warning of challenges as he lays out a roadmap. nafta negotiations reach a deadlock with canada and mexico rejecting what they call hardline u.s. proposals. the stock market continues to grind out record after record in the united states. the s&p 500 sits at an all-time high. from new york city for our audience worldwide, good morning . i am jonathan ferro alongside david westin alix steel. i am going to borrow a line from kit juckes, it is the quiet before the quiet. stocks are positive about 1/10 of 1% on the s&p 500. treasury yields grind higher by three basis points on the u.s. 10 year, and the dollar bid is in the market for a fifth straight session stronger than everything in the g10 space. alix: welcome back. how was your jolly?

jonathan: it was better with cable down and the euro at 1.17. alix: talking about cable, take a look at the gilt market. in the gilt market you are seeing yields up about four basis points. after thetively flat data out of the u.k. unemployment and wages. dollar-mex down slightly. aluminum missed, down 1%. david: it is time for your morning brief. we will start out here in from two fed presidents, bill dudley and robert kaplan in a discussion. u.s.nutes later we get housing starts and building permits for september, and the senate finance committee will meet with president trump. jonathan: china's president xi

jinping laid out a roadmap to turn the country into a leading country by 2050. he warns there may still be a bumpy road ahead to success. >> our development is due within a great situation. slight but our challenge is tough. jonathan: opening china's doors to foreign businesses and monetary policy. joining us are tom mackenzie and enda curran. just run us through the highlights of what was a speech that lasted i believe over three hours. was a marathon speech, went well over what we expected, and he tried to crystallize a vision for the next five years of his leadership. this is a president who is the most powerful leader in china for generations. some of the highlights, he wants

to see greater ported -- policy coordination and stepped up reforms around the exchange rate and interest rates. he called out real estate and property speculators. some areas that got less attention, deleveraging did not make a big play despite concerns from economists and his pboc governor about that levels. the capital market reforms, that did not get much of a play either. he very subtly dropped a pledge made previously in 2012 to double per capita income by 2020, something that has implications potentially for the gdp target. this was a vision formed around a strengthening role for party.nt xi and the reforms are likely to happen over the next five years but only within the prism of the party and what works for the state in china. jonathan: i want to build on what tom has laid out.

it was a narrative building that we would go toward this party congress and once president xi jinping consolidated his power within the communist party he would drive forward an aggressive reform to get state owned enterprises to deleverage and pullback that addictive nests to debt. -- addictiveness to debt. right,hat is entirely what the speech was all about reaffirming, making it clear that whatever happened in china that the party will remain at the center of the economy. it will be on their terms. -- but noa bit of a commitment. no real commitment for going hard on the esso we sector. -- soe sector. china achieving its greatness over the next 30 to 40 years will be based on the communist

party and their strategy alone. jonathan: i want to talk about how hollow some of the statements might be. the chinese talk about opening up their borders to direct investment. 69 out of 72 countries in terms of openness. when the president of china says these things, how does the international community respond? tom: every time you talk to the heads of the european chamber or the u.s. chamber, a point out that the conditions on the ground are getting more difficult for investors and executives hoping to build out their footprint in china. there is going to need to be a lot of convincing from those sides and those quarters that when they say the president here and has policymakers, that they will lower those barriers and that will lead to greater openness. china is ranked pretty badly, pretty low in the oecd list. there is this sectors we have

talked about so many times that remain pretty much closed off, sector,com, banking health sector, these remain very difficult for foreign investors to get into. what we may see what president trump landing in november, potentially a few olive branches offered i the chinese leadership on some of these issues. that will be interesting to see. alix: looking ahead to next week, what happens now? enda: now we go into the critical week where they are seeing through the personnel are that will run china. toward the end of the congress we will get visibility on the top leadership, and that would be critical in terms of where individual policies go. the president, the reform agenda may not be as ambitious as somewhat have hoped . it will be done within the confines of socialism.

jonathan: that is and occur in an tom mackenzie, right to have you both join us. -- and occur in an tom mackenzie, great to have you both with us. david: now we will turn to paul rhoads -- kevin rudd. welcome back to the program, good to have you. you no doubt followed this speech closely, probably listening to it in mandarin because i know you are fluent. what stood out for you in the speech? >> the length is customary, three and a half hours, is basically primary performances by chinese leaders. each one of these five yearly party congresses. i would make three overall points. this congress is shaping up to be one primarily about politics and political direction. that is the continued role of the party in the states and the economy and society.

work on the president's report, it is not offering any new substantial directions or impetus in terms of the market reform program. number three, as congress is slways our and -- congresse always our, it will be about personnel who will make up the overall balance of power or the configurations of power within the standing committee. david: prime minister, you said market-based reform. i do not remember markets being referred to almost at all. there was a lot of referrals to socialism. is this consistent with where we thought the president was heading? .> this is a big question bear in mind the role of party is to give a party political document about overall political direction, and about who the personnel are.

in terms of the substance of the reform, implementation process, that tends to calm in other official party meetings not long after congress, so let's wait and see. i would generally agree with commentary being made that in given tothe emphasis economic reform based on market principles articulated five years ago, we are not seeing at this stage a parallel emphasis. but let's wait for the subsequent documents. any indication the president is concerned about the growth of credit? there is a lot of talk about prosperity, about growth, but consistency. there was not much focus on what people think of as excessive credit growth. >> you are right to point to ofdit growth, that is one the key elements of necessary reform within the chinese economic system and certainly,

one of the 10 key policy in the overallt economic reform document of 2013. the only reference i see so far -- and this is a relatively recent document, a matter of hours -- is a reference which is new in its language that says houses are for living, not for speculating. that is likely to become a new slogan in chinese politics. i would think that is the way in which these things usually work. that is a genuine shot to the continuing problem of real estate speculation driven by financial enterprises, both within the government sector and the shadow banking sector. alix: if i run a company and sell goods to china, what am i thinking today? it is a bithink my views, and has been

of the opening of the chinese economy for the last 35 years that i have been following it. if you are selling goods and services into the chinese market , goods in particular, and various sectors you still stand in good shape to maximize your sales. however, when it comes to investing into china, that becomes an entirely different set of arrangements because once you invest, of course there is a rolling risk of the ground rules changing. that i think remains a live risk variousne considering categories of long-term strategic investment into areas of the chinese economy, even those which at this stage are highlighted as being open for investment. be very careful about the ground , and careful about the dispute resolution mechanisms for subsequent change in the ground rules. do officials in china

consider the process of continually opening their economy as an existential threat to the communist party? >> i do not believe they see it .n that zero-sum game they see it in slightly different terms. let me put it this way -- the bulk of the emphasis, as i read speech is jinping about the preeminent, continuing, comprehensive role of the chinese commonness party, not just in the politics and personnel but across the economy and society. there are key phrases in the speech which are relatively new on that front. in particular, one which says that you will see the role of a party "permeate every aspect of society in china." that is the political direction. question, of your course, is based on normal development theory which has been taught in western universities for decades that

once you reach a certain level of per capita income, you see somewhere between the $12,000 to $14,000 per capita mark, automatically what you see is beginning a series of drivers to bring about one level or another of democratic political reform. the chinese communist party, as a result, that will not happen in their country and what i find significant is that the communist party is under this speech and under xi jinping's leadership more generally, is seeking sousse sustain as tight control as possible without at the same time throttling growth in chinese private firms which are providing the bulk of employment growth in china, which is key to long-term economic and social stability. alix: prime minister, thank you so much. prime minister kevin rudd. will bep, enda kenny

joining us, his thoughts on brexit as well as european regulators' battle with big technology. this is bloomberg. ♪

♪ david: this is bloomberg. the fourth round of nafta talks ended in washington yesterday with the three participants appearing saying they would have to extend the talks. joining us now is our chief washington correspondent kevin cirilli. it was worse that's remarkable seeing how much the differences amount to. kevin: it was remarkable. they are still going to be at the negotiation table through march 2018, and most experts still anticipate they will be able to reach some type of deal

heading into mexico elections and u.s. midterms, but mexican and canadian officials saying the u.s. is asking more than their red lines will allow on a host of issues ranging from financial services and property rights as well as trade. i think with the bottom line is for this, it really comes down to, you have people like commerce secretary wilbur ross and bob lighthizer saying essentially that they would be in favor of adding a sunset clause and a five-year window. that is a really big nonstarter for canada and mexico, who have aligned themselves together to try to pressure the united states. david: a long way to go. alix: transport, retail, autos, industrials, some of the industries that fear a nafta breakdown. >> nafta is the most important agreement by far. our largest trading partners in the world are canada and mexico,

and i think to the time before nafta started until now. our exports have tripled. we have significant jobs created in the united states because of nafta. discussill with us to the market implications is stephen parker of j.p. morgan private bank. which sector is most vulnerable as we push this deadline out. a lot of consumer sectors that are leveraging partnerships with mexico and canada are most vulnerable. as far as the policy discussion of the last nine months or so, our expectation is that you will not see a worst-case scenario from the perspective of those benefiting from the agreement. unlike maybe a year ago, you are seeing stronger global growth which is supportive of places like mexico and canada. alix: the conversation is what happens to supply chains? if u.s. companies were forced to

go to asia to map out a new supply chain, what are the long-term implications? stephen: clearly that is a negative for things like profit margins. it will be more expensive to produce goods and bring them back, so at the end of the day that will be negative on the margin front. i think you will also see some international competitors step up and look to fill that gap david:. who has -- fill that gap. more to lose, the united states or mexico? terrace are larger on exports -- stephen: the u.s. economy is much larger so it is easier for us to sustain some of that. clearly there will be many companies within the u.s. who would be potentially big losers in that worst-case scenario. jonathan: the dollar-mex dropping lower on the breakdown of talks, seemingly good news

for mexico. stephen: if you look at the way mexican markets are reacting, other it is the equities or those markets were very much under pressure post election and the recovery you have seen so far is telling. jonathan: the president of the administration cannot get it done. the president of the united states wanted to tear up the agreement with a ron and the people around him said, do not do that. more broadly at this point, should we fear a breakdown in nafta talks, a breakdown in the way some people painted a picture 12 months ago? are looking atou is a continuation of the status quo rather than a breakdown of talks. that is generally what we have seen with a lot of these policy discussions and markets have viewed that positively because the global -- are strong. this will not impede that momentum. david: stephen parker of j.p.

morgan private bank will be staying with us and coming up, richard mcgregor take us through lastdent xi's speech night. live from new york, this is bloomberg. ♪

♪ emma: this is bloomberg daybreak, i am emma chandra. does go of the biggest players in the extended warranty business are compliant -- joining. the deal values warranty group at $2.5 billion including debt. u.s. regulations have charged rio tinto with fraud. the former ceo and cfo were also accused. this has to do with allegedly inflation. rigorously defend themselves. world's largest hedge fund

is adding to a billion dollar short against italy's economy. $3 milliondisposed a bet against oil and gas companies. ,he firm, headed by ray dalio shorted six italian financial institutions. claudioday we speak to gsalli. still with us, stephen parker of j.p. morgan. do your put your money with buffet or ray dalio? stephen: we are more on mr. buffett's side. clearly there are structural issues in italy, challenges with the banking sector, but when you look at what is happening in europe more broadly you are seeing a positive economic growth story. that is supportive of markets. when you look at how markets are reacting, whether it is stocks or currency, to the situation in

spain, the fact that we are not seeing this sort of selloff that fiver years ago may have been a 10% to 15% correction, tells me the fundamental story is being fixed alix:. alix:we see stress in the italian bond market, not the spanish bond market. is the geopolitical risk going to keep showing up in italy and weighing down that area? stephen: when you look across europe, italy is clearly the place where the most stress remains. if you were to see a broader downturn in the european economic recovery, italy would probably be the most directly hit. that is the situation where this bank trade could pay off. if you continue to see this recovery, expectations around italy and the banking sector are very much depressed. over the last couple of years, even modest, positive surprises with relation to these

distressed assets is an upside. jonathan: if you were setting up a portfolio and had some big european longs, there may be some optionality around italy would be a big hedge. stephen: if you were taking a moreive view on the region broadly and wanted something if the market rolled over, what will give you the most bang for your buck, that could certainly be the place. jonathan: stephen parker of j.p. morgan private banking sticking with us. nny, formerenda ke prime minister of ireland joining us to talk about brexit. this is bloomberg. ♪

jonathan: under two hours away from the opening bell. another all-time high at the close yesterday on the s&p 500. reached 23 k during the

session yesterday for the first time ever. we are up one third of 1% on the dow. a slow grind higher, record after record story continues. higher on ten-year yields. up three basis points. that has helped the dollar stay stronger against everything except the canadian dollar today. the euro is back to 1.1750. that is the market setup ahead of the cash open in new york. let's could you headlines outside the business world with emma chandra. emma: both parties have reached a deal to top up obamacare. toallows two-year subsidies insurance companies be paid out. last week, trump said he was cutting off subsidies but the deal still faces opposition from a number of republicans. senate republicans appear to be

willing to risk a budget fight that could result in a government shutdown. they drafted a homeland security spending bill that spends almost $12 billion trump wants to use to build a wall at the mexican border. the european union countries are keeping hope alive on a trade deal with the u.k. according to eu officials, they are doing prep work so that trade talks can begin as soon as they have offered enough in brexit negotiations but those negotiations remain stalled for now. global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries. i am emma chandra. this is bloomberg. ♪ may now isheresa taking questions from lawmakers. just moments ago, she refused to rule out a no deal scenario. take a listen. theresa may: what we are doing is working for the best possible

deal for the united kingdom. but it would be a responsible of government not to prepare for all possible scenarios. and that is what we are doing. jonathan: still with us is stephen parker. i will make it difficult. if i am a client and i call you up and say, what is going on, what do you tell them? i tell them it is hard to predict where this will go. but what is important to us is that it goes back to the idea of broader recovery in europe. so today, the european union is in a much stronger position at the negotiating table when thinking about how brexit may play out. because they are in a better position, economically. as it relates to portfolios and how we are investing, we have a portfolio towards investing in the european equity markets directly rather than the u.k. jonathan: it was concerned that it would have an economic

withcation in the u.k. unemployment down to 4.3%. we don't see that and then the next concern was that it would bleed through europe. it has to do with the broader global growth story being supportive. where you didn't see a reaction was currency markets. the reaction we saw with the pound was the most acute result of the brexit vote. naturalered a stabilizer. all of a sudden, with a weaker currency, multi-natural british companies become more competitive. that is supportive of the u.k. economy and that is the reason we haven't seen that chain reaction of many anticipated. lot abouthave heard a how this could damage the u.k. if there is no deal. you say europe is fine but leading up to brexit we heard automakers, german automakers, particular sectors that could get hit on the europe

side if they don't make a deal? stephen: there will be winners and losers. thesesilly to think that companies aren't making adjustments and rethinking the way they are doing business. rethinking the way the supply chains are with the uncertainty out there. we hear a lot about multinational companies thinking about relocating headquarters to continental europe. this isn't happening in a vacuum. one day we'll push a button and everything will separate. i think the slow movement is going to buffer the potential downside risks. david: given all the uncertainties, are there opportunities for investment where the government -- where the market is mispricing? stephen: one thing our colleagues in london have been talking about is that the multinational companies have been big beneficiaries. currency hashe helped them. a lot of this has been priced into markets already.

now, we are starting to look, early on, at the domestically located sectors. parts of the u.k. market that have been left behind where there is a potentially positive fundamental story but investors have potentially more that because of the risk around that. alix: i am curious what that means for the boe. come inside the terminal. the white line is the benchmark rate. the green line is where we are now. you see the hike in november and not another hike again until march 2000 19. the blue line is we we were in september. does the data change the green line? stephen: i don't think so. i'm not an expert on bank of england currency of what it tells you is that governor carney is positioning for the next hike that should stabilize markets. and what you see going forward is that it probably is it for a while. then you have time to let

markets digest what is happening. i don't think the one rate hike, if it is messaged with patients going forward, will affect markets. alix: the bullish argument made is that we will see better growth that will lift the market , no matter what. do you agree with that? stephen: to a degree, it should be supported. our preference is more continental europe rather than the u.k., particularly because the biggest beneficiaries of the global growth story within the u.k. have already seen the benefits that investors are a true reading global growth story. now, the right european union and leaders within europe are concerned that they don't have it together in the u.k., that the prime minister doesn't have a unified. we see is an what inability to get things done. of people areot bullish on the prospect of significant reforms. in the united states, big

packages going through d.c.. loads of skepticism around that. the prime minister has negotiate with europe and try to get trade .eals should you place any money behind any kind of narrative that politicians are going to get it done? stephen: our view, and what we have been telling clients, is that we don't want to make her folio changes based on the prospects for reform, policy. if those are potential upside supports to a story we already like for other fundamental reasons then that is great. but we aren't pricing anything in from a reformed perspective. to that point, when you look at what is going on in europe and france right now, some of these conversations around reform or things that were never put on the table in the past. so i view that as a potential positive not take into the base case of view. david: stephen parker will be

staying with us. as you commute and, you can tune into your colleagues tom keene and david gura on bloomberg radio. that is all across the united states on sirius xm radio. this is bloomberg. ♪

emma: this is "bloomberg daybreak." i'm in the hewlett-packard enterprise green room. , theg up karma enda kenny former prime minister of ireland. this is bloomberg. ♪

tensions are rising between a rock and the kurds. the fight unfolding around the country's oldest oil fields. iraqi troops took control of for deposits yesterday threatening the pipeline that runs to turkey to reach foreign buyers. as much as 600,000 barrels a day can go through the pipeline. go to julian lee. how much geopolitical risk is in oil right now? bit -- he: quite a lee: quite a bit. we are seeing the flow has been reduced considerably. our latest intelligent shows that the line is now pumping 220,000 barrels a day. so we have lost, already, close to two thirds of the oil going through that pipeline.

the hope is that this will be temporary. it appears to be based purely on the numbers -- this does appear to be all the production from the disputed fields plus the production from the fields operated by the north oil company, which reports back to baghdad. so this clearly is a direct fallout of the tensions between and both sides have an economic interest in keeping flows going. this pipeline is the only way of exporting oil from northern iraq. and so it is the only way of generating foreign policy income from that production. alix: fair point. if they split revenue 50-50, they can make a lot of money. nonetheless, if we do see a loss of thousands of barrels of oil, what does that due to the oil market that is tightening? julian: certainly, a loss of

300,000 barrels of oil a day is equivalent to half the exports of a country like qatar. it offsets a lot of the growth we have seen recently. for example, in exports from libya which come out through the mediterranean. so it does have an impact. the world is that there are plentiful supplies of other grades in the mediterranean, particularly in things like ctc althoughm kazakhstan that is quite a different quality to the kurdish oil. and quality is something that is important. and this is going to cause hopefully only a temporary dislocation but it will cause a dislocation. alix: thank you so much. that was julian lee joining us. the rally and oil isn't showing up in u.s. exploration and

production equities. you can see the white line here is the xo p. the blue line is the oil price. ever since july, they have diverged and spread wide now even though the geopolitical -- geopolitical risk of oil is all the way appear. why? >> the second quarter was awful for oil and gas producers in the u.s. as far as stock performance was involved. there is a concern with oil producers about whether they were producing too much natural gas and not enough oil. so this will be very important to get back on track for a lot of the permian basin oil producers. a lot of the great oil producers are down double-digit's for the

year, which doesn't make a lot of sense. alix: the story before was that if you wanted higher oil prices, that was a good thing. that macro is good micro. there been a sustained change in the way investors like you look at the e&p's? rob: absolutely. capital discipline has shifted to returns and away from production growth, then that is important. that would be a significant means and it probably that you don't grow production as much. so there is still a lot of great names you can i you have to be selective. we look for companies that are within the cash flow that can grow with production. when you look at that, there are not a lot of companies out there that our goodbyes. it sounds awfully good to focus on returns. will investors believe that?

, theye when prices go up go back and change their mind. what will it take for the investors to believe they have changed their minds? incentives. incentives have been one of the biggest factors of production growth. will shift said they to returns-based compensation methods. if that happens than the whole industry changes and i think that will be a good day. alix: what do you like? rob: infrastructure. investors outside for yield is pretty high. offers a 6%hich dividend in yield. they have grown the dividend and there are other them for structure companies that really provide hike yields in this environment where you have a low 10 year and week it is a good opportunity for investors. enterprise products partners is having a sea change. they have the distribution with

basic dividend but it is flowing because they are starting to talk about working within their cash flow and paying the distributions within cash flow. why does it make those companies more appealing if the distributions will be flowing? rob: we have been investing there for over 10 years. if you're going to build a growth product, you pay out a large portion. what enterprise -- and they are the industry leader here -- is trying to do is rather than have to come back to the equity capital market, they are saying well, we will hold back some of the distribution growth and we will fund our growth projects through internally generated cash flow. it is growth projects they are funding that will result in higher cash flow in the future, which we think is a great thing. frankly, the whole asset class is extremely frustrated by the class thatn asset provides strong current income,

has a track record of growing cash flow that yet these stocks continued to be stuck in the mud. things are trying to do like this -- enterprise is leading the way -- to see if it will boost investor appetite. the debtat about market? we had a crunch with credit when it comes to the energy companies. what is the situation now? how hard is it to get the credit? i will give a shot on that. i mostly in equity analyst. obviously rates have been low. so it has been a good environment for raising debt. metric,ar as the debt we have seen that come down. you have seen that on the structure side, some companies have reallocated capital away from paying distributions to paying debt on the oil and gas producer side. this has helped improve balance

sheets. so across the energy sector, we are in pretty good shape. alix: thank you so much. thummel.robert if you have a bloomberg terminal, check out tv . watch online. interact with us directly. check out any charts you may have missed. this is bloomberg. ♪

emma: this is "bloomberg daybreak." intel has proposed a system to ensure self driving cars don't cause accidents. the world's largest chipmaker is coming up with a standard that will govern the behavior of robot cars and trucks. it is believed that the current path won't work or will take too long. and professional say brexit may leave to an exodus of european

fund managers. nationalsd 42% of went to keep working in the u k after brexit. . it could hurt the uk's competitiveness. will start offering amazon products this month. that is after speculation that amazon may make a bid for the retailer. but the incoming ceo told me that is not the reason for the deal. >> i think we have to think differently. and as we think about our complement re-strengthen, what kohl's has is incredible, thriving footprints. and what amazon brings is the reach and brand. we think it is an unbelievable opportunity. will use says kohl's the deal to capitalize on smartphone devices. that is your bloomberg is this flash. in a podcast on politico

today, steven mnuchin warns what failure to reform taxes could do to the market. this is what he had to say. "there is no question that the rally in the stock market has baked into it i expect haitians of getting stack -- of getting has baked into it reasonably high expectations of us getting tax cuts and tax reform done." joining us now is stephen parker. ?ow do you advise clients do you take this into account? to the: going back question on reform, our view is that we don't want to make changes based on the prospects for policy. it is really hard to predict and that has been a clear losing strategy over the last year. if tax reform happens, it will benefit our high conviction views.

the is currently one of beneficiaries but in terms of building a portfolio only on top of that, we are not doing that. markets are our building that in. is af the things we track basket of companies that are most exposed to tax reform or deregulation. what you saw in the month after election, these companies outperformed the broader market by 20%. a have given almost all of that back. in thea boost recently last couple of weeks as it is a patient gets better so i do think that could potentially correct but i don't think markets are pricing in certainty of any major tax reform. dave cope what about health care? washington is

getting their fingers into. how do you address health care? stephen: any sort of compromise would be a good thing. we are seeing health care being the second-best performing the worst caser, scenarios are not playing out. and that is one of the favorite trades. the long-term structural traits for health care. the fact that we see an fda where approvals are almost 50% higher than the entirety of last year, those are good eggs. i think the worst is behind us as it relates to the policy concerns. jonathan: the treasury secretary in this administration is tying the success to the performance of the stock market. whether you should make those traits is a separate question and you have answered that. but what do you make of their approach to all of this? a step: i would take

back. i think the stock market and what they are trying to frame this as is a pro growth story. so if you're talking about a potentially being a slow growth then that is a good thing. it is good for us as an investor. jonathan: stephen parker, thank you so much for joining us. next is richard mcgregor, responding to the speech from china's president a bit earlier. highlights from that is next. one hour and 34 minutes away from the cash open. the s&p 500 is set to push out another grind higher. this is bloomberg. ♪

jonathan: the chinese president

kicks off the coming his party in china and lays out a roadmap. into 2018extended with canada and mexico rejecting what they call hardline u.s. proposals. and stock markets continue doing what they have been doing for quite a while. slowly grinding out record after record. the s&p 500 at an all-time high. from new york city, good morning, good morning. i am jonathan ferro with david westin and alix steel. futures are positive on a three-day winning streak on the s&p 500 into today's session. positive three points. the fx market, a stronger dollar for a fifth straight session. the longest winning streak since february of this year. and high yields, up three basis points on the 10 year. alix: you're seeing a selloff across the bond market.

yieldsparticular you see moving up. a little bit weaker after data came out overnight on u.k. unemployment. and what does nafta mean for the mexican government? dave cope we turn to emma chandra with the first word news. emma: the chinese president has kicked off a gathering of the communist party which is expected to influence -- expected to extend his influence over the next decade. reforms inor more state owned industries and promised to open the door to foreign businesses. in the u.s., senators from both parties have reach a deal to prop up obamacare. it would allow crucial subsidies to help insurance be paid out, potentially lowering the -- lowering premiums.

last week, trump announced he was cutting those premiums. and trump is willing to compromise on a key component of the republican tax plan. that is according to white house officials who say the administration is open to minimizing instead of getting rid of it altogether. high tax states have been pushing back against ending the deduction. global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries. i am emma chandra. this is bloomberg. jonathan: the chinese president laying out a roadmap for the future of china in that three-hour speech. toming us from beijing is mackenzie. let's walk through the highlights. was an ethics beach. -- it was an ethics beach -- it was an epic speech.

areas he didn't touch on board debtt get close is the pile in china despite a week ago saying corporate debt was an issue that needed more focused. also in terms of the reforms in the capital market, that didn't get much play. what he did focus on is the strength of the state sector. saying the sop would be bulked up. he talked about his industrial china 2025 made in idea, something quaint -- something coined by the chinese president about competing on the global stage. ai, electronics and robotics. the other emphasis was really on the role of the party. the party strengthening its grip here in the state sector and in

the private sector as well. that is going to be a theme that will run for the next five years and there will be tensions between that emphasis and the need to maintain growth while chipping away at the debt pile. jonathan: we crunched the numbers through the 3.5 hours speech and what are we supposed to read into that? from a resident perspective in beijing, it is a positive because pollution is terrible and the environment is a mess. i think you mentioned the environment 89 times. some perspective it is a aboutve the need to talk cleaning up the water pollution. he talked about the need to reform education and health care. timesnly in the number of thereked about reforms,

was an idea it would be a more conservative approach despite his power that a real needle moving reforms would not be announced at this speech. it was more about him stamping his mark on the party and on the government. and we will get more indications as to other not he has lined up a successor when they unveiled the standing committee. it is an elite grouping of men -- all men -- revealed next wednesday. jonathan: one thing many other thate picked up on was homes are for living in and not speculating in. all this carryforward to be something meaningful? tom: i think it is. i spoke to a hedge fund director shanghai and he said to watch the real estate sector. they are trying to d-link

residential retail investors pouring their money into real estate, they have seen huge increases in that. and he said he wanted to see and possiblyomes more curves in the real estate sector. prices have started to hedge down but don't expect the curves to come off anytime soon. jonathan: great work. that was mo brooks tom mackenzie. was beijing's tom mackenzie. mcgregor joins us now from london. i heard leading into this it would be a consolidation of power for the chinese president. how do we see this in the speech? richard: it marks the beginning of a new era.

-- rescue the chinese economy and now he has rescued the chinese communist party. and that sets the stage for what whatfed hash clay -- for is a fantastically ambitious program. 2050, and hetwo will be at the center of it. as your correspondent said, we don't know what will happen with the leadership that it is very likely that he may stay on longer than another five years. the president first came to office, there was a lot of talk about reform. how does that reform movement fit together with the state permeating every aspect of society? in the speech, the president emphasized the role of the party. richard: i think that you and i defined the word reform differently than how they define it. we think it means liberalization and that their economy will

become more dominated by the private sector and less relied on the state that that is and how they think. they want to merge the private sector with the state sector and that is their idea of reform. they are not trying to make their economy like a western economy and that is a key point to understand what we talk about reform. he also said he wanted to transform his army into one of the worlds top by 2050. what does that look like for the region? richard: they are getting their already. another aircraft carrier coming off the dock later this year or early next year. the u.s. has to manage the whole world. china is really focus on asia. so china, even if it hasn't caught up with the u.s. globally, it is competitive in asia itself. and i think what he is saying there is to say, watch this

space. determined over to become a dominant power in asia. their economy is growing and out of economic power grows military and strategic power. and i think china is laying down red lines through asia and they will have the military to back it up. up on that, how will that message be received in washington? and tokyo? one of the things you mentioned in your book is the relationship he between china and japan. two asian superpowers and they don't get along. and japan is more and more reliant on the u.s. to help defend it against china. and i believe the u.s. and china are on a collision course in asia which is bad news but the good news is that they know that and they have ample news -- they have ample means to work that out. but it isn't just china.

it is japan, south korea, southeast asia. so the post world order in the pacific is coming to an end and we don't know what will replace it. is potentialhere great instability into the next decade. david: when of the big questions is future growth for the chinese economy and how it will fit with the reduced role. -- is what >> what i find significant is that the communist party is the chinese president's leadership is seeking to sustain as tight control as possible without throttling growth which at present are providing the bulk of employment growth in china which is key to long-term economic and structural stability. david: how will that work? you have studied china over many

years. how can the chinese president manage that? richard: this is the dilemma. they have managed that well so far. is too tight, it stifles growth. if it is too loose, the private forms antentially alternative power. on,ll get harder as we go it is remember, the chinese population will start to fall quickly, soon. productivity won't be able to make up for the growth. a need the private sector. if they strangle the private sector, they strangle the country, eventually. alix: richard mcgregor, thank you for your perspective. can you imagine a three-hour state of the union? david: we will let you anchor that one. alix: that would not happen. coming up, michael fredericks will be joining us. goldman sachs said it could be

2600 on the s&p. this is bloomberg. ♪

alix: goldman sachs says tax reform could send the s&p up to 2650 and if it passes the target -- steve mnuchin is tying tax reform success to the equity market. he says there is no question that the rally in the stock into itas built reasonably high spec patience of tax cuts and getting tax reform done. "to the extent we get the deal done, there is no question is will go higher." joining us now is michael

fredericks. jalinoos. steven mnuchinth and goldman sachs will we are seeing risk with tax reform? michael: it comes down with how much tax reform we are able to enact. the markets think something will get done but not a lot, in our view. so if something does get done, i agree there is upside there. if they don't make much progress then the market may shift to focusing on underlying earnings and growth and fundamentals. i don't think it would be a huge surprise to see more in action out of washington. alix: if i was talking to steven mnuchin i would say, look at the dollar and the 10 year yield. i agree. at the end of the day, if we go back to where we were in december of last year when peak, ition was at its

now we are getting close and we are off the highs. economic growth around the world anywayng which benefits in normal circumstances. jonathan: what do you make of this strategy? it isn't the first time we have seen this strategy. obama with the debt ceiling, should the markets be concerned but the markets were not concerned. the ideas that you will put pressure on lawmakers to actually do something. is that we are seeing from this administration? trying to use the markets to put pressure on others? michael: maybe that is a strategy. i go back because it is so hard for investors to handicap what is coming out of washington and there is a wall of worry that we have faced for quite a while now , for the better part of the year and the market has looked at double digits earnings growth and global gdp growth.

a momentum of gdp growth. and this is against a backdrop of low rates and expectations that rates will be low in the future. and i think the punchline is that has been so much crowding into lower quality pockets of fixed income, a lot of yield chasing, that i think the next step down, that is part of the reason we have had this. there are not a lot of other assets that are attractive to buy. stock to this morning writing "the quiet before the quiet." i want to use that term. is that we are going to get here? right.: unbelievably low levels of volatility have been getting attention including at black rock. and there is reason to think this will persist. and part of the reasons are incredibly low volatility with

gdp, low volatility of inflation trends. low volatility of payroll. the list goes on. the economy has been so managed by central banks that the that itty is so low isn't unreasonable to think that thinkill continue and i that the volatility of the stock market is lower when macro fundamentals are addicted. macro what are the markets telling us? the market seemed to react temporarily. what do you predict going forward? a weakening dollar? a strengthening dollar? shahab: we have had a low ,olatility in the fx market broadly. it matches the equity environment which leads to

yields, which suggests that the dollar could rally but it is limited. because you are in that space. we think the most bank for your buck is if you get progress on tax reform. as you will probably see after japan's election next week, if victory, you get an environment -- as global europe is higher. fx, a weak yen story is the missing link there. alix: i want to round that out here. the dow 23 k. 23 k as much as the next man. alix: if you look at the contributors to that, it is boeing, it caterpillar, home

depot, goldman sachs. are those kinds of stocks going to lead us? as we look at equities, you say the defensive sectors are on proxies. they are richly valued. they have interest rate sensitivity. and one of the things that has made us the most money this year was overriding the types of companies that you mentioned. the ones that have better free cash slow growth. one of the tricky things for portfolio managers and investors is thinking about the radical changes starting to take place in parts of the market like the , the pace oftion innovation on electric vehicles and what that means. it is hard to get your head around how fast these changes are happening. so we have tried to figure out some of these themes over who the winners are and who the losers are. overriding some of the stocks.

-- has been an example, a way to generate return and income. david: michael fredericks and shahab jalinoos will be staying with us and coming up, we have enda kenny, the former prime minister of ireland. this is bloomberg. ♪

emma: this is "bloomberg daybreak" and i have your bloomberg business flash. u.s. regulators have charged -- with fraud. and guy elliott were also accused. the case has to do with the inflation of coal assets. they intend to vigorously defend themselves against the allegations. meanwhile, elliott has stepped down. the world's largest hedge fund is adding to its short against italy's economy.

betting against the oil and gas company. and the firm headed by a -- and later today, we speak to a ceo at 2:00, eastern time. that is your bloomberg business flash. jonathan: thank you. whereg ahead to next week the ecb is expected to give us color on what might happen next with the asset purchase program. what does that mean for the future? the chart.at yields are up two basis points. trading in a narrow range. about 60 basis points. joining us is michael fredericks and shahab jalinoos. the jpmorgan on -- the jpmorgan view on this is to go short. i want the black rock view on where we go from here with

balloons when we expect the taper? story, willk continue buying still be in the market in a big way? is this a market that has to reprice for an ecb that is less involved? a slow, this will be gradual process. which is why i don't think it is anything but a consensus view, the most reasonable expectation. globally, they are moreng in a slow pass to a normal environment. if you look at the 10 year treasury five years forward, the market is pricing in sub three-year 10% treasuries. the bond market believes it will take a long time to get anywhere near historical yield levels. i think it is the knock on afect of that, that there is lot of european money and asian money looking for pickup over 40 with domestic

sovereign rights. so this is part of the reason you are seeing these tight spreads, particularly in the u.s.. the yield curve is a better starting point. any spread over a starting point is attractive to investors. on our side, for now, we -- but witheuro is an upside bias. in our view, what we think is happening, is that ultimately, tapering we pace of see, it is more about the rate hikes. shahab jalinoos and michael fredericks are sticking with us. this is bloomberg. ♪ who knew that phones would start doing everything?

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

see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit or go to xfinitymobile.com. jonathan: 60 minutes away from the cash open. this is "bloomberg daybreak." a three-day winning streak on the s&p 500. we are up .4% on the dow as we

reach 23 k briefly yesterday and it is set to happen again at the open. a stronger on market. yields grind higher. in the g10is set space against a weaker pound. the data is as follows. -- up month on month in september. up 4.7 percent month on month. the expectation is -0.4. building permits, month on month, the expectation was -2.1% and it comes in at -4.5%. and there is a downward provision on the building permit rate. anda soft rebound on houses building permits for the month of september. you wonder how noisy the data on housing is going to be in the next couple of months. single-family and double family are both getting hit.

let's bring in michelle meyer. and shahab jalinoos is still with us. walk us through the impact on the housing data? theelle: presumably some of weakness has to do with the hurricane. seems thek closer, it weakness was concentrated in the south in particular and at the state level, you have a better understanding with florida and texas but big, natural disasters tend to impact the housing statistics the most and they tend to be the most persistent. housing starts and and it is hards to start a new property, even for home sales, it'll be hard to look for a new property. as you likely we will see this in the next few months and that is what we tend to look at in our forecast. after a hurricane, we took down

our forecast for how sales. alix: that chart did come from you and it deconstructs the south and where the strength is in the housing market. a lot of that is florida and texas and that was taken out there. single-family home down by 15%. when do we get change? we started to see some softer data around housing and part of it was seasonal. the first quarter of the year, it started off with a bang. a lot of that was the weather. you had warm and that expected winter weather and then a soft patch in the spring and some bouncing around. so for the full gear, housing will be up. single-family will be up around 8%-10% to pending on what happens in the next few months. multiple family is likely to be

down which is the key story of this year, relative to prior years. multifamily construction has peaked and we are seeing a down trend. is one storyfamily but what is going on with the pricing? michelle: a good point. volume and prices. volume has been weaker and prices have been stronger. averaging close to 6% on a year-over-year basis which is above what we had the prior few years. so we have seen an acceleration in home prices which tells us that there is probably a lack of supply. and it feeds into what we are seeing for housing starts. have seen ald faster turnover of the housing stock is construction would have picked up faster. is thatlack of surprise the market is keeping it tight. david: normally that would self correct. is there a lag?

you are absolutely right. the mechanism should be that builders respond to higher prices and that naturally calibrates home prices back to equilibrium but it hasn't been working. the question is -- why? there could be constraints in the areas of labor. and there could be a hesitance from single-family builders post crisis where they are necessarily as eager to come in and build huge communities in the suburbs, you are more selective in terms of where you put that property. jonathan: talk to us about how difficult it might be to construct the framework for the u.s. dollar when the data is unreliable as it might be for the next few months? shahab: the added issue is that you have to look at the other side. we have a fairly synchronized problem, globally. as long as the u.s. numbers are , and everyone else is

like that as well, you continue with the environment that we have at this point in time. the way we think about that is that you select where you are long dollar. and where there is currencies and in a field and lower left political risk to justify the currencies, but we are happy enough being against the yen. jonathan: you talk about policy. how do you balance the policy? incorporatehave to that because we have a new fed chair potentially about to be decided by the president. the market has partially priced in the idea that someone will be taking over at the fed. if that is something that crystallizes then i think it will be a step change from what we have seen for many years. so that is definitely a big issue. our understanding is, from what they say, is that we might know

about that by november 3. alix: michelle, your take on that because we made a big deal -- [laughter]lor john taylor, not james taylor. a lot of news has been made about john taylor. if you take a look and put a zero neutral rate in his equation, it is kind of where we are right now. doesom your point of view, it really matter, materially, who will run the fed? who that might be? from your estimation? michelle: i think it does matter. they have the loudest voice and they set the standard for the committee and they set the tone for the committee. so if it is somebody like taylor ao tends to favor

policy-based approach than he will be setting policy of the medium-term outlook and not respond to slight misses from the target objectives. and that is quite different from the fed that we have seen under janet yellen when there was more guiding of the markets with response to data. so i think it could be an interesting difference that markets have to get used to. alix: what about deregulation? the deregulation assets of the next fed chair, it it could be more important to president trump? are threethere pillars. interest rates, balance sheet and what happens in terms of deregulation. and deregulation will be important to the administration but they could achieve that through a number of different agencies. it isn't just the federal reserve. has been confirmed and will be sitting as the vice chair and he will have a heavy hand in what that looks like so yes, i think it matters.

but it is one of many components that goes into account when making a decision. alix: so not james taylor. [laughter] jonathan: i wouldn't rule out anything. [laughter] michelle meyer, thank you. shahab jalinoos, thank you very much. let's get to the top stories. emma: senate republicans appear to be going to risk a budget fight that could result in a government shutdown. security spending that includes $12 billion that trump wants for a wall at the mexican border. democrats have said they will not go for that. european union countries are keeping hopes alive on a trade deal with the u.k. they are doing prep work so trade talks can begin as soon as the u.k. has offered enough in brexit negotiations. negotiations remain stalled now. beginsany, angela merkel coalition talks. today she will meet separately

about an agreement with cabinet posts on policy. it is a combination that hasn't been tested at the global level. global news, 24 hours a day. powered by our more than 2700 journalists and analysts, in more than 120 countries. i am emma chandra. this is bloomberg. in, listenou commute to our colleagues tom keene and david gura. you can listen all across the united states on sirius xm radio. this is bloomberg. ♪

emma: this is "bloomberg daybreak." this is the hewlett-packard enterprise greenroom room. coming up in the next hour is enda kenny, the former prime minister of ireland. this is bloomberg. now to the bloomberg business flash. intel has proposed a system to make sure self driving cars don't cause accidents. they are coming out with standards that will govern the behavior of cars and trucks. the industry's current path

either won't work or will take too long. the world's largest maker of industrial cables is preparing to make an all-cash offer for an american rival. according to people familiar with the matter, they may offer a 20% premium to general cable stock versus. -- stock prices. negotiators have given themselves more times. their extended the deadline to refine the north american free trade agreement until march next year. canada and mexico have rejected the hardline proposals from the u.s.. that is the bloomberg is this flash. david: take us through the aftermath of nafta negotiations. we welcome michelle meyer. you here.ood to have we saw this news conference yesterday afternoon where they didn't agree. united states on one side and one side and

mexico canada on the other. will they get to a deal? it stands now. these conditions they are pushing are unacceptable to canada and mexico. the strategy is to prolong negotiations, hoping the business community that's enough pressure on the negotiator and president trump to back down on some of these proposals but if they don't back down, i don't see how it gets done for canada or mexico. david: the president and wilbur ross has been adamant in their position so far. what are the consequences for mexico? jim: we expect gdp to be trimmed by .5%. there are so many little supply chain things that i don't think so can reasonably anticipate i do think there is considerable car part inthe

manufacturing in new mexico. supremeusher in uncertainty. this is clearly counterproductive for lots of ectors in the u.s. agriculture and car manufacturing being the top two. so both sides get hurt. alix: to that point, u.s. exports to mexico, 7%. but mexico imports would be 3.5% . is that enough of a tariff for displacing what we have seen? onhelle: i think it depends what you're seeing with other economies and trade deals. it is all relative to a certain extent. i think the bigger question, when you speak about the nafta

deal, is what does it mean broadly for trade deals in the u.s.? in the election there was a lot of talk about the parrying of trade agreements and moving more towards restrictions of globalization and the flow of capital goods. if that is the path we are going, it could have serious ramifications for the health of the world economy. that is why nafta is so important, an indication potentially of what could come more broadly. jonathan: is it good news they have kicked it to 2018? michelle: it would be better news if they had an agreement. that maybe they will wind up coming to some compromises. there is a lot of uncertainty. jonathan: is there any reason they wouldn't continue doing this for years? michelle: presumably the administration wants to have a concrete deal. one would think. alix: one would think.

exactly. from an investor perspective, what bonds do you want to buy? jim: the entire corporate sector but focusing on the industrial sector. the problem with extending the negotiations into 2018 are the hegoing mexican president, doesn't want the legacy of being the guy who gave into the bully to the north. the incoming next and president has nothing to lose by walking away from nafta. and right now it is the least market friendly candidate who is leading in the polls. so the deeper you go into 2018, the more you intertwine politics with mexico. david: since nafta was negotiated, hasn't mexico integrated with the world much more? they have a lot of trade relations now. jim: yes. but they are significantly

dependent on the u.s. and in sectors like energy, integration has really skyrocketed in terms of natural gas production. what mexico is doing right now is preparing for the end of nafta. sending out negotiators everywhere. they are trying to get trade deals done with the rest of the world. david: since you specialize in latin america debt, venezuela, they have bonds coming due. will they make the payments? jim: the people who own those bonds really hope so because there is a downside if they don't. it is a coin toss. they're running out of money with hyperinflation and regime that is not going anywhere. so it is a really tough situation. if they make the payments, i think the u.s. makes payments and i think they want them to default to get the regime change. alix: wow. we will have you back when that happens. if you have a bloomberg

terminal, click on our charts and graphics and interact with us directly. you can watch anything you may have missed. this is bloomberg. ♪

jonathan: a decent market for the bulls out there. futures are positive i 4/10 on the dow. on a three-day winning streak and sitting at an all-day high. talking of record high temperatures, the dax is out there as well. .5% on the session so far. the story of the bond market is as follows. a bit of a selloff in bonds. market, a fifth straight session. the dollar.

a weaker euro. david? david: we have talked about this before. the automation of wall street. now, it is here. in reports this week, bloomberg takes us through the revolution overtaking the global institution and what it means for those who work there. christine harper oversees the team reporting the story. welcome back. take us through the parts of wall street that are already undergoing these transformations? christine: the idea is that everybody knows that automation has been taking over the lower paid jobs in america and around the world. retail and manufacturing. and some of the support functions in white-collar jobs, some of the technology functions and data functions. see we were really eager to

was how some of the highest page jobs, jobs were people make millions of dollars in some cases to do these jobs, are increasingly under threat of automation and that is jobs like sell and buye side. hedge funds, asset managers. everybody from a portfolio manager who makes decisions about what to invest into the order taker on the floor to the legal department determining whether a document is valid, to doare technologies now a lot of those tasks. it is very early stages but they have been actively tested and are rolled out at wall street firms around the world. what i say is that you already see examples. an obvious example is when you look at hedge funds, we have talked about this before. a hedge fund basically using

technology to make incredible performance. david: another way is by e-cig class. people say there are so many different kinds of debt. is debt essentially behind equities? christine: equities are traded easier itally so the is to collect data electronically and run algorithms and machine learning on the trends. it isn't always perfect. income, especially things like securitization each is further behind. but there are technologies that taking complex pass out of human beings to do them. and down the road we see how much more they could do. if i am thinking about

going into the industry, where should i be going? : i can't give you advice but i would say that if you look at this graphic, you will see some of the areas like the one i mentioned -- securitize a should. and those are some of the more illiquid types of investments. one of the writers on this series did a story a few months ago about how some investors are looking at the least electronic type of investments. real estate or private equity, things are you can't trade electronically at all. and those are the areas that are hardest to do with a machine, at this point. alix: my daughters three now, if she wants to get into wall street, does she go to silicon valley first? be addressingwill some of these issues in our story this week. but that component and skill set seems to be increasingly in every for people

industry, frankly. even hours. would say,y, -- i has any of you seen the show "billions?" and iis a character there assume this character, taylor, gender-neutral, it emotion free but brilliant at making decisions is ai. to represent the embodiment of ai and you see in the show how the character overtakes the business. jonathan: this is bloomberg. ♪

♪ johnathan: stock markets continue to slowly climbed down,

record after record. 500 sits at an all-time high. nafta negotiations reach a deadlock. canada and mexico rejecting what they call hardline u.s. proposals. and gathering in china warning of severe challenges. for our viewers worldwide, good morning, good morning. we are 30 minutes away from the opening bell. action for you, futures are positive up four points after a three-day winning streak on the s&p 500. it's boring, well, it's good for the bowls out there. that has meant marginal dollar strength throughout much of the morning. the euro dollar now flat on the session pretty much. , alix steel.pitch alix: i never thought i would

say this, but at -- ibm is not boring. surging up in its second post earnings gain. just the second and 13 quarters, protecting its first sales growth in 20 two quarters. the interesting part about this is that it's really led by old tech. the watson-based service revenue , the newest version of its mainframe server really did them well. also, some services come along with that when you replace your server. on the downside, check this out, chipotle, down by a most 4%. cutting the price target by over $100 at merrill lynch. there are significant risks to the aggressive wall street valuation for the stock. moving up by 1%, it beat on consensus, but the full-year outlook is slightly under consensus.

medical device yields more than doubled, we are seeing that playoff in all of its four units as earnings continue to trickle out. john? johnathan: thank you. the number, 23,000, the dow reached is this round the past atmonths and with stocks record highs, the prospect of tax reform coming much into question. the trump administration has been linking its success to that of the market. they have a warning for the market. in an interview with politico he said "there is no question that the rally in the stock architect baked into it expectations of getting tax reform done. in that case it will go of higher but there is no question in my mind that if we don't, you will see a reversal of a significant amount of these gains. andng us now, scott wren dani burger. scott, let's begin with you.

what do you think of those comments? scott: we have to remember that he's a politician now and he has exaggerator of a few things. in my mind, i would say the last ispoints in the s&p 500 probably almost exclusively related to tax reform. a totalthink it will be disaster if it doesn't go through. we are assuming nothing this year. maybe we see something, there's an election in 2018, these guys will want to pass something, but will it be significant enough to push in 18 trillion dollar economy ahead? that's the big question. havethan: a lot of people been saying, and we set it ourselves this morning, this administration has tied its success to the success of the stock market. it had the same time, is this a strategy to put this pop -- put this on other lawmakers?

personally i think it's a mistake for any president or politician to tie success to the stock market. varietythat there is a of things that the administration is doing to apply only for tax reform, but for other proposals that they might have out there as well. i think that pressure is the name of the game and i think that probably donald trump does it in a more public fashion. i feel like it's tying your success to what passive etf investors do. [laughter] alix: i wanted to get your opinion on this. this shows the biggest contributors to the dow moving and its boeing, caterpillar, home depot. goldman. aside from goldman, it's really about industrials, the big guys who are moving. what's your take?

interesting, the dow 20 k hat, i didn't dig it would make me look so bearish so quickly. these are companies that are sensitive to economic growth and therefore would be sensitive to any kind of tax reform that we might get that could really stimulate the economy but you can easily say listen, earnings season is coming up and maybe there is a lot of corporate profit optimism out there. we did just see the best month leading up to an earnings season that we have seen in five years. certainly a lot of optimism there, but at the same time analysts have cut growth expectations by half and it is now the slowest income growth they are expecting since 2011, so there is certainly a mismatch year that could be contributed to assumed tax cuts. you agree that there's a downside with the cyclical? i have talkedand before, we have been leaning

cyclical for quite a while. we don't think the cycle is over. we are in the pullback cap, though that's getting lonely now. we do want to be overweight industrials. they have outperformed for the last couple of years. that's what you want to do. if we see some kind of pull back over the course of the next few months, a 6% pullback or something, which i don't think is any big deal, it's a buying opportunity and you want to be buying industrials, consumer discretionary, financials, things that will continue to recovery.om the that is what we are going to be looking to do should we get the pullback. david: what is going to sustain that recovery, scott? if we don't get tax reform, we can't lift the monetary policy, so what is going to drive the earnings growth? you are only going to see

5%, 6% earnings growth, something like that, well down from the first couple of quarters, but for us to get beyond it, it's going to be a modest gdp year. next year is going to be modest. earnings growth next year, probably about 7%. you are still in that chugging along kind of pattern and for us we would argue that to get beyond 2018 and see this expansion continue, you need a fiscal push out of washington and just tax reform probably isn't going to do it. there needs to be less regulation with any number of things that you can come up with. the economy is going to need some help to move forward. a little bit of tax reform and a little bit of anything else is going to do it. at 23,000, you look how much of that is in anticipation of not just tax reform, but infrastructure? 23,000 is a number for me

that says that stock valuations are stretched. there is some hope in the market but it probably won't come to fruition. for me, as i said, i'm more of an s&p watcher. i would contribute more like the last 50 to 70 points in the s&p 500 almost solely on the hope for tax reform and i think the markets got a little too much hope in it right now. cash positions, according to bank of america, lowest, so watch -- walk me through foam oh. seem to be this sensibility and one of the things that is really illustrative is a chart i brought with me basically showing dimensions in press releases and in media stories. on mycan we bring that up terminal? it's actually a very cool chart. dani: the interesting thing is look how many we have had this year. the number that it mentions are

at the highest since 2002 and that was a remarkably different market. we are getting mentions as we touch new highs. that would seem to indicate that whenever there is any kind of pullback whatsoever, which we honestly haven't had, we have had dozens of new highs, haven't fallen more than 3% and still people are jumping on any kind of fullback. tonathan: i was coming up work this morning and i heard the security guards discussing this as well. everyone is talking about eyeing bids. -- buying bids. scott, how misplaced is the push in the market? scott: john, i think there's really not a lot of premium built into this market. like i said, there is some, no doubt about it. i don't know if it's 3% or 4%. i think that the

economy has justified at least a catch up to fair value, but we are a bit behind that right now and the market is hoping that something comes out of this, but we are not going to see anything this year and i think that what will happen is, as i said, in an election year we are going to get some tax reform that is watered down and in the end it probably won't be that meaningful in terms of pushing economic growth ahead. wren, good tott see you. dani burger, staying with us. in the next hour, the former prime minister of island will be with us to talk brexit and the european commission war in the united states. this is bloomberg. ♪

♪ david: this is bloomberg. i'm david westin. the fourth of nafta negotiations ended yesterday with the parties further apart than ever. here to give us the aspect, david scanlon and kevin cirilli. david, let me start at their north of the border. as i say, it looks bad in the united states for the prospect of these talks. how does it look up there? how are markets reacting? david: it looks pretty bad here as well. we are seeing a ramping up of rhetoric on both sides, the white house started and the canadians and mexicans are now dialing back the clock on trade. with outrageous proposals. but the fact that they are still talking is a good sign and they have already set up a next round in mexico and they have pushed talks into 2018. as long as they are still at the table, you have to think that there is some optimism that they

might reach a deal. and we have a saying around here, as you know, it's follow the money. and look atoney what the markets are doing. investors are not concerned in canada about nafta. the dollar has been holding up study. canadian stocks about to hit a , possibly today. even the stocks that should be hurt by a collapse of nafta are hanging in there. they are saying that this is going to get done or even if it collapses, it won't be the end of the world. kevin, he's saying maybe it will get done after all. everything we are hearing is that if it gets done it's because the president and wilbur ross back off of their positions. is that likely? they are essentially laying a marker, so to speak. we are about halfway done with these talks. i think that there is the thisus for mexico to get

done before their election, as well as the united states before the midterms. this president campaigned on the notion that -- notion that nafta was a bad deal and they have a much more aggressive approach than the previous administration but in terms of states where the president was able to win, like wisconsin and michigan, this plays really well there, so i don't think that politically there is as much of an incentive for this administration to back off. david scanlon and kevin cirilli, thank you both very much. at theaking a look market reaction, if you look at the dollar cap index, where it's trading over the last few days, butad a brief move downward is slowly starting to reverse some of that as the peso maybe gets a bit weaker against the dollar this morning. of canadian loonie is kind the same story. there's a big move lower there by the dollar and now we are around the lows of the session. what's baked in, how do you

trade? still with us, scott wren. scott, what do you do? scott: alix: with th dollar,? alix: in terms of it being the most vulnerable. it will beink vulnerable. to be honest with you. those are two gigantic trading partners of hours and i think that if nafta is meaningfully adjusted, you know, those two currencies are probably going to, in the end, lose some ground. you will see some adjustments in this and, let's face it, you just talked about what the president ran on. we have had tons of factories fire people in the u.s., move across the border, open up shop at ship products back here relatively no expense. so, why wouldn't they do that? that's a very powerful message and i think it is one that the president used to his advantage.

there is a number of not just nafta, but these other trade agreements where we have given countries a lot more full access to our markets than we have two there is, so i think you will see a lot of this negotiation over the next couple of years. the president and the administration is going to continue to use that as a hammer and they are going to hammer hard on that. companies like the railroad companies, kansas city southern, hitting an 11 week low yesterday. union pacific getting 10% of its revenue from mexico. getting one third of its revenue from canada and mexico. how do you square that risk? , these sub groups like railroad, they will suffer more than others. but overall we look at global trade, it's only going to increase.

i think that companies that operate in these countries, whether it is machinery, whether , ors airlines, aerospace defense, they are prospering right now. tradek that some of these agreements will be better for them. you mentioned railroads, that is something that could be affected. right now i think that something .ike that is suffering sell the rumor. railroads in particular, you have fewer oil shipments and there's less going on because we are just -- we are producing oil but not like it was. a specialty, but i would argue that overall industrials are very globally oriented and as a sector they are going to do well here over the next 12 months. from speaking to you, your framework in thinking about the market is not to put anything on politics.

it's policy parameters only, to some degree. but in terms of getting the things done that they can't in >> when westates -- united states. out, those we look markets look like they have more upside potential. this is a baseball town, st. louis, and we have said we are .n the last third of this game these other international markets are maybe in the third inning. they are earlier in the cycle and we are. if there is a surprise roaf growthlity -- probability, it lies internationally, not in the u.s. . for us, if you look on absolute total return, it's probably better opportunities overseas and we have been recommending to clients that may be they reallocate money out of large-cap u.s. and go to places

like em, where they are underweight. coming up anathan: little bit later, a republican senator from south dakota joining us. look out for that interview as we count you down to the cash open 10 minutes away. we are up about two tents of 1% on the s&p, of half of 1% on the dow. from new york, this is bloomberg. ♪

we learned that at least two senators have agreed on an approach to the health care subsidies that president trump has cut off. now it has to make it through the full house into the president's desk for signing, the news of the deal was enough to take up health-care stocks. blue, by way of comparison,

is what the s&p is doing to save time. still with us, scott wren, of wells fargo investments. drew, levy start with you. it's not clear whether the president is supporting this or not. where is this headed? least have the start of a process here. and it does seem that there is support in the senate for this. as you pointed out, this thing has a lot of obstacles to go. there's already been noise from house conservatives that they don't like this deal. call themlet's mercurial views on policy, especially when he senses the opportunity to get something more. you could easily see him go from supporting this going wait a second, i don't really love this. there are a lot of obstacles and

that said, they are making a lot of progress in solving and administration created issue than they have in a little bit of time there. it is kind of remarkable that this all blew up last week, by the administration's own actions and now they are encouraging congress to take moves to undo those actions. scott, --t david: david: scott, taking this into account, where are you on health care? scott: during the campaign season prior to the presidential election, hillary clinton was talking a lot about price controls. health-care stocks didn't like that. pharmaceutical, biotech stocks got killed. donald trump wins, you see a couple of days of a big jump and suddenly donald trump is talking controls and they

took a leg down. they have been working their way higher. i don't think that the market believes that the price control issue is going to be as meaningful or is actually probably going to happen and we think it was overblown. health-care stocks still look cheap to us. not as cheap as they were nine months ago, but demographically we are there. i think that things are going to loosen up and it's clearly going to take some time. there is going to be more competition, i think. but in the end these companies will be more profitable. alix: scott still likes health-care stocks. what are the things he needs to pay attention to in the next few weeks? drew: those are some interesting points about the price control issue. and there is no basis in the law for somebody to come in and do this. trump can get up on his bully pulpit as he often does to try to name and shame these people, but it has not necessarily stopped people from doing what

they have been doing on pricing and drugs. you see a relatively friendly fda, approving drugs at a faster pace than any time in recent history and they are doing so with wider and wider labels. there are a lot of positive signs, even in this highly regulated environment. you could find a lot of positive signs for drug stocks. guys are sticking with us. thank you. coming up, just under four minutes away, the open in new york. coming into wednesday at an all-time high. once again, from new york, this is bloomberg. ♪

johnathan: 30 seconds away from the cash open in new york. on the s&p 500, a three-day winning streak with futures positive as we come into the

, and 103ell, up 2% points on the dow. [opening bell] johnathan: let's get to the bond markets. treasury yields pushing harder, globally the bond markets across europe and in the u.k. today, the dollar set for a fifth straight session this year. coming off a session high at 93. crossing the asset picture, let's get to the opening bell to look at how many record closes we have had. alix: 50 in 2017. if the rally holds up today, that will be 51. the dow and the s&p are making records today, as is the nasdaq. the dow, really moving it. it has been boeing, goldman sachs, and caterpillar helping to lead the rally in the dow. every one dollar move in a dow stock is worth almost seven

points to the dow. in individual markets back here, take a look at the health-care stocks. express scripts, down, but here's the deal, anthem is moving from express scripts to cvs and those prescription plans are 19% of express scripts revenue. relativelye is muted, but nonetheless a significant downside for the future. there is a new diabetes drug that will be approved by the fda committee and it will get fast-track. -- track. .- tracked want to highlight two things relating to this chart overall. thert kaplan saying that markets are signaling sluggish growth for the future and that you are seeing pricing power we can but profit margins higher and he's confused by that and

it's not reflected globally in earnings estimates. usually in the earnings season we get the downward revision and this is the first time we have really seen an upward revision in earnings estimates. the question being -- why, is it sustainable, and what you make of future growth at those margins? johnathan: markets not hanging out the answer. scott, i want to wrap things up with you. many people have called this the most unloved bull market in history. when does the melt up "mark scott: i don't think that's -- melt up big in? -- melt up begin? scott: closer to the end of the cycle and we are not there yet. johnathan: great to catch up with you, scott. what are you more board of, record highs or brexit talks?

they are still deadlocked. split in the of a u.k. government. tensions there may for difficult negotiating partners for the european union, but they are indicating that brexit will move forward if negotiations fail, refusing to roll out a no deal scenario. >> what we are doing is working for the best possible deal for the united kingdom. [loud clamoring] >> it would be irresponsible of government not to prepare for all possible scenarios. reflectn: joining us to on these developments, i'm very pleased to say it's our privilege and pleasure to have the former prime minister of island, and the kenny -- enda kenny. bridget -- the british decision to leave is underway. the initial stakes of the

process have been determined on the european side by michel barnier. saying that they will treat the criteria in which the progress has been made before they enter the talks for future trade arrangements. are citizens from europe and britain and vice versa. the cost of her britain exiting and the cost of the irish border , the only land border within the european union. this is causing a real problem. the decision will be not to proceed any further at the moment, because progress has not been made on those issues. johnathan: i want to spend some time talking about the irish issue with you. both the u.k. and ireland have said that they won't build a border. how realistic is that? you have to understand the complexities of ireland in this matter. bombed,re 3000 people

murdered, killed, during that time of the troubles in the 60's, 70's. when president clinton sent over , after fiveell years an agreement was accepted. the agreement has been blamed largely on the united nations. that's got to be preserved. are not coming back with customs posts. so, when britain made this decision, this is one of the things that had to be looked at. saysthe prime minister that i want the best deal for britain, remember, there are 26, 37 other countries on the side of the table. they wanted to use them, but you can't have a situation where you have the best of everything, are currently in the european union, in the singular market, with 500 million people and decide to

leave those and do deals all over the world. to get past these issues, we would not recommend going on to deal with the question of trade. if you were to follow through on what the prime minister said there, you are talking about a hard brexit. this would be catastrophic, in many cases. the case of ireland as close to britain would be detrimental indeed, but politics has come into play here. politicians are faced with the reality of what might happen, things come into place. leave ins expected to march of 2019 and talks will not be concluded by then. you need transition. this has been talking about -- talked about. much longer than two years. at the end of the day, article 50 is what triggered the request to leave. article 60 has been, if triggered, causing britain

problems politically, until these thousands of issues are sorted out. johnathan: how long would the transition need to be? enda: as long as it takes to arrive at a working solution. no deal is absolutely detrimental. this is where politics and political leaders have got to look at what flying up ahead. i came here with foreign direct , sayingnt into ireland that they want to be part of a singular market and want to have access to european union money and talent.

this is where britain is playing now. if they leave, having not negotiated a trade deal in 40 years, if they leave the market behind and hang the customs northernu are leaving ireland with its process intact, and the political settlement of some unknown entity at the moment, which would be damaging and dangerous. two things there, there's a sensitivity to the history quite obviously shared between the u.k. and ireland around the border, but at the same time how do you weigh those things? enda: the good friday agreement, the peace process, means that every citizen in northern is entitled to irish citizenship and british citizenship with full european union rights. it won't be damaged in any way. in fact, the irish government to which i liken myself and the current government have worked , which hasn't functioned

in 12 months, would get down to we have good relations and we will maintain those relations, but this is a place for politics to make a decision. it's not just technological. it's not just about controls. politics is always about people and government is always about making decisions that affect those people. have gottenlitics really nasty. part of the issue has been all of the crosstalk within the tory party, making it difficult for eu leaders to take anything that the british people say seriously. as prime minister of island, how would you handle something like that in your own party? david cameron said he would give a nonbinding referendum and then he resigned. prime minister may was elected.

another election, ostensibly to get them to your majority to be able to do things and that didn't happen. what emerged from all of that is ist the british government now being backed up by the democratic union party, the only party of northern ireland that voted to leave. now that needs to be acted upon because of northern ireland is suffering from not having an executive. the have called upon the politicians in northern ireland to get down to business and start making decisions about northern ireland and i support that. we will not tolerate a position with a good fight over the peace process eating infringed upon in any way. this should be considered for more carefully. border within the

european union. the past. not forget it's the longest lasting peace process on the planet. david: you been clear about that, but on the one hand you couldn't have a firm border and have northern ireland not part of the customs union. usually those are diametrically opposed to one another. enda: we've got a single market with a customs union, meeting freedom of union movement. tofairness, europe responded that by saying that they would deal with the question of emergency numbers coming to britain if the referendum is

past. if you remove yourself from the market and you remove yourself from the customs union, you can't be in the same position as now. there is no reason the great britain couldn't become a global power within the structure of the uber -- european union at the moment. they have always had the exclusive competency of drafting trade agreements. britain has not negotiated a trade deal in 40 years. johnathan: anyone in ireland recently will be struck the presence of technology companies. what do you make of the european union's commission to companies like apple and the relationship the commission needs to have with the irish government currently. britain was an ally for ireland and many other countries, but as a small country we build relationships

with other small countries. the importance has declined as we have moved beyond europe. 12.5% across tax, all sectors. it has not gone up or down. protocols specifically in the , other countries adjusting as they wish. ireland was the country holding the presidency that said put it as the first item on the agenda but it went nowhere. with respect to apple, we have been very clear on this. the irish revenue commissioners are the independence of the executives and over the years

they have never done sweetheart deals. apple has a very big firm from the countries with mobile phones. island has been very clear, we're the first country to have fully compliant development. yet you are still deciding to sue over taxes. why? expected to not collect the tax of the world. we collect and pay him the basis of economic activity. they have made great progress in putting an amount of money into the estuary account. always great to catch up

with you. thank you very much for joining us. david? senator john thune is the chairman of the senate republican conference. we welcome him today from the russell rotunda. welcome back to the program, senator. good to have you with us. let's start with tax reform and the way it's playing out. where is the senate on a budget resolution? when will it pass? hopefully by late thursday, friday morning, that's typically the way it works. we've got this weird budget process in the senate that allows for what we call vote-a-r ama. anybody can offer an amendment and get it voted on. typically it runs into the wee hours of the morning. as you pointed out, there is no tax reform without a budget resolution.

it's critical that we get that across this week. how different will these resolutions be? hopefully not long. the ways and means committee needs to start writing the bills and they can't until the budget until the respective committees have a number. billn't start marking up a until we know what the number is . the process in the conference of we can't afford to lose much time. as you know, we would like to get this done by the end of the year, that's the goal and to do that we have to keep on track here. explain how, if at all, the question of money for the wall fits into this.

we hear it's very important to the administration. could that hold up the process? senator thune: i think the wall issue will get addressed, but probably in a different context. could be a year-end spending bill. there's a lot of discussion on how to solve immigration and did with daca issues and how to include in that some border security provisions. right now i think those discussions continue. i don't think there's anywhere close to a conclusion on that. my guess is that if that is wrapped into one of the year end bills it will be one of the spending bills. we have to do a budget by december 8, so we've got to address that issue again. it's more likely that the wall gets addressed there. the tax bill itself most likely work singularly on tax reform and grabs a couple of other issues there, but for the most part it will be about reducing taxes on middle income families and making things more competitive in the global marketplace. david: is the issue of the money

for the wall so important to republican senators? senator thune: most would like to see it enhanced. i know a lot of our members who believe that a wall can be a technological wall. it can be partly physical, it can be virtual. there are a lot of ways in which you can enhance and strengthen border security that doesn't include necessarily building a physical wall. how that is addressed in the final legislation remains to be seen, but as long as there are security enhancements that we think strengthen security at the border, i think you will have fairly strong republican support for whatever ultimately emerges. on the subject of tax reform, we hear from the president and secretary mnuchin that it is critical that he gets

to the president's desk by the end of the calendar year. is that realistic? senator thing arounde here, there are always contingencies that can come up. the senate is an unforgettable place. the house has a structure and rules and will be able to move in a timely and systematic way across the house floor. different rules and procedures to deal with here, but the goal is to try to complete this before the end of the year and put a tax reform bill on the president's desk, but the one thing i can tell you is that whether it is done by the end of the year or sometime into next year, it will be done in this congressional cycle. we have two years every congress and we are committed to making sure that tax reform is something that we can deliver for the american people in this congress. i hope it happens by the end of the year, that's certainly the goal. david: another item on your

agenda is the subsidies for obama care insurance. we heard about a compromise yesterday between senator lamarr and senator murray. you call it urgent to move this forward. i'm going to read something the president just tweeted out. lamarr as aive of person and a process, but i can never support bailing out insurance companies that have made a fortune with obamacare." is the president for this compromise or against it? senator thune: i think we will probably find out in due time. i think he has spoken with lamar alexander. as you have mentioned, he's been the republican primarily responsible for this short-term fix. the president has had a number whereversation with him we could get a vote on repealing and replacing obamacare.

i think that this is what they are proposing to do. most of us are still looking at the details that i just whether or not it is something we can support. where the president comes down will be important to our members. had a chance,u senator, to review this and decide if you are in favor of this compromise or not? johnathan: i am looking at it -- senator thune: i am looking at it. in addition to allowing or retaining csr's for continuance, for people in the obamacare alsonges, there needs to be flexibility given to the states so that the states can design more of their own plans and use their dollars in a more efficient way and that's something we are trying to determine right now, whether or not the proposed flexibility is meaningful and real. it is certainly something that's important for a lot of republicans. but i think there are a lot of

members on both sides of the aisle who want to maintain and ensure stability in the individual market place until such a time as we can have a more complete reveal of the place that we can get over 50 votes for. will be aappens here .ridge, short-term, near-term david: on top of everything else, there's infrastructure. we understand that there are talks even today about infrastructure. in 2018 should we expect significant infrastructure bills the past the congress? senator thune: i certainly hope so, i think it could be a big bipartisan win for this congress . if we want to get the growth rate backup to a more normal rate and create utter pain jobs in this country and raise wages, tax reform is absolutely essential to that. right now we are not competitive in the global marketplace. --are hemorrhaging jobs and

jobs overseas. but i think it can be a big boost to the economy and we are meeting today. a number of members will be up. in with my committee to talk about what they are thinking in terms of infrastructure and to hear from members about our priorities. that's a conversation that has started and i hope will take a more full form, but i think it is probably going to be sequenced behind tax reform, which i think cap's first and then infrastructure is the follow-on. you sosenator, thank very much. thanks for joining us from capitol hill. we'll be right back with bloomberg and much more. ♪

♪ johnathan: johnathan: from new york city, that does it for all of us here on "bloomberg daybreak." wrapping up the market action

for you, 25 to 26 minutes in, it looks something like this, record highs across the board if the dow, just short, but we close here today, it will be dow,t record close on the 40 seven on the s&p 500. are you becoming desensitized yet? i don't know. for the bulls it's good news. they just keep climbing out of record after record. hard,ry yields, grinding bond markets selling off and the dollar with a big did throughout much of the morning and now we are raising some of that. just a little softer. from new york, this is bloomberg. ♪

♪ a.m. in new york, 3:00 p.m. in london, and from new york i'm vonnie quinn. >> i'm mark barton. welcome to "bloomberg markets." ♪

vonnie: here are the top stories from the bloomberg and around the world, adp hitting back against bill with a new shareholder letter out this morning. lots of accusations. we have an interview with the ceo carlos rodriguez this hour. then, oil prices moving higher before inventory data with iran on traders mines. we will speak with the ceo of the trading giant veto. and the chinese president laying out an ambitious strategy as they open up the communist party congress. find out what he said about foreign access and a lot more. that is coming up, but we are 30