a company they want to be art of? >> everything is inability or csr. it's mostly for your employees in the pride they taken the company they work with as well as how it chooses consumers that

makes a huge difference for us to the millennial generation wants to work for a company they are proud of, that has a value system the with. francine: had you measure success with these rings? it's difficult to measure the unmeasurable of happiness. we look at the evidence of great employees, great results, turnover, how often are people we are hiring date in the job and how well are they doing and are we choosing our objectives? certain things are not measurable, especially in the environmental world. we try to say this is the right link to do, let's do it. we might measure for ourselves when something is tangible, broadcast that achievement

during -- achievement. leadership, you have to put a stake in the ground. you have to encourage everybody to get to that goal area if you don't set the goal, if you can imagine where you are going, get their area. francine: that is leadership. you teach a class on leadership area. >> it was a lot of work getting going, to understand how to get the message to the students read -- students. i found it so stimulating. we have been doing this for six years. mbas,e these second-tier we spend seven weeks with them in three hour sessions where they get to go with accomplished leaders. stimulateds come out and excited. we learn as much from them from the questions they ask.

for thoses not a way of us with gray hair to those who are young and we learn from the young as well are in. francine: thank you for your many messages. what advice would you give a chief executive or leader in 2017? is it different? >> the fundamental pencils of leadership haven't -- principles of leadership haven't changed. how you express it has changed dramatically. our ability to communicate with our employees is so much more effective because of tech knowledge he and programs like bloomberg. timeshift, they can see what we have to say to them on their time in a way that previously you would have to gather everybody in an auditorium and have a conversation or issue a letter or reclamation and now it can be

they can be much more of a dialogue. social media, public social media, you also have organizational forms of social media and communication. those are very important to creating a two way dialogue. it's as much about him down with them really and virtually to say what they have to say and give them a voice to leadership. that idea has changed dramatically. leadership is no longer top down, there is also a bottom-up roach. -- approach. david: your share price is really impressive. francine: do you need morals to be a real leader western mark >> the value systems are so in orton to what makes -- important to what makes sustainable success in -- success.

if you look at the most successful companies, they have very strong value systems. values eat strategy for breck. david: -- francine: thank you so much for coming in. coming up, the deutsche bank boss will be losing the support of investors. this is bloomberg. ♪

francine: check in on your market now. mark barton is following the action or the. mark little change today. after narrowing to the lowest in some number yesterday. this comes after the point widening last week. they will address lawmakers in barcelona tonight on the out, was ruledendum, that illegal by the spanish court. unless he backs away from the words he's in using from a unilateral, independent

declaration, the prime minister has made it clear catalonia intervention by security forces. that's the difference. this is a lovely chart. games -- gains. portugal csi 20 is up percent. this is the sixth biggest gainer among developed gauges. these adding to his holdings portugal. this is powered by wards and the surgeon tourism. it will continue to holster shares in the portuguese stock market. it is rebounding after monday slump. the dollar rising as much as x percent. -- 6%.ent to

ofterday's close, the upside 2.4%. months. the biggest in record to nearing a 38.10, it's the biggest luxury goods company. sales growth boosted confidence. the rebound is set to continue. there is a rebound in the mind for luxury -- demand for luxury items. they are selling more online. that would signify a record herein. thank you so much. francine: john kline is losing these sort of some investors. they want to see a turnaround in the next two quarters,

especially in the trading business. a spokesman declined to comment. it's great to have you on the program. it doesn't look great. does he risked losing the support of the shareholders? that one more time mark. francine: i was wondering how bad this look? >> it does look that. he does not have the shareholders against him. the situation is a little bit tense. results are not improving area he has three of the largest shareholders against you, it's not a great situation. still shareholders support him, still think he is the right man to restructure the bank. that does not answer the question do those investors

think he is the right man to bring the bank lowered and make it grow again. the overall picture is grim. it feels like the clock is for him to show result or face intense pressure next year. francine: it's the agm next year that seems to be it. always a very interesting time for deutsche bank. , both got poorrs approval rates. even though it is a symbolic vote in germany, it is still, if management doesn't get good approval rates, it is a slap in the face. theyremember correctly, got percent support.

they were all gone. francine: thank you so much. you are following all the banks in frankfurt. up next, we will go out to tokyo the latest. this is bloomberg. ♪

francine: shares have dropped more than 20% after the japanese company reported. there are fresh concerns about the integrity of japan's annual back her's. -- manufacturers. let's get to our reporter in tokyo. provide us with some context as to this.

wereat was falsified thatts that the customers, the they werered, of certain strengthened us occasion. -- strength and specification. they did this to over 200 companies are in a ineffective 4% of their but. -- output. more, this ist not the first time where japan has been embroiled in a scandal like this. deal,was the airbag board when they said they were up to a certain standard. there was a large role back and had to call back many of their vehicles last week. in that context, the third

scandal to hit japan. companies areese affected. francine: what may be impacted? >> that is what the company is looking at. when you look at toyota or honda, some of their passenger vehicles, maybe the front of the doors,the sides or the they have other companies looking at -- i have a list of all the companies. used inhi, aluminum was some of their regional jets. subaru produced training planes. some of the wings are acted. some boeing jets were affect as well. it's not just cars, but airplanes and rockets. francine: thank you so much.

bloomberg surveillance continues in the next hour. your.ene joins me out of we will be talking about catalonia. that authorities are giving a news conference at 6:00. this is the day of reckoning to see whether catalonia will call for independence. the euro is drifting a touch lower. bloomberg. ♪

francine:'catalan countdown. the region's president will address lawmakers today.

and japan's political scandals make way for a corporate one. doubting deutsche bank. ceo john cryan is losing the support of investors. we are live in frankfurt. this is "bloomberg surveillance" and i'm francine lacqua in london and tom keene is in new york. tom: they are waiting for the bank earnings to come out this week. today on cryan bloomberg, you begin to see the impatience happening in european banking. francine: i am led are covering extensively some of the european banks, but let's get to the bloomberg first word news. reporter: as you mentioned, we are starting in spain. the moment of truth for the

government of catalonia. the original parliament meets today to consider the independence. the catalan president addresses lawmakers in barcelona tonight. he will discuss the referendum ruled illegal by spanish lawmakers. fast-moving fires have damaged a number of vineyards and wineries 10 people at least and 20,000 people have been forced to evacuate. the u.s. is blaming turkey for the latest crisis between the two countries. the american investors says he an not been told why ambassador was arrested. the u.s. responded by refusing to issue visas in turkey. of puerto rico is still in

the dark three weeks after the island was hit by a hurricane. 85% of customers do not have electricity. puerto rico said it could take months to restart everyone's power. -- months to restore everyone's power. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm taylor riggs. this is bloomberg. tom: equities, bonds, currencies, commodities. ae euro advances, 1.1881, decidedly stronger euro over the last two days. 49.81.il, francine: this is what i am looking at overall. european stocks are slipping a little bit. they are not sure what to do about spain. we look at the dollar weakening a touch, treasuries nudging

higher. what president trump does next with his tax reform, the overhaul effort, and they want to know more about his feud with the republican senator. tom: away from all that, let's do a chart where the president says, i was elected and things are better. and everybody says, yea, yeah, yeah. guess what? he's got a case. 1989s the ugly times, the recession, the 1992 recession. and of course, the great financial crisis. here's the election of president trump. we are up out two standard deviations. in businessig jump optimism of the 20 year trend of a decade ago. francine: tom, i really liked your chart.

i did something a little different on the back of those outstanding lvmh figures. i know you love luxury things. this is the msci country world index. i will push it out for radio listeners. the luxury top good here, which basically means things that are selling good, so much better than the old country world index. and then you have organic u tom.h growth up 12%, tom: that is amazing. francine: global stocks are trading a record highs. traders are betting the fed will lift rates in december as markets turned their attention to the release of the fomc minutes tomorrow and the start of the third quarter earnings season with a lot of

big banks reporting as well. joining us as our guest host is geoffrey yu. geoffrey, as always, thank you for coming on. will we see record high after record high? at this point, i still think things will be getting higher. we don't have to like it all that much. at this point, if we go around looking for risks or downside triggers, we can't really find them. francine: the political noise, how do you price that in? >> how do you implement that in a portfolio for our clients on a consistent basis? and i cannot justify going to the clients in case something happens with north korea because something could happen with a nywhere. tom: when you look at the

correlations of the market, are the markets hinged to the fixed income market? is there a distortion between everything else, fixed income, negative rates and all of that, or is it normal? >> well it is dangerous to use the phrase "new normal." our clients are more worried about a fixed income market facing a big correction. or is it equity markets correcting far more on the equities? talk iswhere bubble far stronger than the fixed incomes? given central banks influencing the price action there, this is being accepted. it is becoming the new normal. tom: this is the chart for geoffrey yu. this is euro-sterling, the way francine looks at sterling versus the way i look at it. a lot ofoffrey yu

credit for getting this right in strong sterling. can you reaffirm strong sterling? >> so, firm sterling -- strong might be a bit too strong a word. at the moment, most of the downside has been priced in. there have been some correction for sterling, but most of that is driven by politics. francine: they think the next level is what? what is your target? >> it still centers around 1.36. sterling has found a level that most are comfortable with right now. we need to see a material break in one direction or the other, but if it is a lower break due to brexit fears or anything else, that is more skewed towards the buying opportunity. francine: what i cannot figure out is what's going on with

brexit. one day we are hardline in, one day we are crashing out and one day we have it together. weakened, isy is it boris johnson that takes he hher place? is it jeremy corbyn? >> we need to see a material change for that next leg. thehis point, you can say portfolios reflect the fact that they are positioned for a not so great outcome, but at the same time, if you are investing on a non hedge basis. tom: what a wonderful day yesterday to see mr. thaler from chicago take the nobel prize. thaleryou use richard within the geoff yu world?

>> for example, in terms of the resale market, what he has hypothesized, that is applied by a lot of our clients in this space, wealth management. powerful.ry i think we in finance have a lot to learn from this. fx, it is a theme. tom: and it goes back to the aler's endowment effect. once you are deal, committed to the trade, you think it is the best thing going, right? >> your risk pay off does become asymmetric. that is term by psychology at the end of the day. if anything, it is not applied enough. tom: is this great or what?

we have geoffrey yu to start us off here with ubs in london. later on, the former economic director of the international monetary fund to begin our imf coverage for the next four days professor olivier bland chard. ♪

francine: this is "bloomberg

surveillance" with tom and francine. it is a game of reckoning for catalonia as the government needs to consider independence. lawmakers will be addre ssed in a move that risks a backlash from madrid. joining us now is charles lichfield. and still with us is geoffrey yu charles, welcome to the program. we know that the madrid government has been quite hardline. what are the chances of catalonia declaring unilateral independence? >> we think they are quite high, actually. despite the fact that there have been various warnings, we think the internal pressure within the coalition is so high the president of this coalition will

have to say something that paves the way towards the independence, or recognizing the vote that took place. however, we do not think he will instruct his administration to take steps to prepare for that independence. the question is how will madrid respond to the symbolic, but not the concrete independence? francine: if catalonia do does declare independence, they might not have the support of the people. the madrid government could invoke article 155, and it could become ugly. >> that is the risk. the madrid government has, i think, learned from the day of the referendum vote and will tr y to skirt away from that. they will also be reassured by the demonstration in favor of unity that took place yesterday. 55.y probably skirt article 1

tom: is this a show? is this a ballet or charles, is it for real? >> it is already for real, tom. you have seen it escalate much faster than anyone would have expected. now this is a real crisis for spain, and also i suppose, for europe in general. it seems to have fizzled out slightly after everybody was taken by surprise by the violent show on the day of the referendum. one has to hope that actually, ockeveryone's surprise and sh after the developments of that day, that we found a solution that is desirable for all the parties. tom: what is your most likely tomorrow? what happens next? >> really depends on madrid. i wish i knew how they would respond. tom: we don't know.

francine: geoffrey, the concern is that it is difficult to attach a price to it, which is why investors have largely been ignoring it, aside from a little movement on catalonia bonds. >> if you want to take steps towards statehood, oyou need established institutions. within the eurozone this becomes interesting because there is no monetary independence. on the monetary side, you are constrained. but what exactly is the risk? is it that other countries in europe follow suit? could impact this gdp significantly question mark >? >> well, both. for a country that is reformed

and recovering and is looking toward the future, but also europe looks at it as creating all sorts of uncertainties, were the eu to tacitly accept a country can secede from a number state. there are several member states already and there are countries that are in the process of joining the european union that have more unstable situations. i think the eu really does not want to touch this. tom: how alone is catalonia? is there anybody screaming "give them their independence?" is there anybody out there? >> even i thiknk some regions with their own independence don't want to get involved in what they see as an erratic process. today the leader of the scottish nationalist party is making a speech at her party conference. she could make a big statement

that she could make a -- she could make a vague statement of th solidarity. ant, i think, regions with aspiration of independence month this to be done through a due process and if they are associated with catalonia, it makes their own independence less desirable. russian me go to your expertise. how is putin doing? give us an update? >> it was his birthday, so we have to congratulate him for that. he's also heading towards what is his reelection. circlesian authorities around adhoc policies and some long-term investments and concentration on russia's

future, some interesting policy ideas,w hich i think your viewers will find admirable. tom: thank you so much for the update, particularly on catalonia. we will continue with geoffrey yu. radio,up on bloomberg what a joyous celebration yesterday. hundreds, even thousands, in their auditorium in celebration. this is bloomberg. ♪

taylor: this is bloomberg surveillance. i'm taylor riggs. the biggest contractor in the u.k. the company also will reduce the jet.t of its eurofighter in japan, a scandal has erupted that has reverberated across the nation's economy. relating tota cars, planes and a possible rocket. boeing said they got some parts from subaru, but is not see any safety issue. that's your bloomberg business flash. francine: now on to japan and shares in kobe steel have slumped on the back of this news.

let's get more on this story from our reporter. what are the implications for some of the people they supplied, including toyota and honda? reporter: right, so what happened is they forged aluminum and copper parts that were sent to companies. 200 companies were affected. this was between the september 2016 and august 2017 period. so, a one year window. as you mentioned, there were some big players affected, toyota, honda -- now we are getting word there were some trains affected in england, and also planes by boeing. with a wide range of different vehicles and we are also hearing it might have gone back for 10 years with different cover ups that happened year after year with a few dizozen staff members. this is just unwinding right now

and we are waiting to hear what kind of impact these companies will face. tom: here is a chart, folks, back 40 years. i will put this on social. this is the ugly chart of mediocrity. we have the china commodity boom, and this horrific performance. does the japan government, the society, did they put these people out of their mystery? reporter: did they put these people out of their misery? i guess for japan and the industry, this is a big deal for them. these are big companies and they mean a a lot. there is a lot of respect and honor that comes with these metal makers. they are old companies that have existed for a long time and maybe their stock portfolio does not perform as well as apple, but they are the bedrock of the japanese economy, to many of those in the leadership here and also, the citizens.

putting them out of their misery, i don't think that is something the japanese government really does. francine: thank you, stephen, for the great briefing. geoffrey yu stays with us. coming up tomorrow, we have some great exclusive interviews, with the chicago fed president. really, it could not be more timely because if you look at what is happening in the markets today, they want to know what will happen with the minutes released tomorrow. then we have a lew of earnings -- then we have a slew of earnings released from the banking world. then, we look at the tax overhaul effort. ♪ retail.

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near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. whentertaining us,es getting us back on track,hing? and finding us dates. phones really have changed. so why hasn't the way we pay for them? introducing xfinity mobile. you only pay for data and can easily switch between pay per gig and unlimited. no one else lets you do that. see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit or go to xfinitymobile.com. tom: "bloomberg surveillance" from london and new york. to our first word news on the fires in california, here's taylor riggs.

wildfires have gone through california's wine country. buildings have been destroyed or damaged. 20,000 people have been forced to flee their homes. estimate early to losses, but they say wineries and vineyards have been damaged. texas techtudent at has been accused of fatally shooting a university police officer at a campus police station. the student have been taken there after there was evidence of drugs and his system. the student was later caught. the head of the environment protection agency is calling for the end of protections for the wind industry. tax credits are winding down this year and will expire in 2020. theresa may has up the stakes with exit talks with the european union. they want hard support over

contingency plans for leaving without a deal. the u.k. still wants to reach a deal so toxic and proceed to come up with a new trade agreement. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. francine: campaign for the todayse election begins and we are two weeks from the vote. shinzo abe's main challenger is end poll.n a week and we need to talk about political scandals and economics and the impact of these elections will have, but we also need to talk about equities when it comes to kobe steel and forgery. doesn't taint it? geoffrey: talked about japanese industrials and

these long-standing names, but that's where the story is. andtopic of like 1700 we are struggling to break this correlation with dollar-yen no matter how much we try. when expectations of the lowest, that's what they are the highest. the street has been looking at it closely as well, but no one's putting that money. francine: what are you waiting for? do you pick equities or you wait for catalysts and would it be in the political sphere or something else? geoffrey: as we know about japanese politics, you have different shades of gray almost literally in some sense. ultimately what changes their is withealing o demographics and retirement age. let's look at productivity. if we can get growth close to two rather than one or zero, the

japanese equities will be priced right and finally can break away that link with dollar-yen. -- thee three markets three continents markets are really something. this is a really great chart. we are normalized back to the financial crisis of august of 2007. up we go with standard enforced 500 excellence. japan lagging down a little bit better than europe all in all. do you stay with a growth machine america or do you pick up the value of japan in red? ,eoffrey: ultimately right now the growth is where you want to look at it. it will be the growth forecast actually next year. there's an environment for growth. expectations are still relatively mediocre on fiscal changes in the u.s. and the like and that's why we think it could be more catalysts. having said that, europe is the laggards.

i think that speaks volumes about the eurozone. tom: how badly does japan need a resilient and better china? are they linked to china in a way more so than the united states? geoffrey: not sure they are going to admit that, but these are two complementary economies. goodnk that's a environment for asia in general . let's say you are an asian idealist and you're are hoping with where the u.s. is going right now, can there be a comprehensive trade agreement in the pacific region with china and japan, too pro-free trade nations leading the charge? that's an interesting proposition. francine: the governor has made fresh calls to open up the nation's financial sector. he warned reform would be more difficult the window of opportunity is missed. chinese state backed funds

intervene to limit games of the nation stock market, part of the government's efforts to restrain market swings. if you look at some of the restraints, the chinese authorities are putting in place whether in regulation or on the thatnment, is there worry their something ugly bubbling that will resurface after the people's party congress? geoffrey: the gray rhinos that china likes to call them -- there seems to be no well lagging on the regulatory side. going back to the governor's comments, if yet actually said this around 10 years ago whether the reserves were building and capital inflows and the euro view was undervalued, that is one the listing of caps controls is the smoothest. now things have gotten better over the last two or three quarters or so. you're scratching the surface and you don't know what you're going to find.

i think of lately game, but it never hurts to try. francine: literally tom sent me an awesome chart. i don't know if you want to show it, but i will show it for you. this is 100% tom's doing. i'm stealing it and you're not even getting royalties for a it. this is the yen versus redman renminbi. do want to talk about it? it's beautiful. he's crying. a regular listeners are likewise their silence? reallyis is a interesting historical geopolitical play. ics the power of abenom overpower? let's go back to the chart. yellow is the massive moves with renminbi.nant o

abenomics was after shadowing a japanese forget for a long time. in some sense, it could've been launched as a response to china's ascendancy. conflict? these be in there somebody symmetries with these economies. they should actually accept a framework to drive growth in asia. tom: what is the generational shift that will allow that with all the ugliness of the 20th century, this may meeting in china that will reaffirm the leadership at a federal beijing level? is that enough to rekindle a dialogue between tokyo and beijing? geoffrey: ultimately right now china is focused on its own economic development. that takes priority on a social level. the china japan

relationship will still pale somewhat in comparison with the china u.s. relationship. as below, president trump is heading to beijing in november as well. that's the other key event in geopolitics over the next few months or so. both generations certain realize there's more to gain by pursuing free-trade and leaving anti-free trade regions behind. japan also showed for its own sake focus on domestic reform and pursue lifting productivity and managing demographics. francine: jeffrey yu stays with us and we should stay with us for the upcoming coverage on the latest elections. analysisl be extensive and a lineup of great newsmakers. on your commute, tune in on the radio. "bloomberg daybreak" to be heard in new york, boston, the d.c.

area, and in europe on sirius xm. this is bloomberg. ♪

francine: coming up later today, exclusive conversation with the ups had at 7:00 in london. let's get more on deutsche bank. john cryan appears to be losing the support of some investors com. speaking on condition of anonymity, three of the largest 10 shareholder say they want to see a turnaround in the next few quarters, particularly in the trading business. very.bring in our shoul arjun

the concern is that management has come under a lot of pressure. this is an to the turnaround plan that john cryan has put. how much should we know that shareholders are not happy about this? has been know is what reported in the press today and stories from bloomberg say that three of the top 10 stakeholders are unhappy with the progress that has been made so far on the strategy, particularly in the investment bank. problem for john cryan is that we are expecting another weak quarter in terms of investment banking revenues this quarter coming up. the fact is that there other businesses, particularly german retail banking, that's a low profitability margin business because of the fragmented nature of that banking system. there's not berlin much good news on the horizon for john cryan. francine: what does it mean for john cryan going forward?

does he get under significant pressure and as you just need to go or can he convince investors he's the right guy for the job? arjun: he's actually made some progress. yes taken up some costs and is making good progress on the cost front and they have settled on a number of legal issues facing the bank. however going forward, i think he will be granted some time, but he really needs to kind of show that they are beginning some market share, particularly in the fixed-income business. in terms of investment banking, the studio top the institution and now they're back in the 4-6 bracket. tom: that's exactly where i wanted to go. let's bring up the chart. here's jpmorgan off the financial crisis. they are all together here in 2012. barclays will you will talk in the next hour. here's deutsche bank down here with 18 months of miserable performance versus fortress

jamie dimon with jpmorgan. you've got to do it with cash flow. does he have the cash flow to move forward quicker and at the same time deploy cash to shareholders? arjun: i think after the 8 earliereuro cap raise this year, they are amongst the best capitalized ranks in europe with a ratio of 14% now on a fully loaded basis. this is where you will see investors questioning him about the returns in the investment banking business. they do have more cap alone now to deploy. certainly he is going to be asked questions about that. tom: what are the sell side strategic options here? is it to further cost control the margin? is it to finally make selloffs to soft different divisions at deutsche bank? what's the strategic guess as to what mr. cryan will do? arjun: they have already got plans to partially ipo their

asset management business. that will probably come sometime next year. in terms of the investment banking business, they have shifted to a more corporate led strategy. it still remains to be seen whether that's the right move, but we have certainly seen for example goldman struggling because of their exposure to -- hedge funds and their financial institutions and their shifted to a corporate climate strategy. but it stille, remains to be seen whether they are making progress. francine: how can ecb policy normalization help? is deutsche bank a structural problem as you laid out or with a benefit as others from ecb policy? arjun: it certainly would help yo, .one of the other important things is that we saw funding costs go up significantly, particularly related to market concerns about their liquidity. that should normalize this year. that will be a boost for them.

open to rising interest rates and ecb normalization will certainly help them. francine: thank you so much, arjun. eoffrey stays with us. the angry spanish divide is this week's international cover story. it takes an in-depth look at the political unrest and catalonia. very interesting ahead of that much expected speech from catalonia later today. what you do is also look at us via tv and you can steal the chart that tom keene sent me by mistake, which i showed a got credit for. it looks at the yen versus renminbi. you can also directly message tom and i for questions coming up. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i am taylor riggs and let's get to the bloomberg business flash. the and american international group ones that the third couldr disaster cost be in the billions of dollars . aig will pay out claims for earthquake that struck mexico. bill ackman says a settlement with automated data processing is unlikely. shareholders of the human resources will be next month. ackman has an 8% stake in the company and is demanding changes. shares of the largest world luxury goods maker are approaching a record in europe. the report of thirst quarter

sales growth boosted confidence that the luxury rebound will continue. the brands include louis vuitton, dior, and champagne. the company has been targeting online sales and younger consumers. that is your bloomberg business flash. tom, francine? tom: we now digress to the idea of what is going to happen. yu from ubseoffrey wealth management and someone who is very smart with his investment and finance. this is the qt that's happening after the qe. the white line is the u.s., the blue line is europe, and the red line is japan. going to beide path stable as we shift from tv over to quantitative tightening? geoffrey: they will be stable. if we really do want to use this chart terms of ratio, as a going

to be a numerator story or denominator story? if the fed can just do nothing with the balance sheet, then trend growth this to 6% or 8% nominal, then i think that's an environment that the fed would be very happy with. however it's going to be a numerator driven process. have youould love to on as you go to the nominal space and the animal spirit. explain to the audience why you're looking at the animal spirit of the economy when they adjust their fed balance sheet versus the real coming. economy. geoffrey: because that is what ultimately every economy should focus on. it is about the portal problems we are seeing right now. it's about redistribution and some sense. theave lessened productivity side of things and that is where the fed really wants to be careful. to kickstart the process and get tightening going and maybe ever

retained the notion of some degree of overheating. organically the economies can catch up to that and the trend growth up and then the tightening will happen by itself. they're looking at the initiation of this process, but macros do no harm. we are not concerned about the qt process from the fed. ofthe european side because the fragmentation issues, it's a different process, but i think you want to have is why the gap as possible with the fed and let the u.s. and the world reflate europe and will make its job much easier for them as well. francine: but will come naturally or something broken in the process? geoffrey: that's the issue. productivity has been hard to measure and given the u.s. with that stronger demographics, wise trend growth not hire? is it regulatory or fiscal or the lack of investment? i think that is the policy challenge of our day right after central bankers. francine: let's say you are

charge of policy. what you look at? geoffrey: investment strategy. you start with the grassroots and education. was ported to nasa education and 1970's during the space race? that was because there was a sense of urgency. that reaped dividends for decades to come. we need politicians to think long-term. tom: does germany have an industrial strategy? should that be the model for continental europe or should we look at the eight other models that are out there? geoffrey: i think the problem for germany is an something that had worked for them in the past, is it going to work in the future when they will have an elderly ratio worse than japan? i think a new strategy is needed and germany should not say -- tom: what's your optimal strategy for europe and for that matter england? some would say it's to go over to the anglo-american strategy. a lot of our guest don't buy

that idea. geoffrey: massive investment in grassroots and combined with an infrastructure push to get productivity for the last decade and not the electoral cycle. francine: what is the one thing that markets are mispricing? geoffrey: i think they are mispricing the upside risk. if you look at the treasury market and look at where the breakevens are, for example, i think there are good things coming up and attacks run. -- in the tax run. there's also the american taxpayer to unleash their spending animal. tax reform is not enough. they need something sustained. if you look in traditional series, as taxes go down in the short-term, households will think they will go up and you need something more sustained. i think something more permanent be on the income tax side. i think real incomes and wage growth, that's what the fed is targeting. tom: thank you so much. greatly appreciate that this

morning. don forget later this morning, i coul our conversation with olivia blanche hard to kick off our ims and world bank coverage. also in equity markets, the whole battle are you in cash or not cash? had you allocate -- how the do you allocate? lisa shalit joins us as well. we will also have a nobel prize winner with us throughout the morning. futures are up three. dow futures advance. the euro is the really the story. strongo dollar is at a 1.1797. stay with us. this is bloomberg. ♪

♪ this morning, a stronger euro and bank earnings season. look for jpmorgan thursday

surveillance time. count the senators and you can count senator corker as president trump's tax reform is doomed to failure. insulted senators just say no. go to cash. shalit ofur, lisa morgan stanley. this is "bloomberg surveillance." we are live from our world headquarters in new york. i'm tom keene as always with francine lacqua. today is a big day for barcelona. francine: it could be a big day and authorities in barcelona are giving a big speech and this is a day of reckoning where they independence or they could say they are thinking about it and delay it for a couple of days or never declare independence. we don't know, but it definitely could be a day of reckoning. tom: let's get to our bloomberg first word news. here's taylor riggs. taylor: we are starting with

that story in spain. it's the moment of truth for the government of catalonia. the regional parliament meets today to consider a declaration of independence that would likely lead to a tough backlash from the dread. the catalan president addresses lawmakers in barcelona tonight. he will discuss the outcome of that referendum. earlier this month that was ruled illegal by spanish courts. california's napa and sonoma wine country, fast-moving wildfires have killed at least 10 people and damaged a number of vineyards and wineries. at least 1500 buildings have been damaged or destroyed and 20,000 people have been forced to evacuate. many winemakers say it is too early still to calculate their losses. the u.s. is blaming turkey for the latest crisis between the two countries. the american ambassador said he has not been told why president and wants government arrested turkish employees working for the u.s. reports implicated

the employee worked in the failed coup. that rocked turkish market and led turkey to stop issuing visas to americans. the demilitarized zone separating north korea and south korea next month is being visited next month according to a south korean news agency. the president is significantly expected to send a message during the visit. the white house announced a trip to asia but gave few details. mormost of puerto rico still in the dark three weeks after the island was hit by the hurricane. 85% of customers in the u.s., while don't have electricity. said it could take months to restore everyone's power. global news 20 for hours a day powered by more than 2700 list and analysts in more than 120 countries, i'm taylor riggs. this is bloomberg. tom: let's get right to the data

check. currencies,nds, commodities -- the euro stronger. futures slightly elevated. dow futures right now up 33 points. oil getting back at over $50 a barrel. the vix from a nine handle really diminishing quiet up to a 10.15, showing a little bit of a pullback the last few days. i know with that strong euro and week swiss out to a 1.15 shows a strong euro over the last few days. francine: this is what i'm looking at. european stocks seemed to be slipping and they're looking at spain and the doma how to figure out what the next step is. politics is dominating the markets once again. you can see the ibex down. the euro is rising before that little -- pivotal weakening of the government. sterling rising as theresa may today win support for her brexit

stance, but seems to be changing on a daily basis. tom: how about a chart on optimism? for detractors of the present, he said i got elected and things got better. here's the trend of the center tendency from 1987 to 2007. the election of donald trump after all this gloom, the small business move takes off and we out almost two standard deviations that maybe 1.4 stephe standard deviation. that's the most optimistic chart on the bloomberg services. francine: i have a couple of other ones, but they are related to lecturing on stocks. this is a great chart that was dug up for us. this is looking at labor cost pressures in the u.k. for our regular stress, we will push it out on social media, but basically the blue line is previous data.

this is a revised unit labor costs growth. what this points to is that u.k. labor cost pressures are stronger than the bank of england anticipated. what it means is that against policymakers extra incentive to begin raising interest rates for the first time in a decade. it's just another way of looking at why they want to hike soon. tom: very good and now we turn away from the optimism of the survey to the gloom of kevin cirilli's world. he is our chief washington correspondent. are there any senators left if the president wants to affect legislation to the senate of the united states -- can he do it? kevin: it will be an uphill uptle and is not many people on capitol hill yesterday because of the holiday, but there's concern of the growing ill will and the public display of disunity from center corker

and the president could have implications ranging from tax reform to hurricane funding as well. tom: is there a plan of recovery for the white house? i have not seen that yet. it really began with mike allen's article 304 days ago on the general kelly. is there a plan on a regroup by the white house? kevin: i thought two things were interesting yesterday. senate majority leader mitch mcconnell same publicly, really dodging questions on whether or not he thought senator corker was out of line. he was asked repeatedly and he dodged repeatedly, not taking the defense of the ministration. the other thing that was notable yesterday was senator lindsey graham on the golf course with president trump. he is not necessarily the president's biggest political cheerleader. i thought that was notable that these two folks were golfing yesterday. tom: where are we on tax reform? forget about the gossip and innuendo and all that.

it's october and they've got like 12 more days in session until the end of the year. where are we on tax reform right now? kevin: they say they're moving along. they clear the procedural hurdle to keep on pace by the end of the year, but they india that there will be ambitious tax reform by the end of the year, it is becoming increasingly unlikely. and just a couple weeks, they have to raise the debt limit. a lot of fiscal conservatives in the senate and the house have started to become more vocal, people like senator corker and rand paul and the freedom caucus as well. their cries for fiscal restraint are growing louder. francine: how much talk is there about turkey? we covered it quite extensively yesterday. we understand there are signals that this could actually drag on. is the white house talking about this? kevin: not as much as he would think, francine. that sort of cut everybody by surprise over the weekend. it does look like it's going to

continue to drag on. i think that's a great assessment. that caught everybody by surprise and i think there's still a sense of people trying to sort out what all that means. francine: anything else on north korea? i know we kind of talk about it every day, but are you hearing anything in the washington corridors? interesting about north korea is the sense of where congress will start to play a role of this. interesting it's because someone like senator corker very much speaking out against the president and the fallout coming yesterday, i as chairmanote that of the foreign relations committee, he is someone who is very much in line with the military community. there's a lot of talk that yes, maybe the tweet is what sparked all this, but it really could be his concerns about the administration's view on

foreign policy. tom: i just had a nightm are of kevin cirilli play golf at the president. kevin: cirillis don't play golf. [laughter] tom: coming up later on bloomberg television and bloomberg radio, a conversation with olivia blanchard. he had the speech of the summer in economics, a wonderful speech in italy. i want to touch on labor dynamics. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i'm taylor riggs. let's get the bloomberg business flash. job cuts are on the way for the biggest defense contractor in the uk's as it will come up to 1900 jobs. they will reduce the output of their typhoon jet and fighter aircraft. deutsche bank is losing the support of some investors. john cryan is seven months into a turnaround plan. three of the largest shareholder say they want to see a change in the next few quarters, especially in the trading business. he is not delivered on the pledge he made in march to resurrect growth at june deutsche bank. a scandal has reverberated across the japanese economy could kob. kobe steel falsified data.

subaru and toyota used some parts of this kobe products. subaru said they did not see any safety issues. that is your bloomberg business flash. tom: i want to bring in a bloomberg chart before we introduce our esteemed guest as to why am 100 some of the double leveraged cash fund. here's the lehman low on the bull market. no one predicted this. you have the courage to get on board and up we went and now we really extended ourselves well out past two standard deviations to almost three standard deviations on this mother of all unloved old markets. ett, the head of investment portfolio solutions. what's wonderful about lee says that she has seen it all and has enjoyed losing money. i want to cut right to the chase. the gloom on this great bull market -- you and i have never

seen this. what do you say to the go to cash crowd? lisa: it's still too early to go to cash. what we always see of these capital markets is that when there is still cash on the sidelines, we believe there is. when we see the hedge funds that position short, when we see very long positions in the futures market and the 10 year bond and 30 year bond, that is called defense. that means it is far from over. we always tend to get this last verse. you do not get this last burst until the economic data rolls over. you do not get the last first until you get people investing. tom: what a joy yesterday to speak to robert shiller of the only university -- of yale university. we have exuberance and that irrational exuberance. and then we have the models that really don't work. are you using the models now to search for schiller's

exuberance? lisa: no, we are looking at the entire mosaic of all the data. tom: i agree. it's a mosaic could that's beautiful. . beautiful. can i steal it? continue. lisa: fundamentals are just too strong. we can talk about valuation all day long, but if we are in a lower for longer interest rate environment, higher p/e ratios are sustainable. we know that. the fact that we have pmis around the world and virtually every major region, we're above that 50 level marked and the trend is improving. good fundamentals and we have earnings revisions coming into this corridor that are just about to be reported. the expectations for the s&p 500 earnings growth is 4.5%. that is going to be nominal gdp growth this quarter in terms of

global gdp growth, so we are going to be those numbers. when you have positive economics and positive earnings, that market will continue to go up and it will be supported by the fundamentals. this is not about pe multiple expansion. i guess the concern is that there's also some much unknown out there. whatid the models not work you look at the phillips curve's models for example? this is something that we used to measure the cycle in the economy and geopolitics. there are risks that are almost unquantifiable in these markets. lisa: there's always risk. we know that. one of the things we have been encouraged by is the inflation data last friday actually suggests that the phillips curve is alive and well. we just had to hit the elbow of it. we think we are right about there with unemployment down around for or 2% -- 4.2%.

we will not be surprised if we saw which growth get over 3%. this is classic cycle, late cycle stuff. it is just beginning. francine: it is just beginning. is there a catalyst for a correction? is there an endpoint to this? lisa: look, i think we have not have a correction. we know that roughly every 12 months we do have corrections as much as five to 10%. would not be shocked or surprised in the fourth quarter here that we actually did get a correction as folks say. i went to profit take your. we are on our way. tom: bring up the mosaic chart here right now. s&p is up. here is the u.s. pmi index that michelle just spoke of. put your hand over the right side. what would you do right here -- go to cash?

the world is coming to an end and there was an election. up we go with this man shot. index pmi a coincident and does it extrapolate out front or is it a look back? and that's the worry? lisa: what's great about these numbers as you look underneath them and you look underneath him any see what's going on with the incoming orders. tom: it's almost spanish. we have fantastic numbers underneath those manufacturing numbers for forward orders. it suggests to us that we have three to six months of momentum here. tom: lisa will be discussing the mosaic of economics, finance investment, international relations. richard thaler, what a celebration yesterday. ofwill be joined by giant american and italian capitalism. stay with us. worldwide, this is bloomberg. ♪

francine: breaking news out of catalonia -- the president calling for a news conference and that is about 40 or 38 minutes from now. i guess was also important is that a lot of people spoke to insiders and this is a bloomberg skip saying that spain is ready .o act

from sources familiar with the story, while a final decision on whether to act has not yet been taken, we understand for our reporting on the ground that spain's national police force has a lead officers deployed in prepared if the police tried to shield the leader. the more measured is seen to be cracking down on catalonia, the more i can actually explain some of the anger and the catalonia region and the high potential of this turning ugly. it is something we will keep an eye on, especially on the business side through catalonia bonds. in the meantime, let's turn to oil. opec secretary-general says north american show producers should take responsibility. he says the market is a shared responsibility of all producers

be a conventional or nonconventional players. joining us now is bloomberg's executive editor for energy and commodities. basically the opec secretary-general is saying now that saudi and russia are getting along, let's get this show producers to join in this production cut. >> it is somewhat wishful thinking. if you are show producer, you are not interested because it's illegal to collude and manipulate the market unlike opec itself. i don't think he is really asking them to join opec although i'm sure he would not say no whether they are. it's more about opec understanding how she'll operates and how shall things. that has been by far the biggest order in the oil market the last couple years. we move from something that takes a couple of years to happen to a couple of quarters and opec is not come up with that new thinking. francine: we heard from vladimir putin over and russia last week could what's the

likelihood of production cuts being extent? stuart: all the signs are that they will keep rolling until possibly the end of next year and that's something a signal to the markets that they can expect stability and a supply from the opec agreement. am: i know you're doing commodities study, but we have killing it and the buy side space. mr. hebert told another source that he likes south america. help me with the commodity som cycle. he bought it down here on the bottom as only he could do. it goes six to nine year, which is pretty darn good. are we at the bottom of the come on the trough? stuart: no, it is definitely coming off and we are back into the 50's and there is a sense we can go in little bit lower. remind everyone that even at all these prices, they are insanely profitable.

iron ore's not that expensive to get out of the ground. think abouting to is the play on the global economy. among the most read topics on the terminal is iron ore, way more than you would expect because people think it's a proxy for global growth. tom: stuart wallace, thank you for the quick update. we will continue with lisa from morgan stanley. a great shout out to the legend of boston for doing better than good. here's a note for you. coming up, the gentleman from carnegie mellon, charles evans of chicago. look for that in the 8:00 hour. this is bloomberg. ♪

tom: "bloomberg surveillance." if you are in the equity markets, do not turn the channel. this is going to be wonderful. right now with the news, here's

taylor riggs. come intom and francine spain, it's the moment of truth for the government of catalonia. the regional parliament meets today to consider a declaration of independence. are said to be willing to seize the catalan leader if he declares independence. he is reportedly holding a news conference in about 30 minutes. deadly wildfires are ravaging northern california's one country. at least 10 people have been killed and 15 tilde he's have been destroyed or damaged. reportedngs have been destroyed or damaged. it is too early to estimate losses, but they say wanderings and vineyards have been damaged. at texas technt has been accused of fatally shooting a university police officer at the campus police station. the student had been taken thereafter at th after evidencef drugs was found in his residence. the student escaped, but was later caught.

the head of the epa is calling for the end of tax incentives for the wind industry. scott pruitt says it should be of the compete on its own coal and gas. theresa may has upped the stakes with exit talks from the european union. she wants supporters from her unit on her contingency plan. dk wants a deal so talks can proceed to come up with a new trade agreement. global news 24 hours a day powered by 2700 list and analyst in 120 countries, i am taylor riggs. this is bloomberg. -- doom dimming going and gloom crew, we are joined on mid-cap and small-cap. lisa only looks apple -- i'm kidding. the optimismk at of the market and they both decidedly feel the glass is half-full. let's get to the chart that we are shown a million times.

and world warower ii, i call this a depth chart in order of the dumb death cross. let me go to you first. you are so optimistic that you are in the growth bucket. most people would think you are in the value bucket. why are you growth and not value? david: as an investor, and the more value, but in total portfolio construction, leaving growth meeting overweighted and u.s. equities and small and mid-cap stocks come and private credit, those are the growth bucket. i pay great heat to free cash flow and it compels me to lean more value. ,om: when i look at this chart it is the mosaic of optimism we have been talking about. you go as does david to international stocks. are you going to international because they're good or because there's no value in the u.s.? lisa: i would not put it that

way. the u.s.k right now market is being fundamentally powered by earnings. this is not about pe multiples. tom: it's not about the president? lisa: it's about earnings. if we look at this, the market 14.5%-50%t 1 year-to-date and so are s&p 500 earnings. we are late in economic cycle. if you think about business cycles right now and the u.s., but u.s. gdp is about 14% higher than it was in 2007. outside the united states and emerging markets and japan and , there are only 3%-4% higher. the have a long way to go in their business cycle. tom: compare and contrast the big man blue-chip with the mid-cap of the same industry. a well-known blue-chip versus something i don't know. david: honeywell will have a big

announcement today as they will spin off some of their businesses. yhis is a large companie stock and their growing the dividend at 13%, squarely in the large-cap space. let's look at an industrial like vers imaging. $2y are about a billion market capitalization and they supply product to magnetic resonance imaging. they are spin out at a varian medical earlier this year. it is up 20% this year and that's a great long-term capital allocation for wealth creation. francine: i'm just looking at breaking news on the bloomberg terminal and this is honeywell reported plans for a spin off at the corning earnings-per-share at one dollars of the five cents. -- $1.75. why honeywell and not anywhere else? david: if you compare it to

united technology and general electric, they have been an absolute wealth creator. maybe one yellow flag is the ceo retiring, but this has been a great free cash flow generator. tom: we are going to rip up the script here. this is too good to be true. this is called surveillance luck when you have lisa and david with you. bring up the screen here. this is what i look at. this is the sausage making of the famed bloomberg headlines and i have been personally color-coded. i know you cannot talk individual stocks and i do not want you to get in trouble. general electric is going down in flames, so honeywell is going. this is what i see. alett world lisa sh of organic sales up around 5%. this doesn't get it done, does it? lisa: i think it does get it done.

tom: coming why. lisa: you are talking industrial companies with leverage. we are probably doing something close to 7% and 12% on the bottom line. those of the kind of double digit more numbers supporting this market. that honeywell number makes me very happy, super healthy. are they spinoffs -- good idea in general or a sign of desperation? david: i think print only a good idea over the longer term. when a company changes its capital structure and very often spends off a smaller division, they are unlocking value to the shareholder. often the small company is speeding up the cash flow to the large-company beasts. if you look over the long-term, spinouts or special situations have been a key ingredient to making money in the small and mid-cap area. look at your bloomberg spent out index of 28% this year.

this is been well known on the street for a long time, but it continues to be a good source of value add in that part about the market. francine: is it shareholders that want a new tremor slimmed-down version of companies because they are easier to value? david: there are easier to value and a large-company shareholder and harri inherits the smaller stuff. it creates a valuation opportunity. from names like sally beauty over the years, all the liberty spinouts outside of tci and john malone, these have been great wealth creators. tom: let's go to the bloomberg and bring up the wall again here. i have to be careful because i know you don't do this with a lot of numbers. this is their market at either the. tda.a this is the ged equivalent over here and this is the heart of your thesis, which is industrial

people are going to act away from washington and the president and this distraction, away from whether the yankees can beat the cleveland indians. lisa: they will. tom: i love this. it's a surveillance debate. i am with you. david: it's the midwest through and through. tom: the yankees will do it tonight. go, mr. judge. this is serious here. they are under a lot of pressure at ge to become honeywellesque. lisa: they absolutely are and one of the opportunities is as we get to the last part of the cycle, how do they think about cash deployment? how do they think about m&a? get in a position where they can drive those margins and drive some productivity and drive that organic growth? david: if you look at the with two important metrics -- the free cash flow yield is better than the 5% and going to dividend at 14% -- when

you combine the two and a name like honeywell, that's a pretty darn good formula for finding a long-term hold. tom: this has been fabulous. thank you for going with us on the news from honeywell. it looks that it will spin off to divisions. we will have much more on this through the day as well. we will continue with david and lisa with enthusiasm for the market as so many others say go to cash. don't forget as you get briefed here on bloomberg television, when you migrate to your car, "bloomberg daybreak" worldwide. really a great news briefing and smart conversation. stay with us. from london and new york worldwide, this is bloomberg. ♪

tom: francine is watching catalonia. we are watching for presidential tweets. hat trick of tweets this morning on immigration and the nfl and on health care. since congress can't get its health care together, i will give the power of the pen to great many people. the president i believe alluding to executive orders. i guess i would do that as well.

here we are. francine? francine: this is what am looking at. coming up shortly, it is "bloomberg daybreak: americas" and jonathan joins us. i know you will be all over catalonia. jonathan: the backdrop to all this is that we finally have global growth and if you are a politician or policymaker and you are tempted on to embark on a bit of victory laps, i would say be cautious about that. you have the politics of brexit far from being addressed and you have the divide between madrid and barcelona. we will cover these stories with the former imf chief economist. i will do his best to do a better interview on bloomberg radio. tom always tries his best. i'll it says he needs to succeed because he's my on her husband. jonathan ferro with a sense of competition.

deutsche bank ceo john cryan seems to be losing the support of some investors. that is what we seem to understand by speaking to some of our sources. speaking on condition of anonymity, three largest stakeholders say they want to see a turnaround in the trading business. a spokesperson for the bank declined to comment while the bloomberg managing editor for finance and the europe -- in europe, the middle east, and asia joins us now. when you look in john cryan, he is not had great news for a while. the is seven months into new plan and your hearing shareholders are just not happy. >> what we're seeing is the return to growth, which john cryan spoke about earlier on in the year as being an objective. certainly for 2017 has not come through yet. and thewinds remain plan is obviously in its infancy.

it's in the very early days of seeing the results of that execution. francine: what does that mean for john cryan? is his job at stake and is there's anything he can do to convince investors he's the right guy at the top? showdown will be at agm next year. elisa: that's right. part of the issue is that he has been described as a bit of a fireman. he is come in and put the fire out, which is what deutsche bank needed. now you knew that shift toward the growth phase. yes, maybe these investors are not seeing him as that figure for that move ahead and to a more expansionary phase. francine: is this a strategy problem? first of all, you have to deal with fire to rebuild. is it a lack of vision or the economy? elisa: it's a very tough market. every day we are picking up news. ii coming next year because there have leaks they are heavily

exposed to the european trading market, analyst say this will hit the more than others. it's a difficult to get that bank growing again. tom: i want to look at the timeline and the x axis that mr. staley has at barclays and mr. cryan has a deutsche bank. this is a painful chart. there's this mess of jpmorgan, barclays, and deutsche bank. as you mentioned with deutsche bank yesterday and barclays, we have this chronic 18 month glide path for these european banks. catalyst at the revenue line or can they do it at the income statement to become jpmorgan like? elisa: there's a lot of different circumstances between the u.s. and european banks as you well know. i think there's obviously revenue that would help and both banks at barclays and deutsche bank have taken strong measures to improve the bottom line through cost-cutting. ultimately they are not helped

by market that they are exposed to. tom: very good. greatly appreciated. two short of time with you today. breaking news on a pharmaceutical -- we're seeing a lot of this restructuring and the idea of cost control. ford motor among others and the honeywell spinoff announced moments ago. here's pfizer "reviewing options" further consumer health care business. a mosaic of strategic alternatives as well. here's the pfizer note. halettl pen down lisa s right now. you are getting in front of your year-end planning. company after company after company. lisa: it's also again part of this idea of what types of behavior do we see late in the cycle? as the cycle matures, we begin to see m&a and we begin to see restructuring.

we begin to see people saying how my going to get myself another year or two of momentum? tom: the critical distinction is that cfos are getting out ahead of money for free being over. is the party about over where it's accretive on day one? david: the cost of capital is probably headed higher for the treacherous interest rate forecast. cfos recognize that and they have to be smarter at capital allocation. lisa's right. we are not in the ninth inning of the cycle, but we are and about the seventh inning of the cycle. tom: here's the bloomberg function here. it is the function very quickly with the weighted average cost of capital. this is a quick way to go w acc to go right to wear you want to go. this is what david and i are talking about. maybe your debt cost starts to lift. we will follow this. we come back, maybe i

will interrupt francine again. this is bloomberg. ♪

francine: this is "bloomberg surveillance." on, we need to focus catalonia where the parliament meets today to consider a declaration of independence. spanish forces are willing to seize the catalan leader today if he declares independence. is reportedly holding a news conference today. we are joined in front of the parliament and barcelona. what we know is confirmed? we know there is conflicting reports on whether we get a conference from him or not. >> that's right. what we know for sure is that he will speak before parliament at 6:00 p.m. the rest is for a much all of the near. there's a lot of confusion here. we have not been able to confirm this and we have a story that we are breaking and you can find it on the terminal that essentially

says the spanish police already to arrest him if we get a declaration of independence. they are handling the security around the parliament. francine: what is that mean for the anger that we see in catalonia? if there was a legal referendum, do we know the way that the pendulum would swing? arepeople against it -- people against it or for independence? maria: you would get all caps of opinions, but madrid would tell you that's kind of the relevant. all that matters is that the rule of law has to be sustained and preserved. there's a range of possibilities we could get. you could say this is more of a symbolic speculation of independence and not actually trigger the law that would create a hypothetical unilateral or say thisatalonia could happen with the next few days. madrid will tell you that if there's anything remotely like a

unilateral declaration of independence that they will act and trigger the article to dismiss them. there are two people familiar with the story that say there are two people with the spanish police force ready to arrest him. tom: we will continue with our review of catalonia through the morning. final thoughts with lisa and david this morning. i'm not going to bring it up now because we don't have time, but it's amazing to see what we are seeing with honeywell advisor as well. one of my things for next year is the decline of pricing power. are we going to see that at the revenue line? are we going to see a lack of pricing power that really puts pressure on corporate officers? lisa: i think we have seen it for the past 10 years. we have been in this age of deflation and technology and globalization. yes, absolutely. i think the issue that you alluded to earlier is why are we seeing these corporate actions? we are at the end of the cycle and the weighted average cost of capital may be going up. tom: how do you play that?

what is the sowerby script given the set of cards? david: i wish i knew for sure. who is the key player in the industry? who has value to add to the shareholder? you will always have the amazon affect. i do think next year you might see a little bit of pricing power if inflation goes from the 2% range to maybe the 2.5% range because i do think all this monetary ease will eventually be inflationary. it always has been. francine: what is the amazon affect -- that amazon wins the day or everyone loses? david: i think amazon has been winning for a number of years. it is hard to see where that and will take place. but i do think there will be pressing power again because inflation will begin to pick up. portfolios if you take it back, i think it makes the case for real assets to be a bigger pc or portfolio.

real stake, commodities, or infrastructure, that's a place you can be hunting for return and yielded tom. tom: thank you very much as we ripped up the script about four times, especially with the honeywell announcement. lisa and david will continue with us unlimited radio. -- on bloomberg radio. kevin hassett from his years at aei, he is the chairman of the president's council of economic advisers. really looking forward to speaking to kevin. we will go to barcelona and to catalonia for this important news for spain. stay with us. this is bloomberg. ♪ retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store

near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. jonathan: it is the moment of truth for the independence push.

a news conference with the catalan president is imminent. -- the feud with a republican senator is unraveling the tax overhaul effort and several months into the latest turnaround plan, deutsche bank ceo is said to be losing support of top shareholders. from new york city for our audience worldwide, good morning and a warm welcome to "bloomberg daybreak." let's get you set up for market action this tuesday. losses onback-to-back the s&p 500 on the close yesterday in about a month. this morning, futures up by four plates. the story in the bond market as the treasury market reopens. yields unchanged. in fx market, the price action is not muted. it is dollar weakness against anything including g10. alix: if you are an investor looking to protect yourself against a political crash with madrid and parcel