♪ francine: optimism on u.s. tax reform. treasuries tumbled. equities edge higher. the greenback climbs. offers the paper ministering -- the you could print minister a lifeline. -- angela merkel offers the u.k. prime minister a lifeline. good morning. this is "bloomberg surveillance ." first thing is first. this is what we are looking at on the markets. we are seeing optimism out there

about what we saw in the u.s. delegating, treasuries falling. the latest of elements in showingon seem to be optimism on the markets. rebounding after the selloff we saw yesterday. we are looking at gold heading for its fifth weekly drop. save havens seem to be losing favor with investors today. those are your markets. we have a great guest lineup today. and others join us. as theresa may negotiates in brussels, opposition labor gives us his take on brexit. let's get to the bloomberg worst -- the us get to the bloomberg first word news. sebastian: angela merkel has

called on the you to shift their stance so a brexit agreement can be reached by the end of the year. theresa may signaled she is willing to offer more on the divorce bill. may urged leaders to help her find a deal so she can sell them to -- sell it to skeptics at home. in spain, both sides of the standoff over catalina are often the ante. standoff over catalonia are upping the ante. catalan could declare independence within days. isnzo abe's ruling coalition projected to lose a vote.

the u.s. secretary of state says he's is little hope that the standoff with qatar will end soon. the comments came days after he embarked on a trip to the region , including stops in saudi arabia and qatar. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am sebastian salek and this is bloomberg. . tom: the race --francine: the race for the fed chair. advisors are pushing the u.s. president to choose a candidate. he has not made a decision. to make a decision on november 30. -- on november 3. u.s.or factor affecting

markets is tax from. the trump administration has taken its first major steps to reap -- to reform the u.s. tax code. the house and senate tax running the house and tax senate committees need to draft it proposal by next month. we are joined by our guests. markets are repricing some kind of hope that now we get text form. severalems like after -- it seems like after so long, so many setbacks, the senate adopting this budget resolution last night is an initial step, but it think it is interesting to note that even lindsey graham says it is like they are at the bottom of the mountain still and they need to climb to the top. it is a step in the right direction, but is once in many. -- but it is one step in many.

, as axt step would be formal process, the house would have to agree to vote in favor of this senate passed budget resolution. this process called budget reconciliation. the bottom line is it allows the senate to bypass a filibuster, which means republicans could pass a tax reform proposal without getting democratic support. that is important, because democrats are not on board with what republicans are trying to do to the tax code. setting up this process and clearing those hurdles to get that process in place to allow them to do text form without allowatic support -- to them to do text from without democratic support is an important step. this is the problem we have seen

in the past on issues like obamacare repeal is that it is hard for republicans to get there -- all of their members on board. two can only lose one or before they don't have the votes they need. it is a difficult task, but it is moving. markete: it seems the repriced on the back of these hopes. are they hoping to much? -- not -- julian: we know how this debate, are we going to get tax reform? -- we now have this debate, are we going to get tax reform? within thedebate republican party as to what the reform should be. we thought we would see

something in the new year, which we think we will. my inkling is it may turn something into more of a package of been a reform of legislation overall. kathleen, when you look at the budget yesterday, how much of this was a surprise? kathleen: not that much. strokes of what republicans want to do and how they want to do it has been out there a while. certainly in this environment, it is notable they were able to keep all but one republican on board. rand paul is the one republican who voted against it. isn't usually a notable accomplishment, but giving the impairment we are in now, it is. difficultyres the they face going forward.

it is a very narrow margin they are working with, and is going to continue to be an issue. francine: what is it mean what the dollar does from here? julian: the dollar is factoring in the rate rise at the end of the year. -- they- the debate have already talked about for me or may not be fed chair. taylor is appointed, people will view this more hawkish and expect at least three rate hike raises next year. francine: thank you, both. guests stay with us. we have breaking news on china. this is a big insurance company in china that offers a wide range of life, accident, and health insurance services. they were rising earlier after

we understood there was a lot more trading volume. we now understand they came out with earnings. the net toexpecting rise 95% year on year. is because of insuring more individuals. stay with surveillance." plenty coming up. you -- fromrom the the au summit. we are also live in paris. this is bloomberg. ♪ ♪

tom: -- francine: this is "bloomberg surveillance picker let's get to the bloomberg business flash. daniel lalonde -- first drop in

quarterly profits since the second quarter of last year. dusted earnings before interest and taxes rose, beating estimates. nissan has fallen after the carmakers quality controls. the move comes after uncertified workers. a quality certified checks for weeks. caixabank and banco sabadell says it is business as usual today despite calls for

cash withdrawals. urged to takee money from banks. .ith us is julian chillingworth i guess it is difficult at the moment to figure out outflows. is there a moment it starts hurting the rest of europe? julian: the next few days is crucial as to how the madrid government handles the situation , and there hasn't been a huge amount of dialogue between , which is madrid slightly disappointing and one would hope that perhaps before they press the nuclear button on saturday they can get talking saw, we aree if we worried about the stability of

the banking system in spain, we are in a different game. toncine: is it unlikely infect the banking landscape? outflows connection to come out of this -- can actually come out of this? i think the ecb will be watching this closely and will be keen to support the banking system. view, i thinkt of that is not what people worry about. it will be a general deterioration of the situation has beenact that there no resolution in the prospect. francine: i am looking at the spread between spanish bond and german wounds. 10-year. was the answer. probably not brave enough and is not the sort of trade we look to do. it is probably too volatile. francine: this is interesting.

is this because of ecb policy going forward? we have a decision next thursday. julian: not really. ecb policy will probably remain as is. we will be inching towards a tightening and 2018. -- in 2018. the reason for not spanish bonds is for not being paid enough risk after the risk. francine: what is the biggest risk out there. ? -- what is the biggest risk out there? was an i think there interesting piece i was reading yesterday suggesting that we were at high valuation levels, but probably not in bubble territory. what we want to worry about is the black swan or who burress you into that -- or hubris you hinted at.

it is normally the risks are all appreciated by investors, but it is that one catalyst that will suddenly change the landscape. taking -- ently suddenly there is another catalyst and they worry more about that. francine: julian, thank you so much. , chiefchillingworth investment officer joining us this mining. a company has gone public today. is almost doubled its sales in the past three years .ith a fashion range at the same time, having more appeal. the brands have become main staples of rocket high streets

in european capitals with total net sales growing more than 60% over the past year. now.l lalonde joins us first of all, congratulations on the ipo. a lot of shoppers will have heard about accessible or affordable luxury. how do you define it? how much can the market growth in the next five or 10 years. you very much. a very exciting moment for the company. we see a lot of growth potential in the next years. how do we defined accessible luxury? it is a category between luxury and fast fashion. to blend of fast fashion and those of luxury. trend, high-quality products at affordable prices.

this is a very powerful segment and one that is growing worldwide. francine: what is your biggest concern? i speak to a lot of ceos. some say attracting talent, some say geopolitics. is there a danger you expect? daniel: listen, i think what keeps me awake at night is more just saying very disciplined and more focused on our priorities. we have so much runway in front of the three brands that we need to stay very disappointed execute our plan. number two is making sure that we are able to absorb all of this growth. --hope the brands and group the brand and group has high growth rates and we need to make sure we are supporting it. in terms of potential, we are at early stages of each of the

brands today. francine: who is your customer? is it people that used to shop at chanel and product? -- chanel and prada? i think you described it perfectly well. given our accessible luxury prices and the value proposition, we see a lot of luxury customers in our stores. thelso see the emergence of a lot of newclass, customers stepping into our stores, a lot of new customers into our brand. areou mentioned, positioning allows us to cover a wide range of the market. call our customer young,

spirited, and ageless in many ways. francine: that is lovely. investors will worry about the currency swings. do you worry about that? daniel: yes we do. we have a natural hedge in our business, because roughly a third of our production is u.s. and a third ofs our business as well. hedges into natural our business, and then prior to each collection, six months before each collection is bought, we are hedging as well. we take away as much as possible on the risk. francine: talk to me about china. have you had any plans expanded china? main shareholders are chinese. have you talked about how you sell different link to the chinese -- have you talked about how you sell differently to the chinese? sixel: we really prioritize

, one which is greater china. we have 104 stores in greater china. they are among our most successful stores. in the u.k. we are in early stages of growth. our business has been growing very well. our brains are global, desirable and all global markets, and the china opportunity is very exciting. we don't change. brands the beauty of our , that we are in constant products eachew week per brand. where do you see the most growth?

are you expecting any store openings in the u.s., and how much you sell online as opposed to brick-and-mortar? daniel: it is a good question. say isst thing i would we have a lot of levers we put in place for what we call our like for like business. that is for better execution at our core business by increasing penetration in digital, accessories, and men's. in terms of geographical development, we strong -- we see strong room for growth in our key markets, but with different strategies. in china, we have 104 stores. runway that isin long in this market. the four markets i mentioned in europe, we are in early stages. we have just 20 stores. a lot of runway. in terms of rick and mortar growth.

our strategy north america is mainly focused on digital. have the market where we the highest penetration of our digital business, over 20%. ,t is when we are investing prioritizing investments in digital and being selective on the growth of our brick-and-mortar footprints in north america. you think it is almost a tablet for what will happen in europe, or is it that americans shop more online because of distances to get to stores if you are not in manhattan? if we are talking about digital and e-commerce, i think it is important to develop and e-commerce presence, which we have done well. also, at the same time, develop on the channel services -- develop omnichannel services. the penetration of e-commerce is higher today for most brands, and ours is as well.

that will happen in europe. we see high growth rates in markets like france. ourave been able to move digital penetration of the last to 12.3%.s from 2.5% it is our most profitable channel, which is nice. i see this happening in all markets in europe and also in china. looking to launch our own tee shots in mainland china. we are excited. francine: we're almost running out of time. about theyou learned case in chinese consumers in the last 10 years? have they changed? daniel: i think there of all been. i think there is a reemergence -- i think the are evolving. i think there is a reemergence of the middle class. i think they are becoming more sophisticated, and what is clear

from what we have seen that they love parisian brands like ours. we have the chance that our product fits well to the chinese customer. we are one of the favorite brands. we measure this on of monthly basis. -- we measure this on a monthly basis. francine: daniel lalonde there. congratulations on your ipo today. is the brexit show. -- up next is the brexit show. the future relationship between the u.k. in the au. this is bloomberg. ♪

♪ francine: welcome to our weekly brexit show. let's get you an update on the brexit ms. with sebastian salek. the u.k. prime

minister headed to brussels on monday to personally intervene in brexit talks. there was an impasse last week as to how much the u.k. will pay when it leaves the e.u.. sides issued statements that entrenched their previous stances. e.u. ministers are now losing faith in the u.k.'s willingness to strike a deal. executives say they are bracing for a hard brexit. beheaded jp morgan says he is --

the head of j.p. morgan says -- global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am sebastian salek and this is bloomberg. angela merkel has called on the u.k. in the e.u. to reach a deal by the end of the year. the comments could be seen as a boost to theresa may. she urges leaders in brussels to help her break the deadlock in negotiations. the prime minister has signaled she will offer more on the divorce bill, which remains a major sticking point, but needs to find a settlement she can sell to skeptics at home. merkel says she wants an agreement, but has offered no concessions. >> my position was changed by theresa may's presentation.

what i heard today was a infirmation of the fact contrast to what you hear in the british press. the process is moving forward, step-by-step. you get the impression that after a few weeks you already have pronounced the final product. i find that to be absurd. our guest joins us. there is a shift in tone, which is clear. will it lead to some kind of agreement on trade and actually getting something done? >> you heard angela merkel's comments. there is a shift, and concessionsnt that from the e.u. side and britain need to be made. theresa may seemed to be delighted with that this morning. it gets for the cover she needs to try to get more money on the table.

money is the big issue. of the three issues that europe says needs to be covered before they can move to trade, the financial settlement is the sticking point. it is a difficult situation for her to get more money. people in the cabinet are talking about not paying a cent. britains to go back to and try to come up with a number that is going to allow the germans to move on to trade. francine: does it feel like angela merkel's speech was a speech to the euro skeptics here? maybe the first hurdle is trying to fix what the u.k. people think. david: they are already coming to her aid here. they know her -- they know how perilous her position is. they know she could be out of a job if she cannot get this negotiation there. what is the alternative?

who with the rather beginning with? -- who would they rather be dealing with? francine: jeremy corbyn was in brussels, which was a surprise to some. what does that mean? he is going up in the polls. but is it mean for theresa may? -- what does it mean for theresa may? david: how annoying with that beat a turnaround and there is jeremy corbyn hosting news conferences, hanging out with the greek minister. he is trained to demonstrate he is a credible alternative. -- he is trying to demonstrate he is a credible alternative, how you would do a better job for trade -- from theresa may. david, thank you so much. let's bring another voice into the conversation. --chuka umunna joins us

now. what do you think of jeremy corbyn showing up in brussels? chuka: i think he is doing the right thing. as was just said, the prime minister is in a tenuous position. the parliamentary arithmetic and the u.k. right now is finally balanced. we have of hung -- we have a hung parliament. it is important that we have a dialogue with other you governments. we expect that with those of the left persuasion like the portuguese and swedish prime minister, who i understand jeremy met with. francine: what happened in brussels yesterday? does this reinforce theresa may's position?

does he have the tools to come back to negotiate with her cabinet and get something done? chuka: clearly from the u.k. perspective, the way in which this process was sold to the british people when people like boris johnson mark telling them they should be voting for us to leave the european union was the way it was sold was that this was going to be an easy process. i think people are waking up in the u.k. to just how difficult this negotiation is going to be, and just because angela merkel does not mean -- they are going to easily agree to any withdrawal deal. the second thing is that this talk of no deal i think is extremely unhelpful. before i was elected as a member of parliament, i had to negotiate agreements. you don't go into a negotiate -- negotiation saying i don't want to create an agreement with you. francine: that gives you a

little bit of negotiating power to say that if i don't get anything i will walk away. that is kind of the basics of negotiating skills, isn't it? chuka: i don't think so. it is insinuated from the package preceding this interview that it is almost as if the prime minister is begging to get something so she can quell her own cabinet. if the intention was to strengthen britain's negotiating hand, it has actually have the opposite effect. a self-confident ambitious government doesn't go into negotiations talking about no deal, particularly when you consider catastrophic consequences of what no deal means. it means more complex customer arrangements, -- it means more complex custom arrangements, real questions as to whether

u.k. airlines and land an fly planes from you countries -- from e.u. countries. moreood is to be constructive. i think you see a shift in tone for that reason. all of this talk of no deal and plaintiff the guthrie -- and playing to the gallery does not work. not forgettingou this country did vote for brexit and brexit is brexit, meaning getting out of the e.u., so a change in tone like me important, but you might have to look at the alternative, which is just leaving the e.u.? is there anyone us that would be doing a better job at negotiating been theresa may? chuka: i don't think the government is doing -- is being very competent right now i don't.

in only the last month or so has the government, with position papers, and of course it with the times on the general election. that has just eaten into time. michel barnier has said the clock is ticking. you are right that written voted to leave the european union last year, but it wasn't put to the british people how they wish to leave. i don't think anybody voted to become poor and leave the --opean union union anyway european union in way that would have and never a negative impact on their families. francine: do you believe jeremy corbyn would be -- would be doing a better job than theresa may? labourabsolutely i think

would do a better job, because they would not be playing to the domestic gallery. in the end, i can assure you that from a u.k. parliamentary perspective, this isn't a big issue of party politics. the u.k.are seeing in parliament with regard to the legislation we have to pass to give effect to brexit is different politicians from across the party are working across party lines trying get the best outcome -- to try and get the best outcome for the people we represent. focused onliticians what the right thing is to do in the national interest. francine: do you think there will be a second referendum? one, do youe to be

really think that the vote would be different, people would vote to remain? that we are't think in that place at the moment. we were charged by the british in theto deliver brexit terms that it was sold to them. there were number promises made -- there were a number of promises made. told we would get the exact same economic benefits that we get in the european union outside of it, and we were also told that there would be too much immigration coming from the european union. whatever you think of those things, those were probably the things upon which people voted to leave. is that as the fax numbers, those things are becoming increasingly impossible to deliver.

at the end of this process, people cannot get brexit in the terms it was sold to them. francine: we don't know the terms. i'ma: exactly, which is why am saying -- but that does not preclude, is in the final result when you look at the end of the process, people can't get what is promised, that should not preclude the people having a final say. i don't think we have reached that point. francine: i'm not sure what was promised. can you give us insight? the threei have said, principal things on which people voted, and this is illustrated ,y the research in the polls one must be voted on the basis that they thought leaving would free up hundreds of billions of pounds more money to going to

u.k. public services. secondly, they were told they boris johnson they would get the exact same benefit that we enjoyed economically as members of the european union outside of the european union. be we were told there would a halt to the skill of immigration. , atll three of those things the moment, they are not deliverable. across the board on those things, michelle burney eight has said he will not get the same benefits. -- across the board on those things, michel barnier has said you will not get the same benefits outside of the union.

on those three things, which were the principal promises upon which the campaign was based and boris johnson went around making all these promises, they cannot be delivered. that is a fact now. those things clearly cannot be delivered at the moment. francine: i have a viewer question. u.k. about the comments on airports. mainers and people that voted for brexit actually getting along and finding commonality or is it just the same? the opinion polls in the u.k. show there is some movement away from brexit, but there are

remainme that voted to that are moving towards leaving and vice versa. in terms of the u.k. flights, i'm siding with the british airline pilots association has said. there has to be a bilateral agreement governing that. we don't have bilateral 27,ements with the e.u. individually with those countries. at the moment we rely on it e.u. agreement to do that. is basedg i have said on fact. if you don't believe me, listen to our country's pilots and the people who fly those planes. i am simply fighting things they have said. thank you so much for joining us. chuka umunna joining us this morning live from westminster. theext, we will look at problems theresa may has to face when she gets back to the u.k.

this is bloomberg. ♪ ♪

francine: welcome back to our weekly brexit show. it has been a big week for data in the u.k. with retail sales and inflation hitting sterling. let's get more on what is moving the markets. the first weekly drop for the stoxx 600 since march 2015. the decision on the fed chair could sway the path of u.s. rates. from u.s.some caution money managers.

30 years ago, yesterday was black monday. 30 years ago, the day after black monday the ftse had its record decline. to 138-day drop equity billion pounds. today, it is 2.0 8 trillion. the ftse has risen. 900 -- showing is the probability of a u.k. rate hike in november. two months ago, we were at 4.7%. -- the boe was speaking to bbc radio. raising rates would be

sure when is less that should begin. it is not a certainty we will see a rate hike in november. this is another great chart showing sterling against the dollar. the pound is on track for a weekly drop. line is the economic surprise index, which measures data, whether it is beating or missing estimates. anything above zero shows it is beating estimates. we have been below zero or thereabouts since may. we are coming up above zero. inflation, 3% highs in five years. in four years, lots for the boe to think about. mark, thank you for the update. up next, angela merkel responds theresa may's

plea. this is bloomberg. ♪

♪ francine: welcome back to our

weekly brexit show. i am francine lacqua. brusselsay's trip to appears to have had some success. forcall from angela merkel both sides to shift positions has offered the u.k. prime minister encouragement, however, she won't be at today's meeting when e.u. leaders get together to assess the progress the talks have made. what can we expect? nejra cehic is in brussels. are we any closer to having talks moved to trade in december? nejra: the short answer is maybe. to give ay is due briefing to the press in just a few minutes, and what we have heard from a u.k. official is that she actually signaled she may give a little more when it comes to the brexit bill. was a morerd positive and upbeat tone from angela merkel when she spoke last night of the dinner.

she is very motivated to move the talks on to trade in december. the motivated and planning for that of course does not mean it will happen. e.u. leaders want more concrete proposals from the u.k.. signalnt theresa may's about the brexit bill to translate into more concrete negotiating positions. francine: what does it mean that jeremy corbyn was at the brussels meeting? trailing theresa. does it weaken her position? chuka: it's an interesting question. -- nejra: it's an interesting question. some are saying it is interesting that you leaders are even engaging with him. along with other reporters spoke with him on camera yesterday. bour it comes to whether la

has a more clear position on brexit than theresa may's party, it doesn't look like it. he said we need to stick to our legal obligations, but i won't put a sticker on it. not that different from it -- from what theresa may said. i asked if he could give her promise that there would not be a second referendum. he could not give a straightforward answer to that. some you leaders are positive , saying it wasay her best performance at a summit today. bloomberg "surveillance" continues in the next hour. this is bloomberg. ♪

francine: dollar dream optimism on u.s. dollar text reform.

equities edge higher in the greenback is climbing. late day in brussels. merkel offers the prime minister the lifeline but how likely is it we will see the deal by year-end? i fight for the fed. jerome powell joins john taylor as a front runner. this is "bloomberg surveillance." tom keene is in new york. happy friday. we have to look at dollar dynamics. markets but just an extraordinary new slow. we have nejra in brussels. the eu meetings are interesting. a very cluttered friday and what is going to be a reading weekend. there is so much going on, particularly in international relations. francine: everybody was to know if tax reforms in u.s. will take hold. let's get straight to the bloomberg first word news with

taylor riggs. taylor: we are starting with those tax cuts. congress is one step closer backed by president trump. house republican leaders have already signed off on. that clears the way for it without to pass the need for a democratic vote. rex tillerson is promising to stay on the job for as long as president trump wants him. he signals growing impatience with china on north korea and trade. chancellor has come to the aid of british prime minister theresa may at an eu summit. she called on both sides to move on to brexit talks so they can be a deal by the end of the year. may urged leaders to help her find a deal. vladimir putin hasn't said if he is running for reelection next year.

in an address, he said all the makings of the campaign speech. putin recounted his country's humiliation after the fall of the soviet union and singled out he u.s. he pointed to himself as the man . global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: a risk on data check. currencies and commodities, we have a great chart we will get to. euro back over 118. oil churns a little bit like futures. let's go to the next green. --the next screen. euro swiss, they have three swiss havens -- three safe havens. stronger, slight from safe havens today.

francine: this is what i am looking at, dollar sign in treasuries. there seems to be optimism about the chancellor's tax reform. an insider may become the next fed chair and european stocks are paring some of the losses we had from yesterday's selloff. if you look at gold, yen, it is not -- the havens are not really big bed day -- really make today. that's really big today. the 1930's poor world war ii, the explosion of total tax receipts and they come out here and world war ii and explode up from 5% to 20% of gdp. notice the dampening here through the 1950's and 1960's -- lbj, nixon, the rest. then the volatility tax receipts. the decline down here in the movement up here. right now, total tax receipts in

a very high level seen only three times since 1944. francine? francine: on the back of that chart, it is amazing how the markets swung on the hope of tax cuts. the dollar rising along with treasury yields after the u.s. senate passed a budget resolution last night. a gave momentum to donald trump's taxcutting agenda. meanwhile the rates for the fed chair continues. towardt be steered choosing john taylor. we are joined by the ceo of man assets of over $100 billion. shing.th us, edmund ed, i have known you for longer time.

who is next fed chair? what is the markets thinking? you also get someone who is a dovish in the fed. yes.d: cuts come it tax think what is clear is the market have underpriced the potential for tax cuts from the trump administration. if you were to go back a month or two, you would've been maybe, they didn't get anything done on health care, why should the trump administration be any more successful in putting through a tax cut agenda? what we have seen is an improvement in the probability. for instance, if we look at our own tax cut basket of stocks, has is a portfolio that

underperformed pretty jessica lee until the month of december -- pretty drastically into the month of december. [no audio] good news when we think about the economy in the momentum. francine: is at the market too binary? there focusing on tax cuts. -- they are focusing on tax cuts and the next fed chair. they may be ignoring risks. edmund: i think you don't need to go that far. china is not the big of an issue as they make out. these are predictable but we have heard a lot of noise and not a lot of action. my focus would be on the following reasoning -- if the tax cuts are delivered and households see their income tax levels drop, where is that money going to go? if it goes into investment and more employment at a time when the unemployed rate is so low,

is it going to spur inflation? i think that is really the risk that we run. the positive effects on the economy might be undone i rising inflation. because of that, rising bond yields. tom: dr. hsing, great to have you with us. as we see economic growth and some of the good things happening, let me ask a question , is the glass half-full? with all of your derivatives, is the glass half-full every day you come in? edmund: is certainly seems to be. just it certainly seems to be. that does tell you that people are pretty optimistic and not necessary looking to hedge up the portfolio. , it is notd say

necessary as evidence is that. looking at the level of implied volatility and saying this is very low doesn't tell the whole story. we do have a lot of investors who are looking to hedge their equity gains to the end of the year. they're looking at downside protection. for that reason, even -- [no audio] tom: ed shing has this attached to his brain. we are now down, it is stunning weakness. let me adjust this forward. here we are come way down in the lower right corner, down to see dunning lack of volatility in fixed income yield curve at what does that signal? edmund: it tells you several

things. it reflects the lack of follow indicators --e indicators the lack of volatility in the indicators. if i want to look at what drives -- [no audio] inflation, the point is that we are in a synchronized many cycle in terms of growth. globally, things are pretty good that he much everywhere. the growth part is pretty predictable and volatility is low. inflation -- not only has the inflationary ground down but the volatility around that has ground down. it has never been a better time to try and four cup growth and inflation. up -- fork up growth and inflation. francine: interesting.

inflation has everyone in a bit of a twist. edmund shing, thank you for -- joiningit with us us. with us, luke ellis. when you look at these markets, is there something that feels uneasy? is wethe honest answer are in a t o where growth -- in a period where growth is good. you look at follow this morning, that is about sending more trucks -- why are they selling more trucks? because growth is good. equity markets are doing fine on that. most of what we are seeing is noise around a basic trend which is equities. you've got good growth. francine: what question do you look at when you look at trucks? do i need to go elsewhere to find value because it will be disrupted? bill there is a great

gates quote about we underestimate the amount change over time. the automation revolution is not going to change the trucking industry completely. it is almost mind blowing to think about what is possible. tom: i am thrilled that luke ellis is with us. he is the chief executive officer of man group. we go strong through the hour on television and radio on bloomberg surveillance. in the next hour, robert will join us and michael narda. the linkage of the markets to the economy. this is bloomberg. ♪

francine: this is bloomberg surveillance. this is taylor riggs. the recorder profit fell 14%. bama attorneys were heard by cost to fix the omissions. ofir world's biggest maker

luxury cars of luxury cars listed spending by 21 -- [no audio] increased demand in china from all those construction and mining equipment. swift three says three hurricanes cost $3.6 billion. the reinsurance says it is very strong capital position and the financial stability to support clients.e -- it's that is your bloomberg business that is your bloomberg business flash. [no audio] lectern andan see a this is inside the cantor building. it is probably too many in at the time there were more and there are at the moment. eu leaders, the advisors meet in this room and they go and brief

their various reporters and state media about what happens next. theresa may extremely important because it seems she has to appeal to the eu to get a deal she can defend back home. angela merkel has said, let's negotiate. puts it in a much stronger position. tom: francine, thank you so much. [no audio] retail money. that is a broad question.

what we try to do is have smart people who are dedicated to running money in a very professional way. money,oney to -- asset people who- we like would do this if you had no money doing it because it is their passion. like people come in everyday desperate to spend month -- spend time looking at stocks or create models are looking at quantitative techniques. we don't mind what it is as long as they are really passionate. i believe you that were the guy who had a run contract for the royal navy. rum would active managers be taking? it is bloody out there. do to rebut need to the reflux?

luke: having a monopoly is always a good business. tom: that is a bloomberg exclusive by luke ellis. thing on interesting the passive debate is this year with this no index volatility that we have seen, you had and on -- you had add on talking about stock volatility being normal and what you have is good dispersion going on in markets, and that creates a great opportunity for asset managers. if you have companies when have good earnings come that is a chance if you know what your are doing to make money. we are seeing stocks with airbag earnings getting really punished . that means the short side of the equation is good. active management this year has had a fantastic opportunity.

you can get a right or wrong. touchwood you will get a right more often than you will get it wrong. you are justifying existence. if you don't make up performance, management has got no place. francine: is there danger because the market is composed differently than it was 10 or 15 years ago? hedge funds are playing a much bigger role, it skews, right? when you get away with fed bank policy, you leave the markets -- [no audio] when you get away with fed bank by 10%. you leave the

that is much more important for equity markets. has funds do -- hedge funds do. the hedge fund industry has a very important place in getting .ecurities to their fair value it happens relatively quickly today because the only people really putting up capital is risk capital, and that market. -- in that market. francine: luke ellis stays with us. a conversation with deutsche bank. talking about central banks. this is bloomberg. ♪

francine: this is "bloomberg surveillance." york.om keene in new angela merkel has come to theresa may's aid on brexit. this comes after the u.k. prime minister signaled she is willing to offer more on the divorce bill. let's get back to luke ellis who is man group ceo. it seems that -- [no audio] union,ng the european

they are used to deciding things at 5:00 -- at five until midnight. i think we are going to get a decision at 3:00 in the morning on this one. i'm very worried that once the realization that you cannot find consensus in the u.k. on anything, they get consensus in to agree to a trade agreement and they have very different intentions. i think there is a high chance we pass march 19 and nothing is agreed. however many months it takes before the politicians realize they have to do something. francine: did you believe that business people in charge of planning for the worst? desk can theys reverse the decision? luke: i had a meeting with and he said you

may have to enact your contingency plan. francine: as an crashing out? luke: that doesn't mean we move everybody out of london, but we do have to enact within the european union to be able to run on sure products. frank ford, they will something there because they have to, because we don't know if they are going to be able to trade your product. francine: we will be back with luke ellis. for more bloomberg stories, pick up the latest edition of bloomberg businessweek. this is bloomberg. ♪

tom: good morning worldwide across america, across united kingdom. a friday morning, a terrific news flow. francine lacqua in london and i

am tom keene in new york. our first word news, here's taylor riggs. taylor: we are starting in washington. u.s. senate has taken a major step toward rewriting the tax code. it approached a budget resolution that has been signed off on republican house leaders. president trump's top advisers have narrowed the field for the next chair of the federal reserve. they are steering the president to choose john taylor or jerome powell. president trump has missed two announces -- has promised to announce his decision by next month. $4.6 trillion and 9 million dead per year. this study was published by the british medical journal and says diseases caused by pollution account for one of every six deaths. anspain, both sides are as

closer to the cliff in the standoff over catalonia. tomorrow, mariano rajoy's planst will have set out for taking control of the region. catalogs president -- carles puigdemont is working out how it may stage a declaration of independence from spain. global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. street firms are working to develop software that can suggest trades and structure complex hedges. advances in technology mean some are predicting major job losses are people -- just losses as people are replaced. luke, when you look at automated services and artificial intelligence, how many people will be displaced? how long will it take? -- whenw many people

you look at the speed of youlopment of technology, remember the iphone seven has 100 times as much power as the most powerful supercomputer in the early 1990's. except like that for 25 years just extrapolate that for 25 years, it is harder to wrap your head around. over the next few years, the answer is, most of the automation is a way of making us smarter/more efficient. nobody but imagine trading today without a bloomberg. we will use technology everyday. trying to get humans to focus on the bit where they have an edge and letting the technology take care as much of the rest as possible. francine: how will the technology work? startups.so many yet automation services.

how can you pick the right one? luke: a lot of it isn't going to work. yet be very careful for you make assumptions about things -- you have to be very careful before you make a sentence about things . on the big things today, the idea that you have one system that takes care of everything. if you have to change it, it is credibly collocated. -- incredibly complicated. if it doesn't work for a better one comes along, you plug in the new one. on you go. when it comes to trading models, you need an awful lot of processes around making sure that the research is valid. that it is not a data mining exercise. francine: how much technology do you have at man group? it and kind of embraced trying to find other ways? luke: the first thing it says on

our website is technology empowered asset management it i don't think there's anything we do that is not driven by technology. i don't know how one says how much there is. the nicest thing at man is we have think that's where people who are embracing it rather than fighting it. people whowe've got naturally are very relaxed with technology and try to find new ways of using it and creatively interested in what you can do to find better returns. in our discretionary business, there are lots of dinosaurs out there who say i don't want to use technology. within our discretionary focusss, people want to today humans are much better

at doing an interview. [no audio] information and technology does come through the machine, rather than you having to sit there and long-term lookup charts and draw lines. tom: luke, your depressing me. i want to talk about our humility in the quantitative world. the idea of tell risk. we got the black box world and in your memo you state that we still don't know how to handle there. that is out are we any wiser about the tail risks? [no audio] that theell you quantitative trading is the most transparent box you can get. i can tell you exactly what any of my models will do tomorrow,

the next day. tom: can you do that within a poor standard deviation shock? models can withstand that shock? luke: i know exactly what my models will do. will i make her lose money? or key things -- will i make lose money? the key thing is i can tell you exactly what i am going to do. honestly what i call my friends up tomorrow, i don't know what they are going to say. humans are absolutely black boxes. algorithms,gy, the are at least entirely predictable. given how far the markets have --e, given how we have come how long the rally has gone on, is it possible we get a self reinforcing selloff that turns into a bear market? of course, it is possible.

we have seen it before. do i think that it will be because of technology? no, i don't. the most nervous people you meet are all humans. tom: i totally agree with what you are saying. in a normal world, -- [no audio] look, you have to say some part of the jury is still out because we haven't seen many things. i would tell you that i would trust our technology much better to handle that, then i would the average discretionary trader i have met. francine: when you look at the ai, what is the piece

of technology in ai -- [no audio] ai, what is the piece ofin the end, intelligence is a human thing. machine learning and deep learning, that is very interesting in its ability to do different things. we have a piece of ai that listens to every single conference call from company management and screening through four it is decided which words are the most interesting ones. one of the things is the worst you would expect it to look for like "challenging" and "difficult" that you would think if company management says that, it is bad news. the reality is coming on very quickly, it if you're going to say challenging, this is what

the market is going to say. those words are all clear. it is subtler words which machine learning is very good at picking up, that are the things that i telling you, it says this in the headlines, this is what the perfect fix is. it is not maybe one day they will be up to judge by the way i twitch or blank, but they are not doing that today. just the use of certain words does tell you what somebody really thinks about what is going on. francine: let me ask for a time translator. -- for a tom translator. tom: your briefing, getting ready for the weekend. you can do it here car, bloomberg daybreak. japan, the sunday, manus is there. election.nt election

the nikkei up 14 days in a row. [no audio] ♪

francine: this is "bloomberg surveillance." japan.t's go to japan heads to the polls in a snap election on sunday. however a new nikkei poll shows his coalition is likely to lose its two third majority potentially on the premiers push to revise the nations pessimistic constitution. yvonne man is standing by. we talk a lot about politics what does this mean for the economy? we are waiting for the third arrow to help governor kuroda.

yvonne: as much about the constitution, it is much about the economics as well leading up to the sunday election. the sides have changed final stretch of this election. so has the weather. we are bracing for a massive typhoon to make landfall in japan over the weekend was can really weigh on the overall turnout. 310 seats. that is the magic number we are looking out for here. the coalition may be just about short of reaching thating majority. [no audio] in 2019. that may be the thing that may be impacting overall. the disarray we have seen in the opposition, there really was no

better alternative. the tokyo's governor that was formed if you use go now becoming more of a flop. francine: if that -- is that what did election will be decided on? [no audio] programs like education, like childcare unlike elderly care. this election is more than just that. it is about security and how they prime minister handles this north korea tensions seems to be working in his favor.

we did see approval ratings rebalance here. the jury is about abenomics. most of the people that have been polled are saying they did not understand why this election was called so early. some polls suggest only 7% don't think prime minister shinzo abe to stay on as a leader even after the victory the sunday. the sunday. tom: i looked, yvonne -- [no audio] generational divide here. in the younger people support of abe and abenomics? well, the really big story is continuity. continuity abenomics, continuity of the boj's ultra-loose

monetary policy. we have seen six years before they. it is really instability that is the selling point for the abe administration it for the young voters, that was not the case a couple of weeks ago. were in support of kiddo -- she does kerry k really did split the democratic party's even further here to really hurt not just her but everyone else involved. at the end of the day, they are going to prove a little more victorious than previously expected, even though they will not get and maintain that super majority. tom: yvonne, you are usually planted in hong kong. does northern asia matter? -- do two koreas matter

the two koreas matter? matters itabsolutely we are weeks away before president trump does visit japan abe.et with shinzo given the fact that he did get a little bit of support -- [no audio] we stand united and are clear,

nation of north korea's aggressive and legal missile and nuclear tests and urged all states, including china, to play their parts in changing the course of pyongyang. on iran, where reiterated our firm commitment to the nuclear deal which we believe is likely import the -- is vitally important. at last night at dinner, i spoke to my fellow leaders about my vision for a new deep and special partnership between the u.k. and the european union after brexit. my partnership based on the same set of fundamental beliefs and but freerule of law trade, rigorous and fair competition, strong consumer rights and high regulatory standards. i am ambitious and positive for britain's future and for these negotiations, but i know we still have some ways to go.

both sides have approached these talks with professionalism and the constructive spirit. we should recognize what is been achieved to date. the u.k. anti-e.u. share the same objective of safeguarding objective of safeguarding the rights of the internationals living in the u.k. [no audio] while there are a small number of issues that remain on citizens rights, i'm confident we are within touching rights of a deal. in northern island, we agreed that the belfast agreement must be at the front of our approach. vital that joint work on the peace process is not affected in any way. it is too important. both sides agree that there cannot be any physical infrastructure at the border and

the common travel area must continue. we are both committed to delivering a flexible and imaginative approach on this vital issue. this council is an important movement -- moment to assess and reflect on how to make further progress. i gave a firm commitment on the financial settlement and i proposed a time limit based on current terms which is in the interest of both the u.k. anti-e.u.. -- and the eu. fellow leaders have been discussing this this morning and i believe it is in the interest of u.k. that eu 27 continues to take a united approach. if we are going to take a step for together, it must be on the basis of joint efforts. we must work together to get to an outcome that we can stand behind and that works for all our people.

thank you. i will take a few questions. let's start with bbc. >> thanks so much. do you deny that you have made clear to your eu counterparts that you're willing to pay many more billions then you indicated to settle our accounts? >> what have made clear to my eu counterparts is what i set out does heart speech which is in my florence speech which i said no when these the concern for the current budget plan. they would have to pay in more receive less as a result of the k leaving. -- result of the u.k. leaving. them lineng through by line and will continue to go through them line by line. tom?

>> the deal that is now on the table for the december summit is quite clear, isn't it? need and paynt you for that eu 27 will move onto the next phase. are you prepared to spare any more details? >> what we are doing as we look across the weeks coming up to the december council is looking at a range of issues in which we are still within touching distance of an agreement on citizens rights. i think that is agreement -- i think that is right. i think citizens rights should be a top priority. as i just said, we will be going line by line through those commitments. about where we can

get to in relation about where n get to in relation to -- [no audio] as well. as i understand it following the discussions that have taken place this morning. we will see the eu configuring response into the florence response into the florence speech -- [no audio] united kingdom and the rest of the european union. if your minister, brexit secretary is bearing upbeat presentations on no deals and your foreign secretary saying the united kingdom is very well, why shouldn't eu citizens also prepare for no deal? why shouldn't business groups also prepare their contingency plans for no deal as well? >> i have been clear that we are

working for a good deal. as i have said,as i have said, t would -- [no audio] will be necessary in the event of an ideal. when the cabinet comes to look at this, it will be looking across the board at what work is being done across government departments for all eventualities. that includes forgetting the good deals, the positive deals that i am confident that we can achieve in that we have seen from european leaders here believe is achievable as well. is it conceivable when the negotiations have finished going , that thate by line

could be as high as 60 billion euros? >> i have been very clear on where we are and listen to financial settlement it i have set out the reassurance to our european colleagues in relation to the current budget plans p it will go through that line by line issuing relation to the commitments we have made. i have also said that if they are particular programs that we wish to continue to be a member of, that we would look to pay a relevant cost in relation to that. as science and research. [no audio] yes. non-british media. you. thank you -- >> thank nejra cehic. with relation to the brexit

bill, he said he couldn't put any sort of number on it. you are working on the number but your eu colleagues do want a more clear and more detailed negotiating position before they can move on to trade talks. you are working on it. when can we expect to put a number on the brexit bill? >> i have been very clear as the united kingdom that the full and final settlement will come as part of the final agreement. that we are getting in relation to the future partnership. that is right. they can only be done in that particular context. i made that point in the florence speech. last one.be the a question on catalonia. catalonia's leader is set to declare independence if madrid

doesn't engage in dialogue. consequences specific to spain are unclear. what advice to you have? >> i've spoken to mariano rivera and made clear that the united kingdom's position is very clear. we believe that people should be abiding by the rule of law and uphold the spanish constitution. thank you. francine: that was the u.k. prime minister, theresa may speaking in brussels. it seems there is a change in tone when talking with her eu counterparts. we are back with luke ellis. we were touching on this that it is difficult to know how negotiations still until the very last hour, because that is how the eu deals with it. the tone from theresa may is she seems to be more open to negotiation. luke: yes, that is what she says

when she is there. which he gets back and has a cabinet meeting, she will be no, we are not going to pay another penny. the reality is she doesn't have a majority. have a the nature we weak government. it's time to sit in rome, they can all feel they are making progress but the reality is theresa may cannot speak for the u.k. she did and when that majority. -- she didn't win that majority. the rounds of this process would feels nice, then they have another argument. get a bit ofen you the leading eu citizens -- that is important for us to get on with our daily lives. francine: luke, inc. you for joining us for this hour. this is bloomberg. ♪

tom: to late-night events in los angeles. a budget deal in washington. they are risk on. tax reform awaits. [no audio] eu leaders back in madrid and it is low rate janet, low rate john and low rate kevin -- all of the president's men have their favorites. do any of the fed candidates play golf? good morning everyone. this is this is bloomberg. i am tom keene. it is francine lacqua. what did we learn from the prime minister? >> we learned from the prime and angela merkel that

-- [no audio] good to see nejra cehic's question. with your friday briefing, here is taylor riggs. taylor: congress is one step closer to a tax cut plan backed by president trump. the senate passed the resolution that republican leaders have already signed off on. that clears the way for republicans to pass that tax cut package without needing any democratic vote. rex tillerson is promising to stay on the job for as long as president trump wants him.

in an interview with bloomberg, he signaled growing impatience with china on both north korea and trade. tillerson blames the saudi arabian led bloc for the diplomatic standoff with qatar. isa merkel has come to the aid of theresa may and in an eu -- merkel called on both sides to move on with brexit talks. may could sell it to skeptics in the u.k.. vladimir putin hasn't said if he is running for reelection but and in the dress to foreign-policy specialists at all the makings of a campaign speech. country'scounted his humiliation after the fall of the soviet union and singled out the west. he betrayed himself as the man who restored respect to russia -- he portrayed himself as the man who restored respect to russia. global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg.

tom: risk on across the world. a good friday morning, markets up to 23,000 on the dow. the euro strong, 118. i'm going to call that chart. a big showing. a better than good markets and three safe havens erode away. weaker gold and a little bit left of the dollar. francine: this is what i'm looking at. a lot of the same market check your doing. i am looking at the euro. we saw a little bit of a selloff. european stocks are tearing some of the selloffs. catalonia, gold dropping. safe havens seem to be losing favor. tom: very good. it is an extraordinary friday. we do in eight hour surveillance is to have time to talk to michael darda. we begin with our chief

washington correspondent, kevin cirilli on tax reform. kevin, to go back to 1986, is there a howard baker? is there anybody like that in washington to drive tax reform washington to drive tax reform forward? kevin: [no audio] get tax reform done by the end of year and i will be blocked, i spoke with some senior republican aides to house numbers last night and they tell me that they think the reconciliation process might be able to be reverted -- be averted as they are going to have this budget as early as next week. tom: mr. fall of kentucky voted tom: mr. fall of kentucky voted no. [no audio]

give-and-go -- kevin: i do think we should interpret the budget sign of as a really key the negotiations behind the scene, because, yes, while senator paul did vote against the budget last night, what he didn't do is block the budget from coming to a vote. outside of washington, i know that is wonky but he could've made a plan to block this and he did not after the president himself asked him not to do so. they're still allowing it to come to a vote and that is a good sign, if you're looking at this from the outside. francine: any intel on the next fed chair? kevin: i love the fed chair race. we have top five names. bloomberg reporting that john taylor as well as your own powell have really emerged as the two potential front runners,

in addition to that your people like janet yellen who i met there yesterday. [no audio] and gary cohn. likely we are going to get -- [no audio]

supposes that your praise broadening the pay for lower are base-- that you

broadening to pay for lower are base broadening to pay for lower rates. makes no sense. [applause] -- mixed him since. [no audio] you and up with more debt and higher rates. what is the point of that? >> good point that we are growing at a pretty rapid rate. you don't normally have big fiscal stimulus at this point in the business cycle and the above -- and the economy is picking up. growth.ral tone is more you don't need a big stimulus when you have growth already. tom: let's bring in francine lacqua. francine: michael, you are seeing tax cuts that are significant. do you think the stock markets will be on a tear? michael: i would be very surprised to see something substantial get through. the reality is in the senate you're going to pick up the votes of a senator corker,

mccain, collins, very uneasy with the idea that you don't pay for tax cuts or something that explodes the deficit. i would be surprised and maybe get a short-term market response , but longer-term, if you look at the cbo race line forecast, they have the spending share gdp rising 500 basis points, just based on the current setting and our demographic pressures with an aging population. i don't see where there is this fiscal space to do some kind of a massive tax cut reform where you are paying for streamlined structure with base broadening. that is a different story. maybe get some supply side effects that would be worth doing but very difficult to eliminate those popular exemptions and removals. much more difficult to saying i support tax cut. that is easy.

francine: if we have a real tax cuts, with a trump's presidency be back on track? bob: it depends. [no audio] but the real question is, what is in the bill. it has to be real tax reform, i agree. that is a very positive thing. if it is simply a big tax cut without real reform, presidents have done that in the past. it is not an especially powerful thing. it might look good for a couple of days but in the medium-term, it is not a really compliment. it will look good in the signing ceremony but will it really be good for the economy? probably not very impactful. tom: i am fascinated when he debate is engaged -- when a debate is engaged. we're still not there. the legislative back and thought

-- back and forth. will continue with mr. hormats and mr. darda. chris van hollen of .aryland in the 8:00 our this is bloomberg. ♪

taylor: this is "bloomberg surveillance." let's get to bloomberg business flash. wall street confidence in the leadership of united airlines has been shaken by an earning call. -- falling pricing power. into thee stock turned worst laws for united shares in eight years and analysts say investors are asking about possible management change. the world's largest hedge fund

is accusing barclays of manipulating copper prices. medicaid management says the millionst at least $850 on the london metals exchange. barclays denies the allegations. that is your bloomberg business flash. .rancine: thank you so much u.k. prime minister theresa may has spoken at a press conference at the eu summit in brussels. she says british is with then touching distance of a deal. nejra cehic was at the press conference. she also asked the prime minister about jeremy corbyn and whether she was uneasy that he was there. had the tone changed when you talk to various leaders? nejra: theresa may said the tone and changed. she talked about citizens rights and cooperation but the big

question remains over the actual number of the divorce sale. the eu wants more details when it comes to that reform moving on to trade talks. that was a specific question that i asked prime minister theresa may. yesterday jeremy corbyn talked about the budget bill and he was quite vague and said he would not put a number on it. so i said, prime minister, when will you be able to put a number on this was bill because time is of the essence? answer. her as i have been very clear all along -- -- >> i have been very clear all along -- [no audio] future partnership, and i think that is right. i think that can only be done in that particular context. i made that point within the florence speech and that point remains. leave if the u.k. doesn't , not give any specific numbers into the final settlement.

it begs the question as to when the talks will move on to trade. we heard today from a tweet from eu president that the eu had actually said it is going to move on to internal discussions over possibly moving on to the second phase of the talks. this is very much up in the air. the question whether that will happen in the next summit in december, it may but it is not guaranteed. francine: it is a mean will get a deal. the concern is we start talking about trade but when do we know when concessions are. is it only trade? prime minister may comes back and says -- francine andtely, when they do start moving discussions on to trade, if they do, you are right. it may not happen within the timeframe and within that date, at the beginning of 2019 when britain does crash out of the eu

. even if we do move onto the straight talk in december, and a best case scenario, that leaves a little over a year for everything to be worked out. these are very complex negotiations. many experts have said that is not enough time to come to any sort of trade agreement. there is an extreme amount of uncertainty ahead. not a lot of that has been clarified. tom: nejra cehic, thank you so much. we have michael darda. robert hormats was undersecretary state for president obama and such a clinic -- secretary clinton. those on the right and left have to rekindle diplomacy. none of what we are talking about here, bob, is in the tradition of diplomatic textbooks. it is as if theresa may and rex tillerson -- you feel this way? that none of this is in the

books? script are rewriting the . brexit is a whole different animal where she is negotiating with own cabinet, with her people, with the eu. wheels within wheels. it doesn't seem to be consensus on very much at all. tillerson is dealing with the fundamental problem that is secretary of state has is the people around the world with whom he deals are not sure he has the full confidence in its rate for the president of the united states. it is one rule in that you and the president can have no daylight between you. yet to be seen around the world us confer the president and he has to have full confidence otherwise, people are negotiating do not know that. they like the guide for the cannot rely on what he says. would recommend that hormats straddles that across many residencies.

we are going to come back with michael darda. the morningr 20, after the crash of 1987. ,eneral election -- electric the optimist will be with us. this is bloomberg. yankees, astros -- go yankees. ♪

tom: "bloomberg surveillance." .rom london and new york

francine and i had a wonderful time this week. looking back at the lessons of 1987 and black monday. i believe there was a morning after. were you a goldman sachs then? bob: that was it dramatic week and i was on bloomberg numerous times to try and make some sense of it. tom: you were doing diplomacy on the floor of the new york stock exchange. michael, let me bring up this chart. i zoomed in on what you do given crisis the morning after. there is monday. there is tuesday. whoops, i remember this. a week later, it was looking very pretty. -- it wasn't looking very pretty.

how do you use your economics and times -- [no audio] byl market, they are driven the aphrodisiac of rising prices and then if market comes down a lot, they panic at the lows and sell pretty. how do you everything. that is a one way road to ruin if you are investing. in 1980 seven, very difficult to resist those impulses does it was so sudden. differences.ortant we had a 300 plus basis point run-up in long-term interest rates in 1987, and rising stock prices until the summer going into the fall. stocks became very expensive relative to bonds. you don't have that backdrop. tom: you don't have that relative to bank notes. have a huge don't run-up in long rates and is huge the virgins between stocks and bonds -- stock and bond valuations.

if that doesn't seem likely, yet the fed doing what they are doing with short rates cutting the balance sheet. tom: i just had a thought, robert hormats interviewed by the president for fed chair. bob: i could do it. tom: that was shock a lot of people. lots to talk about. terrific news flow this morning. to get your briefed on the week, how about bloomberg businessweek with a piercing article on the chief executive officer. look for that. this is bloomberg. ♪

♪ francine: bloomberg surveillance, tom and francine from london and new york. let's get straight to the bloomberg first word news. taylor: the u.s. senate has taken a major step toward

rewriting the tax code, approving a budget resolution that has been signed off on by republican house leaders. president trump's top advisers have narrowed the field for the next chair of the federal reserve. they are steering the president to choose stanford economist john taylor or federal reserve board governor jerome powell. the president promises to announce his decision by next month. the global price tag on pollution, $4.6 trillion. the study was published by the british medical journal lancet. diseases caused by pollution prime-- tomorrow, minister rajoy's cabinet will sign off on plans for taking control of the rebel region. he still needs approval from the

senate. governmentsident's might stage a declaration of independence from spain. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. riggs.ylor this is bloomberg. francine: thank you so much. at the moment i am seeing some general election results. cost,re cutting their third-quarter revenue is above estimates but i think it is the forward guidance that may impact the markets when they open. two people -- pieces of news from the wall street journal yesterday. analysts were saying they want to know more about the job cuts and possible research center closures. we do not have that yet. general election -- electric cutting its full-year forecast. this with nick heymann and jeff sprague on

bloomberg radio in a bit. let's talk about asia. francine: japan heads to the polls in a snap election sunday with many seeing the vote as a safe bet for the prime minister. a poll shows his ruling coalition is likely to lose its two thirds majority, potentially slowing the push to revise the pacifist constitution. let's get back to michael darda and robert hormats. michael, when you look at what is going on in japan, a measure of tax cuts seems to be what is actually pushing the prime minister for reelection. will that impact inflation expectations really, or are they still going to struggle to reset target? michael: i do not think on the fiscal side we can really expect much that i would say this -- it looks like abenomics is actually going pretty well, even though the conventional wisdom seems to be that qe has failed and

negative short rates lately have not exceeded. let's take a look at median growth rates for nominal gdp and inflation since 2013, they have improved significantly. inflation is still low, below their ultimate 2% goal, but it is positive. nominal gdp growth up over 200 basis points after having actually, or at least slightly negative since inflation started in the late 1990's. unemployment at multi-decade lows. to me, that looks like a success. what do you make of the elections in japan? this goes back to the constitution but if you look at the pivot to asia which has not happened in foreign policies in the u.s., how do you get japan and china to get along? robert: after the 19th party congress which we will discuss extensively in a few minutes,

there will be an opportunity for president xi jinping and prime minister abe to get together. they both have serious concerns about the issues in north korea. there are certainly trade issues that have to be worked out. , i think do understand that even when there is stronger nationalism on both sides, these countries need to work together. trade is important, security is important. there are numerous issues, maritime issues and others, but i think there will be an opportunity for them to get together and the president of south korea as well. north korea is too much of a challenge in a threat for them not to be able to sit down, or have their ministers sit down and try to work something out. ambassador, long time ago you wrote the last chapter to my book and said expect the unexpected on asia.

that is how you finished my book out. within that is the idea of the new unexpected. what is that? has tothink president xi focus internationally on the north korean issue because there are a lot of tensions that could disrupt the whole region. on the other hand, i think we have a pretty good idea now coming out of this 19th party china is goingt to look like over the next five years. very strong leadership under the president, a much stronger china in terms of its confidence about its economy, having overcome major financial difficulties, and a more assertive china in the south china sea in foreign policy in the region, and foreign policy across the board, onea big outreach through belt, one road. china has moved to an enormous level of confidence, stronger

nationalism, more assertiveness internationally than before. the international assertiveness is something we are going to have to pay attention to. they will not be backing down and we will not be able to push them around, but they know they have to get along with the united states. with their new power and confidence, they will have a init by president trump november and they will have to work a lot of things out. tom: i want to rip up the script now. the headlines out of ge, the stock down a few bits, i'm going to turn to the terminal. i have some technical difficulties off my terminal. i have never seen headlines like this on a blue crew -- blue-chip stock like ge. we have just sprayed coming up in the cayman coming up, but we have a major stock new -- jeff sprague coming up and nick haman coming up, but we have major

stock moves. targeting to billion-dollar, whatever cost out is, given your economics, like of pricing power -- lack of pricing power, will we see company after company do what ge is doing? >> i would say probably not. his ge really a proxy for the entire industrial sector in can you extrapolate that to the macro economy at large? i would say no, due to the enormous underperformance of that company. about the actual sector within the s&p 500 doing much better, or some of these manufacturing and momentum surveys that have some bearing on the industrial sector, doing much better. i would not go too far in extrapolating ge. tom: where is your nominal gdp? you are the expert on nominal gdp. any say we will get back to 5%

or 6% nominal that gives the leadership of ge, ford, and others the opportunity not to slash costs? >> i do not think so. tom: that is the same for next year. >> thinking about late 2018, 2019 he probably will be in an environment where top level growth which has recently accelerated, will become a back down below recovery averages as the fed shrinks its balance sheet and short-term interest rates will flatten the yield curve. for a multi-year basis, topline growth is going to be relatively .low versus history that is really the combination of weak productivity, demographic headwinds, and the fed inflation target of 2%. they seem comfortable undershooting yet with what looks like full employment. 3% to 4% nominal growth is a

desk as a trend is i think what we can expect. -- as a trend is what i think we can expect. francine: how do you regain confidence from there? tom: it is quite a chart. francine: john flannery became ceo in august. he was talking about the cash flow, the sluggish oil and power markets. was he right and welcoming and representative that a representative of an active investing firm on the board? >> i cannot speak to what particular actions he should or should be taking. you have to be willing to think outside the box. that would certainly seem to make sense to me, but i am a macro strategist so i do not weigh in on individual companies typically. clearly there are some major problems there. francine: this is one of the things that we have been trying to figure out. it can be because a share price isdown, because there

something down that investors are shying away from it. how do you regain trust and how much time do you have? tom: i agree, but what i think we are going to see is in 2018, we have pricing power. this goes back to jack welch a few years ago, with revenue, you .ave the unit spirit you have got to have that pricing power as well. when i see industrial, organic , thate of -1%, politely is five for percentage points off of nominal gdp. robert: i think it is going to be a long time until companies -- i am talking generically now -- are going to have really strong pricing. you have a whole set of things -- we are getting to full employment or we are perhaps at their. you do not see a big increase in pricing power, and then you have

the internet. overlay, people underestimate that. it makes services up for grabs and goods up for grabs. there is on us no increase in pricing power. for you won out there secretary clinton and promoted american business, that was your job. could you do that under this president, given the mess at the state department, the day-to-day follies at the white house? could you one day do the job you did years ago? .> it would be very difficult i had the confidence of the secretary of state. she did that herself. i felt i was representing the country internationally around the world and i needed to know what was going on in gary, indiana. tom: and then schenectady, new york, making lightbulbs. did you ever do this, get on a jet and go abroad? michael: i spent a lot of time

but the business community the communities that were adversely affected by the financial crisis that never recovered, communities that were losing jobs not so much because of trade although somewhere, but because productivity and technology was cutting into the jobs and the recovery from the financial crisis never occurred. you have a lot of dissatisfied people and i felt i had to talk to those people internally if i was representing us externally. the general view is they do not see their jobs coming back and they are not easily trainable for the next set of jobs. they are in trouble and we have to figure out a way of dealing with that. , theneral, for them ability to get new jobs and better jobs is really concerning. pricing power is as well. for the kickoff of 2018, what will corporations do given the subdued nominal gdp?

more on general electric, the challenges of industrial america. thrilled to bring you nick heymann of william blair on bloomberg radio at 7:00. this is bloomberg. ♪

tom: good morning, everyone. breaking news on general electric, a much worse report than expected. michael tarter and robert hormats are with us -- michael darda and robert hormats are with us. jason kelly's conversation with ken langone. >> this horrible situation at general electric should not have happened. they got a mess on their hands and you are going to see it all

come out when flannery bears his chest in november. tom: langone on general electric. caret google her joins us from bloomberg intelligence who is knee deep in the minutia of general electric. , usuallyevenue growth 3%,s a nominal gdp proxy, 4%, 5%, 6%. -1%, extraordinary. how did they get there? >> i have the industrial organic still well below expectations. it looks like it might be its power and that is probably the big hit. i think the big thing was what they did to dps. they missed -- eps. they missed a big, they cut big.

everybody expected a big cut but this is much bigger than expected. , 7 billion dollars was the target as opposed to $12 billion to $14 billion. a miss was expected but not of that magnitude. i do not know if he is cleaning has dax before the november 13 analyst meeting or if things -- cleaning that desk before the november 13 analyst meeting or if things are that bad. tom: in the move from strategic to tactical, always lumpy, always ugly. is this the new ceo for speedy -- new ceo speeding up the future or is this an indictment of the past? karen: i think he is cleaning the deck and setting us up for november 13. he would rather take the hits up front and have everything look better going forward.

a lot of these businesses are very profitable and well-positioned, but he has a cost issue, a cash flow issue. start clearing the decks and get this thing back on track, and i expect him to move pretty quickly. francine: how much time does john flannery have to do that? how much do investors give him? then: when it was announced stock went up 3.5% people thought, now it was going to happen but then they thought, it is 17% down since he got on. this ship cannot turn that quickly, so i think he will have some time but will have to take some action. he helped -- he will have to sell some reasonably signed business -- sized businesses. tom: karen, thank you so much. she will have a most is the morning. we will drive the general electric conversation forward as well. let me tell you about tv , it is on the trading desk at m

km partners. you can see the conversation and take our charts as well. stay with us with michael darda and robert hormats. this is bloomberg. ♪

♪ a red sky over washington, d.c. when they choose the new pope, there is white smoke. i do not know if the red sky is for some kind of hope of tax cuts. the dollar climbing, treasuries falling after the agreement and d.c. the core doors in dcr -- and -- buoyed with the promise of tax cuts. lix, you are all over ge. alix: i should point out that companyghes, ag reported after ge did and it missed on the top and bottom lines. we are going to dig deeper into what happened with ge.

and what about the fed? who does trump prefer? officials are trying to push taylor or powell and we have steven englander on. he said you are going to need a supply-sider, and aggressive supply-sider as the fed chair to let the economy run hot amid the stimulus. in a crazy hour with just horrific news from prime minister may to general electric , how about a single best chart on oil. let's for this into the diplomatic studies, robert hormats and michael darda. with this chart in a range bound brent crude we have broken from the downtrend of $100 a barrel. how do you full that into mkm analysis? >> if you put industrial metals prices against this chart, crude oil is severely lacking. if we think of industrial metals

globalwith global -- aggregate demand, if oil is not falling that tells me from a supply demand perspective you have a supply issue with crude oil. that is not affecting the other industrial commodities in the same way, so that has prevented a much more significant -- hormats, we have all the new diplomacy with iran. what is our best outcome of our present politics with iran when we look at the middle east and persia? robert: i think our best outcome is to retain the nuclear agreement, the jcpoa. it is in our interest. if we dismiss the agreement or try to destroy it, we will separate ourselves from our allies who want to support it and we will be in a much worse military position because the iranians, if we destroy the

agreement they will feel they have a chance to resume some kind of nuclear program. that is not good for us. that is why the depends department is against it and all of our allies are against it -- the defense department is against it and all of our allies are against it. if congress reimpose the sanctions, very disruptive for relationship with iran and disruptive to the region. there is a lot of potential conflicts of the best thing is to keep it where it is. if you can make minor changes, if you can make them, try, but do not get rid of it. the plan -- the president does not have a plan b. what is he going to do if that happens? sanctions. the other countries are free to trade with iran without us. tom: let's leave it here. clear, iran with

11% or 12% of opec oil, still very dominant within the oil region. of oil and where a lot flows through so the disruption will not only be iranian oil but other oil. do not reimpose the sanctions, keep the agreement, try to work things out, but do not take radical action. tom: i have got a strategy to end the show. robert hormats, thank you so well.michael darda as nick heymann from ge will join us on radio. this is bloomberg. ♪

♪ jonathan: in the race for fed chair yellen seat, the president

is said to be leaning toward taylor and powell. the budget resolution taking another step toward considering trumps tax plan. ,heresa may comes to brussels offering the cover to drive forward brexit talks. good morning, this is bloomberg daybreak. i am jonathan ferro alongside david westin and alix steel. once again, a fifth straight day of gains. we drive out another all-time high and futures are positive. it is all about the prospect of tax reform and that means a stronger dollar story across the g10 space, euro-dollar at 1.18. yields grind five basis points higher. dollar-yen, look at now below 114. you wind up seeing the