♪ francine: confusion in catalonia. the region leader fails to declare a clarification of his attendance best position on independence. we are live in barcelona. the deputy minister of spain give a statement shortly. inflation. janet yellen tells the world central bankers that she sees crisis picking up soon. the u.k. prime minister hun sen brussels. can she break the deadlock on break the negotiations? bloombergng, this is surveillance. we have another packed week.

first things first. let's check on markets. we are expecting about half an hour from now the spanish deputy prime minister to make a statement on catalonia. stocks in europe nudging higher. miners gaining. oils also gaining. the euro weakening a touch. spanish stocks falling. let's get straight to the bloomberg first world news. his sebastian salek. sebastian kurtz has declared victory. a win for his people's party would shift the politics to the right. it is also seem to have paved the way for the eurosceptics party to be in government. angela merkel has to talks this week in a more moral position

after her party suffered defeated lower saxony. it's her worst result in lower saxony since 1969. the world's top central banker is for that inflation will stay low for much longer and they will push ahead with plans to tighten monetary policy. janet yellen thinks u.s. prices will accelerate despite a. of softness. is that theuess software easily not persist and with an ongoing straightening of labor markets, i expect inflation to harness year. most of my colleagues agree. the u.k. prime minister has to brussels today. will have dinner with eu commission president ahead of thursday's european summit the talks will deal with how much the u.k. will pay when

they leave the eu. there is or of crashing out of the deal without a deal. iraq has taken over oil fields from kurdish forces. the local news service said at least seven militiamen from iraq have been killed. tensions have been rising since urdish referendum backed independence. authorities warn of the worst weather conditions to hit the country and 50 years. the nation's weather service extended its most severe warning nationwide with ophelia expected to bring wins in excess of 80 miles per hour. global news 24 hours a day. powered by more than 2700 journalists and analysts in over 120 countries. salek, thank you.

francine: the president of catalonia leader has failed to clarify his position on independence. he simply repeated his claim that he had a mandate from voters to act. his decision to suspend the move left the country in a state of confusion. is setuty prime minister to speak on the subject. react, good morning. the spanish government was looking for yes or no and what they got was a lot more muddled. exactly. they got the opposite of what they asked. last week, spain was crystal clear. you need to answer with a concrete yes or no. did you declared public? this morning, we're getting a four-page letter insisting that he has a mandate to create a republic. he saying he's going to suspend this to engage in talks. he's calling for a meeting.

we would like to do is engage in talks. from madrid, we're getting comments from the justice minister that this is not good enough. this is that we requested. he's literally creating confusion. the deputy prime minister has been in charge of the situation for nearly a year now. if madrid is that wanted to implement article 55 they have all they the goal means to do it. what are expecting from the deputy prime minister in about 25 minutes. could article 155 come soon or will we talked some -- start some talks or mediation. >> madrid has completely ruled out any mediation. there's nothing to mediate. they argue that if he was sincere when it comes to talk he would appear before congress in madrid and explain what he wants to do. he has rejected this offer many times. what we are expecting and what

we think is good happen, she says he's violating the constitution. ,e's going to get three days until thursday, to rectify his major. if he doesn't do this by thursday, he will be dismissed from office and the regional government will be suspended. let's remember, this is an article that is never been triggered. it's never been done before. there is some debate about how to momentum. the market is reading and taking this into account. the government does have the majority they need to get it approved. there's no question they can get done. francine: thank you. here with us now is vincent with generali investment as head of research. also wolfango piccoli from teneo intelligence. let's talk -- let's start with you wolfango.

will this turn ugly or they find a solution. there is no solution in the short-term. allows himthing that to escalate. we will most likely see article 155. the question here is when catalonia will go back to original election. after the original election, depending on the outcome, we will be able to access -- assess. intervenes, there will be pressure from the movement to put more people the street. tos is what he wants achieve. more international coverage. more mobility. francine: the spanish government is stuck at this point? going,o: the way it is cuddly so lose its own rule.

he couldn't answer the question because it would drink of occasions at home as well. madrid is going to apply the law. my they have been doing so far. it will depend on the outcome of the regional election. predicting the outcome of those elections at this stage is impossible. francine: what is the one thing you look for that is impacting gdp in spain as a whole? are you worried about geopolitics? it will impact spanish growth eventually, but not massively. yes, there is some political uncertainty in spain and also in the background we have easily. we will have a general election in italy before may next year. that's also going to be in the minds of investors. but that some and it's going to be in the background. the market --

perhaps keeps the market on the defensive. i don't think is a massive point the pressure right now. i think the market has two elements. first, people going to the they want toy that stick to the nation, to spain. that is maybe a silent majority which is starting to wake up. you haveave -- w companies moving their headquarters away from catalonia. that is a warning bell for catalonia leadership. the market is taking a side right now and that's limiting the market impact. does spain have any solution other than to call a referendum that is legal in four or five years from now? do they continue placating this? wolfango: the election and catalonia, also depends on where madrid is at that stage.

the room for maneuver is limited. the way to solve it is with a deal. the deal would entail a bigger transfer of revenues from madrid to catalonia and more of an evolution of power. we are not that are at this point. we need to clear the political backdrop and only after the election, depending on the outcome, that opportunity will emerge. francine: what does that mean for baan's overall? does the european central bank take cause of this? i don't think that's going to have any meaningful influence on the ecb at this stage. it doesn't change the growth output. it doesn't change the inflation outlook. the ecb is going to proceed with the tapering on the 26th of october. let's keep the conversation on europe in austria. has declaredtz

victory. people's's party could shift the politics to the right. it's a campaign built on a hard right stance of migration and anti-islam. the freedomened up party to enter. when it looks like ecb policy is ignoring catalonia, is there danger at some point these populist parties figure out how to do with the economy and then they become dangerous? vincent: i'll be worried we have a recession. if you have that kind of development when the economy is a well, what will happen when the economy is going down? in the case of austria, i think the overwhelming issue has been immigration. contributed, along

with generali, to the seminar on immigration. that remains an important sticking point in europe. it's something where action is needed. it's not going to be solved very quickly. austria, it has been the major point in the election yesterday. francine: what did you make of the results? wolfango: the centerleft is collapsing everywhere in europe. in austria, the last one, more to follow. it's based on a variety of factors including immigration. think the emergence of a center-right coalition in austria potentially also breaks the deadlock the country has an facing for a long time.

these grand coalitions only help the extremists on both sides. them play their role in government and let's see what happens then. it's easy for them to score points in a position. now they will be tested. i don't think it will make much of a difference for the markets. they have toned down significant lead the antihero line. -- anti-euro line. it was all about migration and islam. francine: thank you so much for now. wolfango piccoli and vincent chaigneau. we talk markets next as janet yellen towards the world that inflation will pick up soon. talk why the world's leading lenders don't see a deal between the u.k. and eu anytime soon. this is bloomberg. ♪

♪ this is bloomberg surveillance. i'm francine lacqua in london. here's sebastian salek. bombardier may sell some of its assets. this includes its turboprop and regional jet units. they are open to partnerships with other aerospace companies. executives at goldman sachs and jpmorgan say they are preparing for a hard brexit. they are moving forward with the most pessimistic contingency plans. ready for as he is

no deal scenario. kobe steel has said the fake quality control on its products affects as many as 500 companies worldwide. japan's biggest steelmaker losinged 41% last week, $1.8 billion in market value. they faked the results of durability of metals. saudi arabia is considered initial offering of its state owned oil company until 2018. they said all listing venues were under review for the ipo expected to be the largest in history. it could be combined with a state sale to the chinese investor, that is called highly speculative.

palladium has certain price. that's the bloomberg business flash. world's tope bankers has said inflation will stay low for muslims -- longer long ---- won't stay won't stay low for much longer as they prepare for tightening. ongoingthe strengthening of labor markets, i expect inflation to move higher next year and most of my colleagues agree. in our latest economic projections, my colleagues and i project inflation to move higher next year and to reach 2%. francine: the other big risk factor that could hit markets, geopolitics.

rex tillerson says president donald trump wants him to push for diplomacy with north korea until the first bomb drops. koreaame as south officials are waiting for another launch by pyongyang. we bring back in vincent .haigneau and wolfango piccoli let's start with inflation. i have a great chart here. we have figures last friday. janet yellen belize inflation will pick up. is she right? it's not the first time she says that. i'm not so sure. there is a debate. definitely. they are not quite sure about what is happening with inflation. -- vincent: this is a very good chart indeed. inflation, this year, in the u.s. has consistently been on the downside.

heart of the core, the the market we have had this year , because with low inflation the market is convinced that central banks will act very cautiously. risk assets continue to do well. i think the major risk of the next six months will be coming from inflation surprises. the market doesn't really believe what miss yellen says right now. that sounds really clear. they're not really correlated at this point. this is selecting? the market concerned about? we don't really see any inflation. vincent: this is the core of the matter. is the phillips curve going to steepen again? are we going to see some wage increases?

i believe as the cycle matures, not just in the u.s., but narrows, as the gap eventually we will see a bit more of inflation. probably, there are some factors. technology. jobs being created. all of those is still going to play out. what that means is the pickup in inflation is going to be moderate. there is potentially some surprises here and a bit of a reversal from what we seen this year. francine: you have this inflation conundrum together with geopolitics. it's anyone's guess what happens in the korean peninsula. wolfango: i think you have to look at the broader picture and take a more forward-looking take. this monetary policy we've seen for a long time downplays political risk.

i think everything has been happening across the globe. pre-nuclear tests. election of trump. brexit. still no major impact on the markets. we are moving away from there. --nwhile, the political drop backdrop is worsening. italianr with the election and a few other do next in place like the korean peninsula, which will be with us for a long time, the question is will the market start paying more attention to political means that they have done so far. how much do you have to have a side job being a little and was and how much to look at financials -- fundamentals? very hard to credit. i'm not too concerned about italy next year because in the context of the economy of europe , which is doing much better, i don't think we up for a massive surprise there. typically it's hard to

credit. this is something that could upset the apple cart. we treated as a risk. but the market for now still sees that as a tail risk. it's not paying a lot of attention when you see the low level of volatility. right now it's not a major driver of the markets. francine: what will be the main driver for diplomacy? tro administration, where does it come from? the question here is we have an administration that is not really interested in fixing issues outside the country. korea toof crisis in the golf, we have clashes in iraq itself between iraqi forces and the kurds. in the past, we could rely on the u.s.. now that is not a given.

there is a huge? about that. meanwhile, when you look at the politics in a variety of european countries, the political drop -- backdrop is worsening. the entire election will not be a big surprise but potentially, the best case scenario will be a grand coalition involving burroughs county. we have berlusconi coming back. is that the country we need to sustain the very weak growth is in the far? questionable. draghi is kind of being dragged into it also. it's only is the worst scenario, what happens to them? wolfango: what happened -- there is pressure. part of thee

revamping role as well. shaket think anybody want the bowels and italy. they will be ok with the piecemeal measures -- shake the -- shake th e boughs in italy. they will be ok with the piecemeal measures. francine: is now a good time to buy? wait than to be a bit too soon? vincent: there's two things here really in that question area one, inflation. we talked about that. if inflation is going to pick up, i think until banks want to these on evidence of that happening before really embracing normalization. the second part is stability.

some central banks are more sensitive to that than others. is lookingy the ecb at that a little bit more closely. that's more in the world of these be that the fed. -- they world of the ecb than the. sam the fed. - than the fed. both stay with us. we get plenty more. there are also concerns in saudi delay that a potential could be a setback for reform. ♪

♪ watching you're "bloomberg surveillance." here's sebastian salek. is setan: sebastian kurz

up to become europe's youngest leader. his win would ship politics to the right. his campaign was built on migration and anti-islam. it is also paved the way for a eurosceptic party to enter government. angela merkel has to coalition talks this week in a more formal position. the cdu saw its worst result in lower since 1959. the social democrats bounced back from their poor showing in the national election. hasworld's top banker indicated that inflation will stay low for much longer. janet yellen says he thinks u.s. prices will soon accelerate. it was reinforce on friday by weaker than expected cpi numbers. >> the soft readings will not persist. market, ingoing labor

expect inflation to move higher next year. most of my colleagues agree. the u.k. prime minister hetzer brussels today. theresa may will have dinner with your commission president and other side of thursday's european summit. met an impasse last week over how much the u.k. will pay when they leave the eu. there is risk of britain crossing out without a deal. global news 24 hours a day. powered by more than 2700 journalists and analysts in over 120 countries. salek francine:. francine:thank you so much. -- sebastian salek. isncine: saudi arabia planning to delay the offering of their national oil company into a lease 2019. in our bloomberg

middle east anchor for more. would be at major setback they don't list internationally? it would be a setback because it's the crown jewel in the saudi reform program. there is a lot at stake for a reputational perspective. a lot of investors i have been speaking to have said, it doesn't really matter the timing , it's the fact that they will actually do it. that's what matters the most. get foror a drive to investors is not a good news. that's more hearing. toncine: before we get on we kurdish things, when do know more about saudi arabia? there's a huge conference in riyadh next week.

only expecting any details what the plan is? not at this stage, no -- >> not at this stage, no. we thought we could hear some details about where they will list and that is maybe perhaps why it brought on this delay. is it going three new yorker tokyo? we haven't heard anything yet on that front. it is also another level speculation that suggests the oil price still being pretty balanced and not been able to raise the kind of capital they're looking for is a possible reason for another delay. at this stage, we don't expect a big announcements. plenty of influential voices and are you really are not of news flow expected over the course of a few days. understande also that oil is gaining on the concern over the tensions

between iraq and the kurdish region will describe crude flow. is a lot at stake. your looking at $600,000 today that 600,000 barrels per day. a lot is being processed by foreign investors. mind, the iraqi central government has apparently agreed not to attack any of the oil facilities there. is ongoing. casualties have been reported. there's still plenty more possibly coming on that front. francine: thank you so much. our middle east markets anchor. we bring back vincent chaigneau and wolfango piccoli. when you look at oil

and how it filters back to inflation, what you look at? vincent: i think it's actually quite important. of course, the central bankers are watching inflation and wages in particular. it's absolutely key to the inflation process. a few cruciald elements that might be keeping inflation down. another one is inflation expectation. inflation expectations are key to the inflation process. expectations have been low to large extent because inflation itself has been low for a long time. it's a self-sustaining process. in commodity prices, oil in particular, start to pick up, inflation goes up and at that stage the cycle in might start to put some pressure on wages. eventually, it will have inflation pick up a bit more quickly.

i do believe that stage of the cycle, yes. this is something we want to watch closely. francine: how do you look at middle east politics? is the million dollar question and we can go at, but we forget that sometimes you have russia plane, you also become ministration. of what couldtbed go well or go wrong. the crisis in the golf, the modernization of saudi arabia, iraq whether it sticks together or not, there is plenty there. there are all different kinds of stories and dynamics in place. if you want to find a common , just to give an example, they fighting this morning between the iraqi forces trained and armed by the americans fighting against the kurdish trained and armed by the americans.

what does the u.s. going to do about this? will it take aside or not? they haven't picked a side in the dispute in the gawker they will have to take a side in iraq. looking at the war region, considering the intensity of the crisis, what is the u.s. going to do especially when russia is encroaching more and more in that neighborhood? francine: what is the one thing we need to look out for for the oil price. we don't really know what opec has in terms of the handle. it's all about producers in the u.s.. it's that plus the opec decision and the effect it has on prediction. conflictny additional that potentially disrupts production could be a positive factor for all prices. i consider that significant. francine: thank you so much.

both will stay with us. up next we have china in a party conference so kickoff on wednesday. plenty more on that. we also look towards inflation and what it means for the pboc. this is bloomberg. ♪

♪ this is "bloomberg surveillance." i'm francine lacqua in london. waiting for spain's deputy minister to make a statement. this is in madrid. the catalan leader defended his claim to independence. he seems to be defined spain but he did not really answer the question spain wanted answered

which is whether he declared independence or not. we will continue to even on this. in the meantime, let's check in on the markets. nejra cehic has in following the markets. little bitave seen a of weakness of the ibex today but overall, stocks holding steady after the longest weekly rally since 2016. global equities heading for a record close. if you dig into the industry energy areerials and the industry groups outperforming. i will talk more about qualities in a moment. i am keeping an eye on the 10 year yield in china. -- 10 year yield hiding heading for its highest close since 2015. this is after the pboc did express some concern around leverage for chinese companies. dollar, weeye on the are asking for a little bit of consolidation.

the dollar is gaining against most of its g10 peers, largely on janet yellen's concern for inflation. it failed to break the hundred day moving average. last week the bloomberg dollar index saw its first weekly drop in four. moving on to commodities, i want to save a little time. a lot happening. we seeing oil move higher. more than 1%. this is on concerns of supply around those iraqi/kurdish tensions. you see copper rallying above 7000 for the first time since 2014. palladium going above $1000 since -- for the first time since 2001. it is set for its highest close in six months. governor of the

highest rate in china is worried its companies has taken on too much debt. ins is from a seminar washington. it comes ahead of the party conference on wednesday. and nicolasgneau dufourcq are still here --vincent chaigneau and wolfango piccoli are still here. ncent. start off with vicnen do you believe that after the people's party congress that things will be just as smooth as they are now? francine: there are three issues. first will he come out of the congress some of it is now? a shift fromwe see quantitative to qualitative targets?

third, are we going to see an increased pace in terms of reforms? so far we are seeing reforms and some software areas and energy. these are the three dynamics that are crucial when you're trying to assess the potential outcome of the conference. francine: what is your take on china coast to mark -- your take on china? fundamentals seem pretty good. vincent: there have been some surprises on gross this year but i think this is about to cool off now. in particular is not as strong as it was six months ago. that is a major thing. there is a remarkable chart and the imf report that was published last week that shows that nonfinancial dad, their share, has increased by hundred

points. along with that, the cost of the debt has increased. it is not sustainable. i'm not saying we're going to have a president accident -- credit accident in china. there is move -- room to move the debt around. but they cannot grow at that pace. .rowth will be softer francine: at some point they tried to pass the debt onto equity the that had its limitations. also they handle it? vincent: what we have seen lately is that corporate debt is growing at a softer pace but we have seen a pick up in household that. the property market is a big thing here. i think there is room for government debt to increase. that's what we will see. some of the debt being transferred to the government to make sure that we don't have a broad credit accident that would

be a major threat for the economy. this,ne: when you look at you have to be caps on china and certain aspects that make sure they help the u.s. and other countries do with north korea in a proper way. once the right balance in talking to china? wolfango: it's a tough one to achieve especially when you credibility on the international seeing if you are referring to the current u.s. administration. beon't expect china to forthcoming in terms of rhetoric, they have been supporting putting pressure on north korea on the banking side but we should not expect china to do the job for the united states. that is not going to happen. this korea story, the tensions will continue to be in the risk of further tests both nucleoside

is a risk. francine: thank you both. you stay with us. up next, theresa may has to brussels to break the brexit deadlock. some banks say they are preparing for the u.k. to cross out of the eu. we will that next. this is bloomberg. ♪

♪ you are watching bloomberg surveillance. i am francine lacqua in london. let's get to the bloomberg business flash. bombardier is seeking investors for its aerospace business. it may seek to sell some units. its turboprop and regional jet unit. among the suitors. one person says by barnier is open to a partnership. bardier is open to a partnership. are moving forward with the most pessimistic brexit

plan. jpmorgan's representative said he is readying for a no deal scenario. come a steal said the fate quality controls are now affecting as many as 500 companies worldwide. the company lost 41% last week. employees had function data on the strength and durability of metals used in cars, trains, and planes. saudi arabia is considering to line the international portion of their initial public offering until at least 2019. that's according to people familiar with the situation. they are still reviewing venues for the ipo, expected to be the largest history area it could be combined with a stake sale to chinese investors, but that is back at it. -- but that is speculative. tomorrow, the bank of

england governor appears before the u.k. treasury committee. on wednesday, china's president gives the opening speech at the con this party conference, and more important talks. banks are preparing for a hard brexit as they look to protect their axis of the european union if the u.k. crashes out. that's according to top executives and part of a growing concern that the eu and u.k. could leave without a trade deal. when you look at brexit, how much of it is a currency story at how much of it is a necessary? look at this i story, i think the best way to put it is hope for the best but prepare for the worst. chancepany cannot take a and assume that everything will be fine in the end. they have to prepare.

against the u.k. government. effectively, if by march next year we don't have much guarantee all conditions on trade, companies are going to start moving people out of the u.k.. that is going to be bad for the economy. right now, europe doesn't want to discuss about trade or transition, they want to discuss about the bill. this is a sticking point. onprevents progress transition in trade and the more we wait the more likely was see copies taking decisions no be detriment of the economy. francine: how negative? we see recession or slowburn? are the markets pricing correctly? is there hope of a second referendum or know brexit

happening? vincent: i don't want to be too dramatic but i think the economy has been resilient partly consumer following. to project fear was a lie. i would say it's not over. the economy has been living on borrowed time. issuesaid that with the we're seeing right now and the uncertainty around the brexit talks, eventually the economy is going to suffer. on top of that, we might get a rate hike. to be honest, i don't think the economy is in a strong position to support or react positively to a rate hike. in what sense? it would be a mistake even if they telegraph that it's a reversal of emergency cut they did let's talk since -- last august? past the bank of

england has looked through temporary increases in inflation. the way they reacted initially to the brexit question was to say, we will accept higher inflation for some time and we will keep policy easy. now, the economy has been somewhat resilient. inflation is too high and they will go back to hide. i think the economy is exposed and cannot afford much targeting at all. toocine: if they target much, what would happen? what is the risk to consumer hostile spending? vincent: i think the consumer with taking it. the housing market is already exposed. the consumers exposed. it's quite likely we do see something significant go down area for sterling, the story is the rate hike might initially offer support but i would deftly

sell. -- definitely sell. francine: only going to see a lot more weakness on pound? -- are we going to see a lot more weakness on pound? get the ratee do hike and we be watching the inflation numbers closely, hikeally, short-term, rate expectations might offer a little bit more support but the potential is very limited. francine: thank you so much vincent chaigneau from generali investment. we continue an index of our. this is black -- bloomberg. who knew that phones would start doing everything?

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catalonia. the deputy prime minister is due to make a statement. the fed chair tells the world's central bankers she sees prices picking up soon as she contends to keep hiking. the u.k. prime minister and brussels directed like on brexit negotiations. francine lacqua in london. tom keene is back in new york. what did you learn at the imf? tom: i learned there is a basic idea of a better economy out there, but a lot of buts. not all that much confidence on sustainability. the most cautious was cap your name at oecd. she does not by the global recovery. francine: she is pretty tough on the banks. let's get straight to the bloomberg first word news. taylor: in spain, the government

may begin the process of suspending self-rule within catalonia within days. the catalonian resident wants a face-to-face meeting with the spanish presence. answer was not a clear yes or no that he demanded by today, which may be enough for him to take direct control of the region. seizedys they the refinery and other resources. for the iraqioint government and semiautonomous regions. in austria, voters have turned to the right. they cleared the way for the 31-year-old prime minister to become the world's youngest prime minister. the national government to the hard-line stance on immigration.

mentioning, british prime minister theresa may will try to break deadlock brexit today.n she will be in brussels to intervene personally in the talks. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: thank you so much. equities, bonds, currencies, commodities. curve flattening, 86 basis points down to 78. euro weaker with yen stronger. second screen with vix showing the beauty of 9.9910. mexican peso is front and center. we will talk a lot about nafta this week, the future of nafta.

you see it in weaker mexican peso. francine: i'm a little anxious about your voice more than what is happening in treasuries. advancing, gains in oil is what we are seeing. copper up. this is due to better-than-expected figures in china. the euro weakening, if you look at spanish stocks also down in touch after the catalonian leader defended the region's independence from spain. it is unclear if the region has declared independence or not. tom: my voice is gasping watching the dreaded new york yankees lose twice to the houston astros. we will show this chart a lot , 1987-1988. what is so important about the crash of 1987 is it is teach a course technical analysis.

he got through this quickly. up we go to highs. there is this little rollover, which i remember clear as a bell. we get to the first report, three days later, we get to the second support. down we go in the great crash. this is a log chart. what is so important to keep this clear is the set of higher which mayhe way up, remind you little bit of the bull market we are in now. francine: that is a cool chart. i am jealous. mine is more simple. we go inflation day in and day out. we heard yelling talking about inflation. what we did next to hillary clark is look at core pc in blue. you can see it going down. for is the pc forecast 2017.

there is a mismatch between the reality and the forecast that a lot of the economists are sticking with. bankersd's top central predict inflation will not stay low for much longer as they push ahead for plans to gradually tighten monetary policy. globalg at the gcb banking seminar, janet yellen said her choices were between ofelerate after a period surprising softness. this view is also echoed by mark carney. is -- chief of staff to george osborne for many years. first of all, when you look at inflation forecasts, you have to take a bet on whether you believe janet yellen that inflation will pick up. backt: on balance i would janet yellen. i think the failed skirt on balance is alive. lie onlips curve is a

balance. hether it is marginally under pressure on retail or rents in the u.k., we get these things that are pushing inflation down, yet the core macro forces are pushing it up. we are used to thinking of janet yellen as the uber dove. that ifmately believes on employment is low long enough, you will get wage pressure and inflation. francine: hold that thought. we hearing from the deputy prime minister of's rain. this is the first official response from spain after this morning the catalan leader defended his call for independence. we will keep an eye on that to see if we have any headlines and what exactly happens. tom: i know we are going to

cover this later on, but it is good now, will this dialogue change because what we saw in germany with the alt-right and austria now as well? is it a new monday for catalonia, barcelona, and madrid? francine: i'm not sure the catalan independentists are the same. liney be further down the that if a recession hits, it may be more difficult to keep all of europe together. as it is difficult to figure out what is happening with catalonia , and it is hard to get a clear answer from the catalan president. do you see it being ugly or fairly contained? rupert: i would take this as a positive sign. he had a choice to escalate or aim for negotiations. he is clearly aiming for negotiations. the message that the catalans received from everyone else in

the european union's is do not push it. you'll not get the backing from the rest of the european union for your position. go for negotiation. that is the european approach in most situations. the message coming from the spanish establishment about their willingness to talk about changes is positive for an approach asled opposed to a sharp escalation. tom: we will dive into spain for our next section. on a bigger picture, how has blackrock changed its investment outlook? we came off of the summer and labor day, and we always know there is that october tweak to get to the end of the year. what is the distinction of blackrock's market you now? rupert: i would say we remain instructive. this is a difficult rally to stay invested in. there have been a lot of people over the last year concerned

about fundamentals, central banks, valuation. course taken a view, of blackrock has a lot of investors in it, so there will be a lot of nuance around this, but overall we take the view that macro momentum israel and consistent around the world. backlieve reflation is the of a them in the u.s., and this is a market you want to stay invested in. there's concern around credit spreads. there are parts of the credit markets where you are not being rewarded, and the chance for further spread compression is less, but generally favorable outlook on equities and yields in the u.s. need to rise from here. tom: i just sent you this chart. this is a bill gross chart. we framed this around interesting comments will gross said on job state. here is the great moderation, 10 year yield, down we go.

i will put this on social for bloomberg radio. ate is gross with nuances 2.4% and 2.6% on u.s. 10-year. a higher investment environment for blackrock, stability 3%, or is it a breakout to yields we saw in 2005 and 2006? rupert: i think we would be in the gradual camp. the forces against the breakout are strong. productivity growth, demographics, we still have think of japan engaged in qe, and we still have the ecb for the next nine months or so buying large quantities of bonds. there is a difficult environment for a breakout, but there is a strong case for yields to move up as we get reflation coming through in the u.s. francine: let's go back to spain

deputy prime minister says catalonia still has until thursday to rectify. what did you make of the tone of this speech? >> two things, she is obviously still speaking but made it clear that he gets three days to rectify, which would be thursday 10:00 a.m., or article 175 will be triggered. she is saying, you get three more days. if you don't rectify, we are coming your way. she is also saying if he was being honest about wanting to talk and having a dialogue, he would come to madrid and explain himself in congress. this is an offer he has repeatedly rejected. she has said there will only be talks if he returns to the constitutional framework. this obviously means dropping the referendum and the quest for independence, the two messages from the spanish deputy prime minister, three days to rectify,

and there will only be talks on catalonia if he drops the referendum and everything related to it. francine: you are saying this could be seen as a much more conciliatory tone on both sides. rupert: the spanish central government clearly holding to their red line. the key thing for the catalans now to up the ante and repeat the independence score would be inflammatory. i think they have looked around europe for support for that position and have found none from any of the major powers in the rest of the union. i would expect the direction of travel is around discussions around the constitution. how we get there, whether we need to trigger this clause and get dark control over the region is uncertain. the mood music is clearly around de-escalation. continue on

this today. we are watching these historic events in madrid and barcelona. three years ago, we dive into the crash of -- 30 years ago the crash of 1987. 30 years ago. we will get perspective on the emotion, the behavior, and the opportunity from corrections, bear markets, and crashes. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." i'm taylor riggs. saudi arabia says next year's ipo for its state owned oil business is on track. they have denied reports that the international portion for

aramco share sale could be delayed. according to people familiar with the matter, a two-stage sale is being considered. torm ophelia is expected better the coast of ireland with wins over 50 miles per hour. as many as 130 flights canceled. this is the anniversary of the lack monday crash. he says investors need to rethink risks. >> what i learned from black monday is that these things happen, and when they happen, everything you make elsewhere disappears. taylor: that is your bloomberg business flash. francine: thank you so much. britain's prime minister is on a mission to unlock brexit talks. theresa may will visit brussels today to meet with the eu president.

i think they are having dinner. this follows a weekend call to germany's angela merkel amid a cross party effort by u.k. a nokers to sign off on deal divorce. joining us is rupert harrison, with blackrock multi-asset strategies. he was also chief of strategy for gordon brown. what would you advise her to do? rupert: clearly it is good to engage. clearly she is going in the wrong place. the problem is not in brussels. the eu president is the most constructive person on the other side of this deal. there are not that many substantive disagreements left.

on money it is all about choreography, not about substance. where she really needs to be is in berlin and paris. the call to angela merkel was much more important than going to brussels. toughestion is how national capitals want to be on termsk. interns -- in of signaling. how positive is the language in the mood? francine: if you look at berlin, how much does it have to do with angela merkel and her new finance minister? rupert: i'm not sure the brexit negotiations are that affected by the ship of the coalition because most people in general in politics take a pragmatic view of the brexit negotiations. doesght mean angela merkel not have the bandwidth at the moment. canissue is how quickly you

move on to discussion of future ofationships, and the timing agreement around transition. i think everyone agrees there has to be this transition period. the u.k. has essentially caved that it will be the status quote transition. the issue is there are certainly some people in national europe that want to delay that as much as possible because the more contingency plans will get triggered. there a fabulous article on of swiss track, and the idea switzerland having so many bilateral agreements that they lawlocked into eu because of the set of agreements they have, and then they move on to the guillotine clause, which is if you make one mistake, you scrub lots of different trade.

is the united kingdom at risk of the swiss track? -- trap? the swiss situation is very peculiar. this was deal is not on offer, and it would not even be on offer to switzerland now. brussels bureaucracy hates this woodland deal because it is outside of the single market framework. that is one of the challenges are the u.k.. they would like to split this negotiation up into a discussion about financial services, good straight, and try to do a sector by sector deal, and i think they understand that that is not really on offer. the big picture has been made, we will not be in the single's market, not in the customs union. around --sion is lus, thealk about ceta p

u.k. model will be see the plus. be?big can that plus this was deal is not on offer, nor can it be. on the swissing and the canadians in the future of the united kingdom. churn to the morning. this is 30 years on from black monday. stay with us. from london and new york, this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." tommy francine from london and new york. voters have cleared the way for the youngest government leader in austria. from blackrock, is this a sign of things to come or positive news for other countries? a lot of people will look at this with concern because the freedom party is doing well, but the big picture is the positive development because this is how european institutions integrate toughght politics with a but mainstream platform. this is a reminder that immigration and migration into

europe from africa and the middle east is still a big issue in european politics that will be with us for some time. the big event on the horizon early next year is likely the italian election where for now the flows from the libya route is on the agenda, but if that comes back, we have the italian election right back on the agenda. francine: coming up next, a conversation on oil. athave an interview on that 5:30 a.m. in new york. iraq kurdishhe region. this is bloomberg. ♪

♪ tom: good morning. tom keene in new york.

francine lacqua in london. taylor riggs had family in san francisco is weak. with first word news beginning, fires have touched san francisco. taylor: they have. it has been a week now, and firefighters in the north california 100 say they have gained grounds as winds have died down a little bit. fires are blamed for at least 50 40 deaths. at the same time there are signs north korea is preparing for another missile launch according to south korean news media reports. the federal reserve sees the u.s. economy growing strong enough to warrant higher interest rates. janet yellen says she expects inflation to move higher next year. inflation has remained below the fed's 2% goal.

ireland is bracing for the worst storm to hit the country in 50 years. storm ophelia is expected to better the coastline with winds up to 50 miles per hour. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you so much. the governor of the people's bank of china as warned his country's companies have taken on too much debt. he was speaking at a panel incussion at a group of 30 washington, d.c. is the --or problem is too high. the debt service ratio is still reasonable. francine: we are joined now by

bloomberg intelligence's chief asia correspondent. great to have you on the program. i know you have done a lot of work on this. basically the pboc has given another warning that the issue hasleverage not gone away. how can they do with it? >> that is the critical question. we have seen a little selloff in china's markets today, bond yields rising, small-cap stocks falling on the expectation that these comments will mean a more aggressive deleveraging agenda, perhaps higher interest rates going forward. francine: i know we have seen a little market movement on bond yields, and a lot of those went to 2015 highs. does it take an ugly turn after the people's congress? >> i'm not sure the market interpretation of these comments

by the governor is the correct one. if we go back to the summer, we had xi jinping already banging higherm on the risk of rates. the governor will not be at his post too far into the future. impact on thes outlook of future policy. we heard it from the governor himself, leverage is under control because of the low interest rate environment. if you try to deleverage by making up interest rates, that risks crystallizing those problems on balance sheets. tom: when you go into these meetings, are they managing for a gdp that is a memory of 6% to 8% or the new average, the five-year is way below where it used to be. which level of gdp are the

politicians managing for? >> i think you hit the now on the head. the outlook for china's gdp remains a political question. plan set ave-year very ambitious target, doubling gdp from 2010 to 2020, locking them into 6% annual growth all the way until 2020, and they can do that, but at what cost to their economic imbalances? the question going into this people's congress is will xi jinping find a way of stepping back from that political commitment and accepting a more realistic growth target that is more sustainable for china's economy? francine: thank you very much. still with us is rupert harrison, portfolio manager at blackrock multi-asset strategies. what do they do with this debt ?

they tried to swap it for equity, and that did not work out. if you have the governor of the pboc talking about this, does this work for corporate's? >> i think governor joe is the outgoing figure. the interesting thing is his concerns around leverage have been fully internalized by the leadership. we have seen that for the last year that xi gets it. he is serious about controlling risk. we have seen substantial tightening on areas of credit that they were concerned about. later data show that there's probably too much of that in this is likely to carry on. i think there is a slowdown in the macro data that will continue for a while. we have the housing market and some macro data that has held up more than someone expect. i expect tightening in the pipeline. that does not mean they have any appetite regression the economy

in order to deal with these financial stability risks. i think you'll get these many cycles in china where we get these tightening cycles, but if we get any serious downside risks, particularly in the housing market, i think you will see policy coming in on the support side again so that we do not come below critical levels of growth. these have been driving china's macro and internal economies for a while. that is the area where we have seen the biggest falls in grow th. you are seeing areas of concern, uncontrolled lending to households, which has been the backdoor route into the housing market, and probably one of the reasons the housing market is fouled up more than more people expect. they are not going to change focus. they still want to control this and bring credit growth into the

regulatory banking system. that will continue. that will impact activity, but it should not be too severe. tom: in a weak moment, if i decide to invest in china, what is the best vehicle? blackrock has a choices or whatever on how to invest in china. what is the best vehicle? is it just buy an etf? rupert: in equity space, these are still markets where there is a lot of scope for skillful ministers to add alpha. the multi-asset fund i run, we invest in active managers in asia and china because we think they can add value. the information is still not as transparent as a lot of other markets, so being on the ground, actively managing equities can add consistent alpha. access to the bond market as a source of carry, and chinese

fonts look relatively attractive. i think you need to think about alpha. francine: rupert stays with us. we have quite a bit of news to get to. so, what wego or saw with spain. i will get to that in a second. we had a little corporate news with daimler. they say they are taking steps to legally separate the divisions, which means we will now have a cars and vans division, trucks and buses, and there may also be a cars. this happens if you want to value things in a better way and something we have seen over the last couple days with competitors thinking of doing the same and not going ahead to do it. that is the latest from family. we heard from the deputy prime minister of spain in the last 10 minutes of or so. parliament.ng in

they are still attracted to them back with a firm answer for independence or not. this is bloomberg. ♪

♪ is "bloomberg surveillance" with tom and francine from london and new york. crude oil extending gains. there seems to be more inflation over potential disruption that is some to iraq's oldest producing oilfields. to iraqi government moved take over northern fields from kurdish forces. they seized a refinery and other resources. joining us is equities research analyst from jeffrey's research.

we have looked at a lot of the kind of factors that are impacting oil, how big and how important in this become? >> this can be a big catalyst. about 500,000 barrels a day move from the curtis region down to the port of say on. that would be a supply shock. that is why you're seeing prices react. francine: how much more can it react? if you look at the dynamics of opec and iraq, can it as much as three to five dollars? >> i think five dollars is probably too big of a move for just the kurdish region stopping exports. 1.2 in mind, there's about million barrels a day in spare parts. -- cuts. there's another 500,000 barrels

a day from russia that could come back to the market. i think it is a short-term shock. oil that wequiet of see, what are you looking for five years out? are you looking at supply dynamics or demand dynamics? >> certainly both of those things, but over the five-year timeframe, supply-side is probably going to have the bigger reaction because there has been so little investment made since 2014. i think we will see acceleration in non-opec, non-us decline curves in that time. we would expect to reach the $65 level. tom: that is where i wanted to go. $62, slammed into $60, does a lot of supply come in? >> i think you would see incrementally the u.s. react to that relatively quickly. the lag on the u.s. is six months to 12 months.

u.s.roblem is outside the the construction cycle time is about five years. incremental reaction on supply outside the u.s. is going to be slow. francine: jason, think it's a much. jason gammel, research analyst at jeffreies. getting -- you are hearing from the iea that it is more about shale producers even if opec produces more. rupert: i would not bet against the u.s. show -- shale industry to innovate. i would see $60 a barrel to be an upside. you will get huge supply from those kinds of prices. issue could kurdish be a big issue over the year or two ahead as the battle to

contain isis subsides and this question about the status of the kurdish state. you will get supply issues, but as long as you have this massive scope for innovation in the u.s., i don't see oil breaking out of this range. francine: what does that mean for inflation? are you looking at what it means for saudi arabia? rupert: i don't think it is the main drive for inflation. if you are playing the inflation market, you're looking at short-term oil beat up. long-term, oil is not going to be the driver. for saudi arabia, this is still unknown. will the reform plan work? as long as it stays within the acceptable range, it will not be the deciding factor. the news about this brady -- the saudi aramco ipo is interesting. oil?are you overweight

i have no idea what to do with the range bound market. rupert: in equity markets, there's some potential in some of the oil mix. one of the best traits we had early this year was an oil range trade. you can pick up carried by saying oil will stay within a 40 to 60 range. the problem is vol has dropped a lot. it is hard to pick up that carry. the range is still the frame to see oil through. tom: i think this is dangerous, a former united kingdom official talking greek letters in option writing. we would not see this in america. delta is frightening. rupert: it is a classical education. francine: that is what is meant to say. i think you need to put him on podcast to educate the listeners

of the world. when you think about the dollar dynamics, do we forget the emerging markets are producers or consumers of oil, and i guess the relationship between how much lower oil price impacts our economy has been broken? rupert: i think it comes back if you get a breakout from the range. the driving factor is the domestic dollar driver, which is policy and inflation. the global driver is this global growth picture. i prefer other expressions of the reflation trade. breakevens,ng at financials, small-cap stocks. i think the dollar itself, the domestic store is there. as long as we get relatively strong growth, it is hard for the dollars are rise that much. -- to rise that much. francine: rupert harrison stays with us. if you have questions, you can send them.

tom and i will ask those questions next. this is bloomberg. ♪

♪ taylor: this is "bloomberg

surveillance." i'm taylor riggs. facebook is taking new steps to prevent foreign powers from manipulating future elections through the social network. facebook is looking to hire people with national security clearances. they would be used to search more proactively for questionable social media campaigns during elections. isada's some barnier exporting options for its aerospace aspects. it may sell its regional jet unit. airbus is among potential buyers. mbardier faces potentially crippling tariffs from the u.s. imperil the kushner's control of their real estate empire.

that is your bloomberg business flash. tom: thank you so much. let's look at this chart now, which is perfect for our guest rupert harrison of blackrock and his former service to the united kingdom. this is the real wave of the united kingdom, the glory years of the previous decade. this is all rupert harrison's fault, this negative wage growth through much of the last decade. we have rolled over again towards that with brexit. i would suggest that from a distance international audience loves to look at brussels, london, junker, whatever. the reality is it is about domestic tranquility and domestic politics. how much does that play in the coming year? rupert: i would trade a little credit if you're talking about

2015, when we014, recovered from the crisis and we had a situation where wages were starting to pick up, real income was rising, and then you had the brexit shock. here.lus continue. rupert: you are right, real wages and living standards are front and center of u.k. politics. the issue is we are unlikely to have a general election in the u.k. anytime soon. we now have a situation where to have a general election for those domestic issues to be funneled through to the labor party, you have to conservative members of the government voting for it general election. we probably will not have an election for four or five years. the short-term issue is around general dynamics.

just because of the scale of the gloom around the brexit process is so high. francine: what concerns about the way boe looks at brexit process? is it from emerging cuts from last year? rupert: i have struggled to see the scale of conversion we have seen from mark carney and one of members of ash committee to think about tightening policy. it talks about the scale of the concern around the supply side. they say they will downgrade future productivity growth for the u.k.. that is the concern driving the bank of england. in an environment where we still have high uncertainty, where there will have to be a drag on business investment, i find it hard to believe we will get into a big wage spiral with u.k. companies agreeing to wage

increases. i don't see a proper rate hiking and puteversing the cut a floor on sterling maybe. francine: i did this for you, tom. this is a simple, trade weighted euro compared to trade weighted pound. rupert: sterling is still reflecting that ring him on u.k. assets. it is still below those levels immediately after the referendum. i don't think the macro is terrible. the u.k. economy is probably growing 1.5%. the bank of england is trying to sound hawkish, not really convincing. we will have crisis. there will be moments in these negotiations were there will be no agreements. sterling will probably react negatively to those. there will almost always the buying opportunities is a the --

be buying opportunities the cause of the powerful forces. tom: thank you so much, rupert harrison of blackrock. great way to get the day started. looking back, 30 years to the crash. to look forward to the dynamics of the market. eisman on us, steve the speculation within the market at this time. francine in london, i am in new york. a lot going on to say the least, including the new york yankees necessarily need a win. bat, hit the ball. you hit the ball. ♪

tom: this morning, a quiet monday. monday, the on a

dow was down 24 71. all this week, we consider the past to black monday -- path to black monday. the nasa talks, canada, exeter, they feel less and have less. let the game of chicken begin. atre was a janet sighting the imf world bank meeting. she and the group of 30 go with in search of needed data. good morning, this is "bloomberg surveillance." we're live from new york, tom keene. francine lacqua in london. francine, tell me about the austria election. is this like a big deal for europe or is it a sideshow? francine: it could be a big deal. there is catalonia, austria. i would not necessarily put those together, but you see the resurgence of political risk kind of coming at the forefront. if you look at the new leader, he is bright, very young at 31

years old. it could be problematic if he ends up being very keller's medic -- charismatic. immigration, migrants, and refugees as well. let's go to first world news. taylor: starting in spain, the government may begin the process of suspending self-rule in catalonia within days. the catalan president is defending the regions claimed independence. he wants a face-to-face meeting with mariano rajoy. the answer was not the clear yes or no that rajoy had demanded by today. that may be enough for them to take direct control of the region. in iraq, government should submit to take over oil fields of the northern city of kirkuk from kurdish forces. iraq says it seized a refinery and other facilities. is a point of contention. last month the kurds had a referendum.

british prime minister theresa may will try to break deadlock negotiations on brexit today. she will be an brussels to personally intervene in the talks. the latest round hit an impasse last week over how much you can will pay to leave the eu. mentioning, francine, austria, voters have turned to the far right. they have cleared the way for the 31-year-old foreign minister become the world's longer -- youngest government leader. kurds claimed victory after campaign that took a hardline stance on migration. he nationalist freedom party also will enter the government. that may make austria more difficult however partners such as germany. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thank you. let's get to the data greg way. we have a wonderful guest to talk to about the financial system, merck is the general. -- markets in general. a flatter curve.

oil little bit elevated. thank you to jason gammel for joining us as well. 22,000. dow closing the mexican peso weaker. nafta front and center. we will talk to kevin cirilli about nafta. francine: we will talk about nafta and also look at stocks in europe nudging higher. quite a lot of games for minors, oil, copper driving commodity prices to a six-month high. thank you, china, and those inflation figures coming up a little bit earlier. fallingg spanish shares after catalonia was given a new deadline to back down from its independence claim. tom: this is a chart we will show a lot this week. let's go back to the 1980's. we will do this again, so i won't spend too much time on it. support from further support,

crash of 1987. a series of higher lows as well. there is no question that steve eisman in law school loaded the boat off that red circle as well. he is with newberger berman. did selena gomez to come on and give us crash of 1987 perspective, but i don't think she was born. you are in law school. what was it like out of harvard law? >> i was focused on dating my future wife at that point. tom: let me bring up the chart again. if i'm teaching a course on what to do in a collapse, this would be it. there is lots of technical mumbo-jumbo. the fact is, you break support and done you go in any given crisis. what have you learned about what you do at 2:00 p.m. on that monday when there is literally people in your office crying, as i observed?

steve: it depends on what the cause is. inthe cause is panic like 1987, maybe you are a buyer. if the cause is a potential meltdown in the financial system as in 2008, you crawl under your desk. tom: what is so important to me, and i remember this on the phone and i kept score. three harvard in bas called me up and said, go to cash. bring the chart up again. the red circle here, everybody that is smart as saying go to cash. a lot of other people had the courage to start buying, even though the handwritten tickets were blind as well. can you be too smart in a crisis? can you be too smart in a panic? steve: you can always be too early. it is tv. you have got to have longer answers, steve. steve: ok, you can be very too early. francine: that is long enough for me. when you look at crises in

general, do we ever learn anything from them or does muscle memory just mean that would protect ourselves from the previous financial crisis or any kind of crisis, but actually not look enough to the next one? steve: i think we have learned a lot from the last financial crisis. i think there's a bit of a real sea change in the way regulators look at the financial system and the banks. maybe 20 years now, we will all have forgotten that. but i think right now the memory is still pretty fresh. francine: but is there a danger that actually you have learned a lot but the next crisis comes from somewhere which is completely unchartered? steve: i think one of the big lessons of the crisis is that there are problems and there are systemic problems. systemic problems coming up to have too much leverage in the financial system. today we have a lot less leverage in the financial

system, so are their problems? there are always problems, they're just not systemic. i think this is a very important point for people to understand. francine: is china systemic? is there a chinese problem that could be systemic? steve: i don't think so. china has $3 trillion. am: i'm going to bring up chart. shifted equities and 1987, 1988. here is the bond market through .he great the bond pros in the economist have looked for a higher rate. the expectation entails look something like that. is notss now maybe looking for that, but looking more for modern rated -- rates higher. that is a difficult way to lose money, by gaining higher rate. within a massive structural decline in yields. steve: i desperately try not to predict interest rates too much

because i think i've been to too many dinners over the last 20 years where at every signal dinner, everybody predicted rates were going to go up in the next day they go down. mean, you can, i go below zero, we have learned that, but you can't go too much below zero. i think direction on, rates are probably up some. dovishness of the fed, i don't expect rates to be that much higher. tom: what at that dinner party can you predict other than dessert will be good? what is the attribute of our financial system that is a must protectable? is it leverage is lower and solidity out there? steve: that is a big prediction. the two things i don't like to rent ever are interest rates and oil prices. i think that is a recipe for looking dumb. i may be dumb, but i try not to

look too dumb. think youwe don't look dumb or sound dumb. where do the markets act dumb? see the don't distortions of the public markets. i think there's probably some distortions of things like ,rivate equity and real estate you know, things that are less liquid, things people fled to post crisis because they felt more comfortable investing in that versus the public markets. but i don't see massive distortions of the public markets. i just don't francine: post up we want to talk about justinghouses as well -- i don't. francine: we want to talk about during house as well. saying as we get last rinse rinse it, we get less liquid and occurring houses and it starts to resonate, to me to be a new systemic problem in the system. do you see it as well?

steve: no, i don't. it would be nice of the treasury department was studied the issue first before somebody would actually come up with an opinion. i think that people like to come up with all sorts of different things to hit at that the problems were not in the big banks -- which is where they were. is it possible that their issues in the clearinghouses? yeah, it is possible, but summit should study it first -- but somebody should study it first. tom: the banks screwed up in the gaza like you did not screw up is the thinking here. we delusional to think we can regulate or provide more transparent derivative in swaps market? steve: i don't see why that should be a problem. first of all, a lot less of that toxic stuff -- there are different types of swaps. interest-rate swaps have been around for a long time. i don't see that as a problem

market. the area problem is credit default swaps. a lot of that is manufactured today because of the capital requirements being so much higher. with all due respect to gary cohn, what is talking about, maybe is right, but it would be nice to have some actual study of the issue. go: the business will abroad. if we over regulate or over transparentize, they just migrate to london, right? steve: you know, that is a threat people like to issue all the time. i don't particularly take that very seriously. i really don't. tom: wonderful to have you, steve eisman with us today, as on aok at -- the crash was monday, so i guess we're going to next monday. i guess is on thursday. we will figure it out. good to look at 30 years as well. truly, one my favorite .ongressman coming up excuse recover the senator from

oklahoma tom coburn will be with us. excuse you, former senator. we will get some perspective from the doctor. this is bloomberg. ♪

taylor: but get to the business flash. facilities management services giant tarmac according a couple of competitors for a total of about $2.4 billion. to schools ands stadiums. feel for state owned oil business is on track. the saturdays to nine -- the saudis denied sales could be delayed. aramco is being considered.

that is your bloomberg business flash. francine: thank you. let's get on to catalonia. royce estimates by the catalan president puigdemont is a step toward the triggering of article relieved to the region's attorney being revoked. regions lead to the autonomy being revoked. if we back up a second, basically, spain has asked mr. puigdemont to say yes or no they declared independence last week, and is refused to do so. in his tone, you could say this is quite conciliatory. you could say that, but madrid will tell you the question was simple. yes or no, did you declare a republic. if you were to say, yes, i did, we know article 155 with them easily be triggered.

essentially what we're getting from puigdemont, a repeat, rerun of what he deadliest week, saying -- what he said last week. the referendum deemed illegal. not just the central government, the spanish courts, but also the european union saying we don't think this is valid. says he will suspend it for talks. major it is saying we can talk all you like, but it has to be done within the constitutional framework. this means the quest for independence. we're not saying much progress. from prime a letter minister rajoy saying, this is your final warning. you have up until thursday or we will have to call this article. he is saying, you say you want to talk, but this is not credible. if you wanted to talk, puigdemont would go to madrid and appear before congress, which he is or peter lee

rejected. tom: maria, the talk at the imf meetings, the minority interest or slight majority interest for separation in catalonia. how is that blocked in catalonia during through the weekend and into this week? are they resilient in their support for separate state? that is a great point. i think it is crucial to make the difference between people who want to vote but don't want to separate, which we know is the overall majority. a vote.n catalonia want we have never gone in a single poll that shows people would want to break away. when puigdemont says, i'm speaking on the behalf of the majority of catalan, that is not backed up by facts. secondly, and this is we're seeing the sense of uncertainty. a lot of people are answering, what is going to happen from here? again, puigdemont, he would never -- he was never elected into office and he is facing

major pressure. they're saying you should stop to send a clear independence now. the moderates are saying, this is good. we get more time, we could engage with madrid. it is not clear what puigdemont is about to do because he is being pulled from all sides. he is in a weak spot. tom: maria, thank you for being with us from barcelona. steve, you see the geopolitics of catalonia, italy, whatever. is europe as a general statement classes,set because of the turmoil, is it an opportunity? on thei focus mostly european banks. they are better, but you don't really own them, you rent them. things in europe or more opaque. there hearted -- they are harder to understand. wanted tois where i go. i was thinking of david haro,

who does not own them and rents them, he buys them and just waits and waits and waits for europe to come back and get that big dividend along the way. what do you mean by renting them? steve: what the regulators are is weaker there. there is more leverage. the balance sheets are much more opaque. harder to do the analysis. you can get really come double owning much in europe. -- you can get much more covetable owning in europe. tom: we will talk about the u.s. banks as well. coming up, conversation with peter roskam. looking for to that 2:00 p.m. hour this morning. worldwide, this is bloomberg. ♪

from london and new york, it is "bloomberg surveillance." the british prime minister to unlock bracelet talks -- on a mission to unlock brexit talks. comes amid a cross party effort by u.k. lawmakers to block may from signing off on the no deal divorce. meanwhile, goldman sachs and j.p. morgan are bracing for hard brexit according to talk executives at the banks. let's bring intimacy ross -- timothy roth, author of "betting the house." congratulations on a great book. congratulations on great

coverage. we are trying to figure out why theresa may is going to brussels and not to frankfurt or france. is that where you would be sending her if you were advising the prime minister? >> i think it would be telling her to talk to all of these people. on sunday, she did have a phone call with angela merkel. that will be critical. what we're hearing is the german opposition to moving forward in the talks is one of the biggest stumble in bronx -- blocks to progress. francine: i don't know if anything happens next week or if we need to look for the december leader summit to try to see if there israel move -- is real movement. week's key. from the eu, they need some sense there is a willingness to move forward this week and then it is up to the u.k. potentially to make another move before that december summit will step december is the time when i think both sides are hoping they will be a lot of progress forward. francine: what happens in the trade talks? is there any talk about still

being in the single market or have we passed that because saying single market is basically saying no brexit. >> u.k.'s position to be inside the single market would require the u.k. to continue to accept free movement of people, migration, the biggest driver. a lot of people think behind the brexit vote in 2016. there is no ai can see single market continuing. tom: no deal divorce is a great man. what is a no deal divorce? what is a no deal divorce? what is it? >> it is messy, let's be honest. i think that first of people in theresa may's own party who think no deal would be fine because britain can go it alone and strike of trade deals around the rest of the world. i don't think that is the view of the chancellor is that i don't think that is what may once herself. -- wants herself. tom: thank you so much. congratulations on the book. steve eisman with us.

?hat do you do, do you buy >> i can't afford a mansion in london. tom: three-bedroom? steve: i don't think i can afford a three-bedroom. tom: what you do in london? a strongdon't have opinion. i just don't. the politics of brexit r.b.i. me at this point. -- our beyond me at this point. francine: tom: tom: steve eisman will continue with us. from new york, from london, this is bloomberg. ♪

thank you for being with us this morning. to our first word news. in northernfighters

california's wine country say they have turned a corner against those deadly wildfires. fire crews have gained ground because the winds that fan the flames have died down. the fires are blamed for at least 40 deaths, about 5700 homes and other buildings have been destroyed. the u.s. and south korea have begun naval wargames involving around 40 ships. the drills will take place in waters on both sides of the korean peninsula. at the same time, signs north korea is preparing another missile launch according to south korean news media reports. sees theal reserve u.s. economy growing strong after worn higher interest rates. janet yellen says she expects inflation to move higher next year. inflation has remained below the fed's 2% goal despite an unemployment rate that is followed past its precrisis low. ireland is bracing for the worst storm to hit the country in 50 years. to batter expected the coast with winds over 50 miles per hour. dublin airport has canceled as

many as 130 flights. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thank you. long ago and far away, donald sutherland was in a movie called "kelly's heroes" and he talked about negative vibes. let's look at the negative vibes over the weekend. this is from "the washington post." this is the battering the president took over the weekend. bring it up if you would right now. we have a spelling mistake. let's move on. george will was elegant in his criticism of when will they finally talk to the president and get a more cogent republican dialogue? withi would suggest begins nafta. that is front and center right now. how will nafta and the debate change the trump administration? >> first and foremost, canadian

officials fresh off justin trudeau's visit to washington last week, since have been looking for allies in mexico, trying to get some more strength with their mexico counterparts to put pressure on the u.s. point number two, the administration, the trump administration, is playing a bit of hardball. you're seeing this by wilbur ross can suggesting there could be a sunset clause in nafta should mexico and canada not get on board. tom: and the thank you's tickets i can get tonight. kevin, come on. there one to play hardball. how does the congress of the u.s. respond in this game of chicken it president trump calls their bluff and mexico and canada go? to? no how does congress respond? >> if you go to wisconsin or upstate new york, a lot of folks are frustrated with the canadiens. everybody thought mexico was going to be the tough guys and negotiating nafta. it turns out it is canada. ofre's an input is -- a lot

urgency on the half of the u.s. and mexico to get this done in january, first quarter of next year. not only are the united states mint term elections, but also mexico elections. at the end of the day, i think this likely gets done. francine: kevin, one of her most read stories on the bloomberg terminal was the secretary of state rex tillerson saying that donald trump is pushing him to diplomacy on north korea until the first bomb drops. what does "until" mean? >> the administration is set for , long time that military force they want to try to use diplomacy. there is that sense that you alluded to of uncertainty or of a verdict ability -- lity with north korea. grabs seeing tillerson singing a

thenerent script president trump. tom: kevin cirilli, thank you so much. her book cover really says it all. effort watch can burns on vietnam, maybe see why presidents fail. she is written a bible on this and she joins us now. in, wonderful to have you with us from the brookings institute. give us the nuance of a challenge trump administration how is their failure different from what we have seen in previous presidents? elaine: previous presidents failed to understand the federal bureaucracies that works for them. this administration is failing on even a grander scale. they are taking nothing from the experts in the government and there are doing things that,

frankly, are not grounded in sense organ presidents in the u.s. government. ecedence in the u.s. government. i have heard people referring to president trump as president in chaos. he is sowing chaos abroad. this is no way to run a government. previous presidents got in a particular kind of trouble with the big bureaucracy. this president seems to not even know it is there. it is having serious consequences for his ability to get anything done. tom: what happened when nafta started? did somebody feel at the beginning of nafta? fail wayid somebody back when? tom: yes. what was it like as you did your research for your book? elaine: way back when when nafta

started, it was a kind of push that papered over big differences within both political parties. among the democrats, the unit progresses and you know people never did like nafta. i think we president trump campaigned out there against nafta, he brought in a lot of union people. i've even heard president clinton say he is not sure he could have passed nafta in this day or age. it has turned against this. the warning signs were there back then. but it is more than warning signs. you could say this was a campaign promise. you could say because president trump when he was campaigning was so against nafta, this is a campaign promise. what people voted for. elaine: absolutely. this was coming for a long time because there were divisions within the democrats and divisions within the republicans

way back when when nafta was voted for initially. most to: who has the lose in this, the u.s. or other countries? if it is other countries, why should the u.s. care? elaine: frankly, i think it is everyone. it is the u.s. in a broader sense. the undoing of treaties that the u.s. has negotiated just because the president comes along and decides that it was not a good deal or he could have done a better deal, that is serious. what this says to the world is, oh, dear, you better watch out when you negotiate with with the united states because who knows this next year they will be there. i think that what president trump is doing is putting u.s. credibility on the line all over the globe. that can't be good for american president. and i think it is going to contribute to more chaos and uncertainty in the world. tom: elaine, it would you

predict the canadians of the mexicans will act separately or will they join forces? elaine: my prediction, again, just my prediction, they will join forces. this is important to both countries for different reasons. it has worked well for both countries. my guess is they will join forces. tom: very good, professor. elaine kamarck with us today. steve eisman with us. we talked about the opportunities in europe. you want to rent mexico or canada? steve: no. tom: why is that? steve: i don't know that much about mexico. i think in canada, there's a pretty good evidence the housing market is starting to turn over. an equivalency to what you enjoyed before the making of the movie? steve: no. the subprime market is not nearly as big in canada as it was in the u.s.

the canadian housing market has gone up a lot higher on a percentage basis than the u.s. marketed. -- market did. severe correction. francine: 10%? 15%, 20 percent down. sales and toronto are down around 30% at this point. there is some regulations that will go in at the end of this year that i think would be very negative for the housing market in terms of mortgage volume. i think 2018 is going to be a crucial year for the canadian housing market. francine: is it -- what is the canary in the coal mines? tom and i try to talk about this a lot. is there a sign we should be watching out for so when it arts? started to seety signs this regulation that is going to go in and make it -- you have already started to see the sides of regulation that is going to make it more difficult for people to get mortgages in canada. that will go into effect the end of this year.

tom: talk about the distinctive features. canada takes almost was pride and they have these big , four or fiveks major banks. how does that play into excessive home prices in vancouver? -- e: tom: can you short banks to be blunt about it? steve: you can. ofould not call it at risk death and destruction, but in terms of earning is cibc because they have the most exposure. canadian banks have pretty much capitalized. it is all about the pricing. canada is not going to crash, but canada hasn't had a credit cycle in 25 years. i think they're about to have one. tom: most interesting.

we will continue to look at american banking with steve eisman. maybe we will also get his perspective on the surging toronto -- we continue the theme on canada. forget, coast-to-coast, inner cities of new york, boston, san francisco, washington post sirius xm channel in canada as well. daybreak on radio.

francine: "bloomberg surveillance." brexit enigma starts. london versus new york. as we understand, they probably won't move to paris, frankfurt, or even ireland, that they're new york.ove to

that is something we are keeping an ion. roughly hearing from the spokesperson of theresa may and she is expecting the prime minister to have some constructive talks at the brussels dinner. what we know, tom, the prime minister will go ahead of the eu leaders summit to brussels to have dinner with the president mission will stop also to have dinner with a brexit commissioner. we were just pegida rupert harrison earlier on who was saying if you were in charge of the prime minister's agenda, he would probably send her not to brussels, but to berlin and france were the real negotiation is taking place. tom: francine, wonderful at the imf meetings that vice-chairman fishermen their as he retires from the federal reserve system. in walks chair yellen she was greeted by the assembled dignitaries and the great curiosity from chair yellen about the path of inflation. here is janet yellen.

>> my best guest is these soft readings will not persist. and with the ongoing strengthening of labor markets, i expect inflation to move higher next year. and most of my colleagues on the fomc agreed. tom: janet yellen at the group of 30 meetings. i thought it was the bar mike mckee was in last night to watch denver broncos go down in flames . what is the group of 30? steve: it is a group of more than 30 but basically, important policy makers from the worlds of central banking and banking and finance from around the world. they meet on the sidelines of the imf eating. every year, they bring in the world's central bankers but it sure for the first time, they opened it up to coverage. tom: they opened it up to coverage which is a revolutionary thing. jacob frankel of jpmorgan international has been an eager supporter of this. why is it different from other meetings and what did you

observe as it was more transparent? everybody together talking about the outlook for their economies. the interesting thing was all of the central bankers pretty much have the same feeling the global economy is ticking up and things are getting better. there is a little bit of sense of unease out there about what may happen going for it in the politics, japan inability to get things inflation higher, north korea hanging over everything. there is something out there, that happens, everything is getting a little bit better. francine: michael mckee, did you sense a little bit of coordinated action like we talked about in portugal? where all of the central bankers on the same message? michael: about things getting better, but no corrugated action. janet yellen made it clear the fed is going to go ahead and raise rates. the vice president of the ecb suggested they are not there

yet. while they are probably going to take -- pay for it at some point, he said reinvestments will continue. and japan said, we're a long way from our inflation goal so we are going to keep investing. no real coordination among them other than their outlook for the global economy is that it has gotten stronger. francine: at the same time, how do they view inflation? the philip curve will be back? stilll: they are subscribing to the phillips curve. they believe you can't repeal the law of supply and demand. when demand exceeds supply, prices are going to go up. at this point, the jobless rate in the u.s. is so low and moving down in other countries, that is some point, inflation has to appear. they all sort of point to what we've seen with energy as one of the major causes around the world for low inflation and globalization. you stephen eisman of

burger today. you are talking about this on the break. the great moderation. we're shown the trend down. steve, it has been a long, difficult time. what would you like the fed to do? steve: i would like the fed to raise rates and stop focusing so much on inflation because it is a waste of time. tom: why is a waste of time? steve: there are too many forces to predict inflation is going to come back. about thes a model economy. it is been wrong for over 30 straight quarters. if i was wrong for over 30 straight quarters, i would stop trying to make predictions. just time to normalize rates because the economy is fairly normal. let's get on with it and stop predicting inflation is going to come back. tom: let's bring up a michael mckee chart. this is service sector and goods sector inflation. absolutely shows first and second derivative that chair yellen is dealing with. what happens?

we are broken down here on goods deflation. outright deflation. how can she raise rates given these vectors? at this point, doesn't really matter. you go back to the old jim bullard quote of the whatever you think the interest rate is for this type of economy, it is not where it is now. it is higher. tom: we got through this without talking about the denver broncos. michael: thank you. tom: michael mckee running all over our economics and government coverage. tv is free. comesmments of mr. eisman up here. you can see it. you can go back and look at beautiful charts as well. stay with us. this is bloomberg. ♪

taylor: let's get to bloomberg business flash. a plan by jared kushner's to good in peril their partner is telling brokers

to plan for a much more mundane renovation. this week's the 30th anniversary of the black monday market crash. we have been speaking with the swan" visitlack investors need to rethink >> risk. >>what i learned from black monday was that number one, these things happen. when they happen, everything you make elsewhere disappears. typical that is your bloomberg business flash. tom: thank you. time for our single best chart. look for the optimism, funded on a monday after the gloom of the weekend and the different blogs running of the end of the world. steve eisman with us. we're shown this many times. banks with a pause for some challenges. bank of america coming up nicely and citibank going nowhere. his citibank value trap or is that we want to go now? steve: it is not a value trap.

it is up over 25% this year. i should own so many value traps. tom: but the others do better. do you want to get on board with the citibank or buy -- outperformednk has this year. ?om: where is the optimism steve: this earnings season is amusing in the sense that is is probably the most irrelevant earnings season and all of the years i've covered the banks because it is just not -- what is important is there is a new taken theperson has seat of vice chair for financial supervision and you will start to see some the regulation of the banking system. tom: is the thick the clients sustainable or is it one off? 27%, is that a one-off moment?

a one-offis not moment. this is been going on for years. one thing that could change it, my expectation, the fed will start to reinterpret the volcker the and you'll see loosening of that. you'll get some more fixed income trading out of that. francine: if you look at normalizing central-bank policy, does that help the banks? significantly? ? you can make money easier? thee: it is important for banks in terms of earnings other than deregulation a spoke about, is higher rates. anything normalizes rates helps. it helps trading, the interest margins. it is good for everybody. francine: but where do the banks grow from? if you look at the revenue stream, how do they grow from here? steve: it is more of a leveraged story. testsars ago, the stress allow the banks to buy back 85%

of the earned income. this year's test allow them to buy 100% of her and income. my expectation is that sure that will go to 115% to 125%. it is not a revenue story come although, higher rates will close higher revenue. it is a combination of that and more leverage from stock buybacks. tom: steve eisman, thank you. briefing through the morning. let me look at the foreign report. euro back above 118. mexican peso, significant weakness. stay with us through the day. this is bloomberg. ♪

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the central bankers say it won't stave much lon longer. catalonia defends its push for independence. geo political risk bubble in europe. and commodities head for their highest close in six months. and rising tensions out of iraq. david: welcome to "bloomberg daybreak" right here with alix steel. david: eurodollar lower as there's more conversation about you can see e.c.b. copper really having a monster rally, up over 3%.