clothing did well. keep an eye on german retailers as well. we will get the spanish dropping as well in a couple of seconds. i am focused on the spanish markets. i think is going to be fascinating start of the week. everything is beginning to drop. the gdp numbers look in line out of spain. the ftse 100 is going to take its time to figure out where we're going to go. everything else is still waiting. i want to see what's going down here at the bottom. there you go, spain's open. by 1.2% of the moment. there is the gdp number coming through in terms of the data. beingsee a discount applied because of politics? the cac is down by 1/10.

the standout story is what is happening in catalonia this morning. what else are we watching? manus: how a civil servants going to react to that declaration? the european growth story is a story of amazing growth. -- an amazing growth. growth.azing a 14% premium. out with exalted. -- axalta. after axalta to cr to million beast. italian news the

on friday, that is adding to that sentiment. this is sterling. is will mark carney deliver in terms of a rate hike? we have a guest say he was a major surprise if the bank did not hike this week given the recent signals. if there is one central bank that is not bothered about the concern, it is the bank of england. what kind of rate hike is priced and seems to be one and done. we can calculate the battery that sterling has taken. the brexit secretary, the complexion of the cabinets, what is going to happen in terms of the political

benches in parliament. these are december futures. pretty much unchanged. it will be down to what the bank of england does. david owens was with us and he set the risk is that you could face some sort of buyers strike at some juncture in 2018 if we lurch towards the potential for a harder style brexit. gilt market three pips higher. the focus will be on spain and likewise with the central bank decision this week. that is going to be the outflow of these markets. bank of japan, federal reserve, jobs numbers, and the bank of england. does a lot of things for traders to fear or embrace. manus cranny on the markets. let me take you to a barclays note.

barclays has come through with a series of downgrades since the u.k. house builders downgraded number of these due to performance and political measures on u.k. housing. group's trading down by 3.6%. simmons is trading softer this morning. that's the u.k. housing sector. we also have edf. it's trading softer this morning by 3.13%. the losers are on the left. that means the market is trading lower. there are some interesting traits on the right-hand side. spanish banks of the outperformance this morning. up by 4.41%. bbva even is trading higher by

1.9%. bankia is trading up 1.8%. is it an all clear signal that we are getting for the market this morning? let's talk about this story a little bit more. catalonia's ousted president has declared the construction of u.s. -- europe's latest republic. central government is taking action to gain direct control over the region. prosecutors may press rebellion charges against the separatists. in's get to maria tadeo barcelona. how is monday morning unfold? there's a huge expectation here. there's a lot of hype here.

is the catalonia leader going to show up to work? the central government was very clear. you are out. you cannot go back. whether he will continue to defy and shown to work, we are getting unconfirmed reports that the prosecutor were press charges but not ask for his arrest. the big question is who is in charge? regional elections, this was a big surprise to me. how quickly they are going to take place. what are the risks they are going to hold on both sides? maria: a lot of people were rrprised there that roy -- thiscalled these elections early. he could've gone for six months. the way people have interpreted it is he cannot -- does not want

to stay in catalonia for too long to give the impression he has taken over. the? is how is is going to play out? we don't know if the independent -- independence party is going to dissipate. -- participate. if they do, it's a show they are not really into this republic because they will be playing under the spanish laws. yesterday we got massive demonstrations of people screaming, we want unity. are they going to participate? how will display out for the two groups? guy: great reporting. thank you, maria tadeo. joining us now, andrew sheets. i've got a big move in spain and a big move in the periphery.

i've got the ecb on one hand telling me they're going to continue buying. that is politics unclear the moment. i have politics is unclear it is late. i'm waiting for the elections. is it right to bid the peripheral market? andrew: i think generally it is. it is the market supportive of kerry -- carry. you have relatively strong data and an ecb that doesn't seem to be like it is in a rush to tighten policy and rock the boat. we are going to have qe going on lower and low rates for a while longer in europe. while you have political noise, we don't think that will disrupt the environment. the systematic measures in the european market are behaving ok. i look at the spanish

economy and i say, it's not business as normal. people are going to be cautious. we can see that in the u.k.. companies are dissuaded from making capital goods investments because of uncertainty. i have to apply discount, yes? the way we view spain and some of the effects is that maybe, is that these spanish economy was so strong going into this. this will provide subject to confidence for some parts of spain, we think the economy had enough momentum that it will disrupt that stories -- that story too much. we did see mario draghi seem to point out that the reinvestment portion is going to be a big chunk of change.

bid, ithink about that think about it existing for the next three or four years, with theory investment still i have to think about it along those lines? the way we are trying to think about it, you have a pretty unusual set up where growth is strong and policy is easy. i don't think you can assume that that lasts for a long time. you can't assume it will last for three years. but i do think for the moment, the central bank is very intentionally not trying to push back on that policy. they are still willing to air on the side of caution. that gives markets a six month window where the strategy can work. let's assume he is the. of three to six months where he is line 15. then it stops. then you have is absolutely

enormous balance sheet that is continuing to be reinvested. he's going to have to reinvestment things role, but a lot of money is going to be flowing it is markets. andrew: i think this is an interesting question to answer next year. have more economic data, another year to cover -- recover recover,r year to lower unemployment. i think it is easy to justify this level of accommodation despite gdp numbers. this time next year, the core inflation data will not look as week. for thinking of 1.5. then you are starting to get to the lower end of the target range. your point of whether this balance sheet is too big.

plenty to think about if you are invested in the european space. you got the tv not to be go. you have all of what is happening on the sidebar. you have an iv function down here. great one-stop shop. get all the data and charts you need. that is what is happening to the european market right now. we are watching what is happening in spain and the united states. up next, what is going on stateside. it is a huge week for u.s. markets. this is bloomberg. ♪

♪ guy: you are watching the european open. the spanish market is trading very strongly this morning. move in the ibex this morning. it is the banks that are leading that story. the move in the spanish market is just a blip, particularly if you're trying to figure out what to do when it comes to currency overlay. i keep coming back to this. it is my favorite function at the moment. i want to take a little macro

off and show you what is happening over here and a little more detail. this is where the fun starts. this is where you can alter your currency input into the wei screen. a 4.3 year --s 4.3% year to date gain. this is a question i've have a lot of people in the moment. if i have a 20% weighting in the united states, a big chunk of s&p is likely to be in the and it finally euro investor i'm really hurt to see her. nash really hurt this year. andrew: we think the euro and the dollar will moderate. that's partly because you have a lot more optimism around tax in the u.s.. almost fully

pricing in the december rate heart -- hike. i do think that the path for the euro is a little higher into the end of the year, despite pulling back last week. seen huge amounts of money pour into the japanese market overlay. this is a long-term flowchart. the money has completely flipped around and got back to japan. is that the right trade? andrew: that's an interesting story this year. it's been a little overlooked because there are more exciting stories. this is a market where earnings are growing over 20% of the multiple is still low and policies accommodative. we think broad based measures of deflation in japan will in the next two quarters and for the first time in maybe 20 years. there is some big macroeconomic change that is going on.

it's not just short-term noise around the election. it makes japan attractive market. guy: we've seen some big rallies. andrew: i have. this is a case where the government, for that long-term case to work, will need to deliver on reform. monthse next year or six , even despite the recent inflows, a pretty light overall positioning. i think exposure in japan is relatively low versus other regions. yes you had some inflows over the last couple of weeks until then they had been very small. guy: i'm coming into your end. i want to reposition my portfolio. i'm starting to have that debate in my mind. what weighting would you have in japan? japan japan -- andrew: and the u.s. are are legit --

are our largest overweight's. about setting up of the next year caps off japan would be one of if not the largest regional overlay we would have. guy: why not europe? you like the u.s., you like japan. andrew: that's a good question. we are worried the earnings aren't going to be able to beat expectations. valuations in europe may not be quite as cheap as they otherwise seem. it always tries to get a discount on the u.s.. but it's well off its high. europe has gone through an interesting path of optimism this year were expectation started low and then after the prince -- french election, people got excited. maybe a sense of a better entry point. europe looks like a better market than emerging markets going into next year.

guy: those conversations are definitely going to be happening. fromw sheets joined us morgan stanley. he will stick around. up next, is the sun shining on the uk's house builders? not this morning. you can see the beautiful picture but the u.k. house builders are getting smacked around. this is bloomberg. ♪

♪ 22 minutes into the market test session. it is an interesting morning. spanish markets on the move. british householders on the move as well. looking at the mid-caps, a lot of the moves are down to re-rating. kingfisher hitting its highest since june. goldman updating kingfisher from by two neutral. neutral. a two-year low. groupoking at berkeley here. it's hitting its lowest in more than a month. down 3.4%. guy: thank you very much indeed.

chinese stocks are at their lowest for a month. you can see it on the chart. we also wrap up the politics and it's a slow and gradual reassessment. a big move overnight. we were talking to our team earlier on, they said it was stocks. andrew sheets is still with us. the chinese markets had a decent run but the bond started to unwind to get -- a bit. sit in thechina story right now? that we getworried a little bit of a reassessment? andrew: i think the chinese

equity market is one of our preferred markets within em. we think the risk reward in chinese equities is better the em market overall. while the servers to, is the big surprises china hasn't slowed. to market was expecting it so the longer it goes without slowing to, the bigger question marks over when the government needs to tighten policy more. the slowdown is happening later than initially expected. markets are going to need to be prepared. in many ways, the bits of em that have gone well, china's part of that, south korea's part

of that. the dates out of the u.s. is looking pretty favorable. extrapolate that. andrew: that's certainly a good point. i think earnings growth in those regions has been quite strong. if i think about the two regions ,lect the most, china and india have been supported by strong earnings growth. talked to a lot of investors around the global allocation picture and i think there's a strong sense that em is preferable to the u.s.. concern around the u.s. about narrow leadership. just a handful of tech stocks. but em has been a narrow -- a more narrow rally. that's the mormon em story. -- that's been more of an em

story. and her going to stay with us. forext, a busy morning president trump. he may set your own pal as a chair. powell as fed chair. is this a phone?

or a little internet machine? it makes you wonder: shouldn't we get our phones and internet from the same company? that's why xfinity mobile comes with your internet. you get up to 5 lines of talk and text at no extra cost. so all you pay for is data. 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.

politics takes center stage. who will be charged in the russian and how will the white house react? it is a huge week for the bond market. hundreds of thousand pro-unity protesters flood the streets. catalonia declares the news republic. equity.s finance their bloomberg is very happy with progress in asia. you are watching bloomberg markets. this is the european open. i'm guy johnson. let's look at how things are

shaping up. the bond market periphery story is, big traits that are coming through. spanish equity market is well bid. a not -- a rise in the imax. -- i backs. -- ibex. are we seeing money rotate out of? food and beverage. the more defensive end of the spectrum is being sold. the banks are the high-end. a whole bunch of others in its wake. we are seeing a strong bid in the spanish market. let's get a first news update. demonstrators gathered in barcelona you today as separatists rejected madrid's attempt at control.

onrid called elections december 23. today, caps on garment workers will decide whether to he calls to strike. uk's prime minister has said that sexual-harassment among politicians cannot be tolerated. she has created a set of rules. in response to a senior member of her team and allegations of inappropriate behavior. the iraqi kurdish leader is stepping down as the president of the semiautonomous region. he has been under pressure since overseeing a push for independence that through the anger of baghdad and neighboring countries. pro-supporters forced their way into the building to protest against his removal.

this is bloomberg. let's focus on a big week for u.s.. don jones expected to name a new fed chief this week. jerome powell is the front-runner. trump is expected to name a new fed chief this week. jerome powell is the front-runner. bloomberg'sin kathleen hunter. off with let's start mueller. that's going to set the tone at the beginning of the week. we saw a flurry of tweets from the president pointing firmly in the direction of hillary clinton. through what the central outcome we are expecting

this morning. kathleen: there have been some charges filed. trumps regards to campaign members and collusion with rough off -- russia. whoever is charged, if those people have tries -- ties to the trump campaign, whether or not the conduct they are charged with occurred prior to their involvement with the trump campaign or while they were working for trump. that will be a key question. these are the types of things that we will be looking at as this comes unsealed. what we are waiting for this morning is whether or not the indictment is released by the justice department.

whether anyone is taken into custody. there are reports that someone could be arrested as soon as this morning. out inrs are camped front of the houses of various former officials. people discussed as potential targets. it's one of these interesting and rare moments in washington we don't know what is going to unfold but it seems like it's going to be a big day. guy: how will the white house react? kathleen: that's a big question as well. they told bloomberg that there is zero anxiety among trump and his aides about this but i think trump's tweets storm over the weekend indicates that potentially there is some sensitivity to what is about to happen. i think watching trump's reaction, he is a president who doesn't put a lot of stock in sticking to a script are having a prescriptive response to things. he turns to the more off --

tends to be more off-the-cuff. talkeaction, there may be talk if helanning -- is funny to fire mueller. what does each tweets, what does he do, what does he say? there is a particular to escalate this with his wants. how will this interact with the appointments of the next fed chair which we have been promised will be delivered before he goes to asia at the end of the week. andrew: from a parlor game -- kathleen: from a parlor game of washington perspective, it's an interesting question. point did the white house suspect this would be coming in did that influence their timing for the fed pick? this is not a big week with not just the fed pick but the trip to asia and house republicans

rolling out their tax bill. it's a big week for trump's and things he wants to be talking about. it's turning out to be on a week where maybe he doesn't get to decide what people are talking about. there are these charges that are going to steal his thunder. markete list is long and moving, we haven't talked about the data surrounding this. will we look back on this week has been pivotal? potentially. the key question is how does congress respond to what happens out of the mueller investigation. doesn't seem to take away momentum from tax cuts or tax reform policy? senses that it is unlikely to do so. there is so much invested on the gop side in getting something done on tax, that they see it as so critical to holding on to power in the midterm elections, that i think the bar for charges

that would disrupt that is very high at this point. especially because the investigation is in its early stages. we could look back on this is the start of something that ,ould cause a larger change because her also talking about a change in fed leadership, but in effect, ihe immediate think that will be delayed. 2.4 on thee gone to u.s. 10 year. do you think it is important and you think this week will provide further reasons to accelerate that were to take it down? tax story is important but there's a lot of expectations built up around that. fed chair is important but powell is likely to be more in what has gone before.

the wildcard is the more stuff. -- mueller stuff. andrew: the factors skew a little bit to the downside. in terms of the potential uncertainty and the potential that the more details around the republican tax plan, that gives critics of the plan something more specific to focus on and lobby against. you had that with homebuilders. as details come out, this a target, and somebody's favorable part of the tax goes away. story looks like it is getting more difficult instead of easier. the homebuilders have come out and they are pushing hard

against this because they didn't get their particular thing in the bill. the challenge is growing rather than receiving. kathleen: absolutely. when you start having the details come out, it's cliche but the devil is in the details. legislation, once you know the specifics are, that sets up this whole lobbying campaign. if your provisions were included, get them included. preserve things that benefit you. the promise of lower corporate traits is something that a lot of people can get behind, following your starting to get thatwith specific breaks affect certain sectors of the economy, that it's more difficult. republicans have set a really ambitious goal of getting something through by thanksgiving.

i think that's not a lot of time. if anything, this movement on the mueller probe would increase their desire to change the not someion and really sort of a legislative victory by the end of the year. politics in washington is going to be fascinating. our thanks for kathleen hunter and andrew sheets. we are not quite done with andrew yet. if you want to get more of what and are is thinking, tune into bloomberg radio. up next, one of the risks to the uk's credit rating. we are going to talk to the head of u.k. sovereigns. ♪

♪ 44 minutes since the beginning of the market section. hsbc, let's get these financials through. down .9%. asia helping boost its fourth-quarter revenue. its report higher-than-expected revenue.

akzo nobel also trading a little lower. is considering a merger with its u.s. rival. create aing will transatlantic paint giants. they have a combined market value of about $30 billion. finally, i am looking at glencore. it's up about 1/10 of 1%. a strong performance in the third quarter. the trading guide a big step up from the end of 2016. below are its production forecast for copper, zinc, lead, and others. guy: let's turn our attention to what is happening in the new k. -- u.k.. there is heightening

uncertainty and downside risks from brexit. the head of raise at fitch joins us. what would it take to downgrade the u.k. at this point? how close was the decision? >> there was a very lively discussion. the reality is that is very difficult. u.k. economy has proved pretty resilient. . i think it has the fight a lot of expectations. on the fiscal side, things have been better. but it's the politics that have been driving the u.k. rating. this is where our assessment is difficult. the outcomerice was of a no deal scenario. that would hit the economy very

hard and have an effect on the u.k. credit rating. stage, we are not basing our rating on a specific outcome. hard for us to go save u.k. will be without a deal. think there are chances there are chances there'll be a decent deal for the u.k.. it's in the mutual interest. is the needle is moving more towards a negative outcome that a positive outcome. a margin or be that caveats it with all other if sandbox. ifs and buts. yes, it's michele: getting more difficult.

that's because of domestic politics. weekende minister has and the conservatives have a wide range of views of what they want from the brexit negotiations. in our view, it will be difficult for the prime minister to strike a deal and then sell it back home. there will be people unhappy in her party. we know that there are pro-unp's with the conservatives who are aligning themselves with the labour party. we had the pro hard brexit or is ers who are -- brexit becoming more vocal. it's difficult for theresa may. uy: they will deliver the budget. what advice would you give him? as a rating agency we

cannot give policy advice so i will not give advice. i can tell you what we expect. we expect philip hammond to have a budget that will focus on fiscal discipline. ofwill renew the commitments the u.k. to reduce the deficit over time. he has been held under pressure and we have been quite impressed with how he has managed. in his public speeches he has always maintained a strong commitment to fiscal discipline. the budget will be a difficult one, but we don't expect a significant reversal in the course of fiscal policy for the u.k.. in the notes, the risk of the constitutional stories running scotland. is that playing highly in your thinking? michele: not recently.

it used to be a concern. now that the referendum is not on the card anymore, it's less of a concern. but if there will be a bad outcome, we know that scotland , it'sery pro-eu country might come back as a concern in the future. right now, it is not a significant raising concern for us. guy: let's go to question we didn't actually discuss. we have a spanish situation, and bondan situation, the markets this morning are sounding the all clear with what is happening in spain. is that your view as well? we have spain on a positive outlook. it's our view as well. .e are concerned

catalonia is an important economic region. there is a constitutional crisis going on. but all the fundamentals behind the crisis are really leading to regional elections. in our view, there will be a regional election. thisolitical basis behind idea of independence at this stage is quite weak. we have seen over the last few forthall the back and really showed that it's probably too early for the catalonia establishment to make this push for independence. atalanieve that the c government and politicians will

play the longer game and will accept, in the end, regional elections and they will try to campaign and increase their numbers in the catalan parliament. guy: thank you for coming to talk to us. michele napolitano. the dutch company bulking up. trying to merge with the world's largest maker of also refinish paints. will bring it up next. ♪

♪ the open.me back to who thought specialty paints could be this exciting? the dutch paint maker is looking ofa merger with a u.s. maker car refinishing paints. let's start with the deal. does it make sense? about the talking third and fourth largest manufacturer in a fragmented industry coming together. akzo has had to quarterly profit declines. you are starting to see why they way to getight be a profitability.

they are a company that has been under a lot of pressure this year. could this be a roll up story? yes. and they are saying they're going to diversify their business. they must be closely looking at the standstill agreement that expires on december 31. i guess lawyers are going to be quite busy. we're going to leave it there because we are running out of time, to be honest. it's trading down a little bit this morning. stay with us. "bloomberg

surveillance." where there is a what our time difference now between us in new york. -- there is a time difference now between us and new york. retail.

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

22,400. good morning, everyone. this is "bloomberg surveillance ." i am tom keene in new york. in london, nejra cehic in for francine lacqua. catalonia -- the story will not end. am i right that there is a new government in barcelona? nejra: right, it does not and. mature trying to take back control. we had protests over the weekend from the anti-independence protesters, but the spanish yields keeps falling, so does not seem like the markets are pricing in a lot of risk.

also in europe, we are focused on the bank of england rate decision. the fed decision may be a bit of a sideshow this week. the boe is not. extraordinary events in washington as well. with our first word news, here is taylor riggs. taylor: starting in barcelona, hundreds of thousands of people jammed the streets in protest, saying that the -- as the prime minister has begun the process of reasserting control. whether test will be people will follow calls to resist spanish masters in catalonia. the united nations says iran is complying with the terms of the nuclear agreement. the head of the u.n. nuclear watchdog says all countries are abiding by their commitment.

donald trump once the deal renegotiated. the first charges may be announced today in that investigation of russian involvement in last year's u.s. election. a grand jury associated with special counsel robert mueller's probe has approved the first indictment. trump called the investigation a witchhunt that is bad for the country. puerto rico plans to cancel a controversial $300 million contract to rebuild the island's tower grade. the contract went to a company in thesemetown -- small hometown of the energetic of thehe small hometown energy secretary's. currencieses, bonds, , a little bit of risk off. the euro down to 1.1636.

gloom was a-- the strong dollar. gyratingeally is around the dow. not at record highs, but right there, i gave you the 30 year yield to show you the dollar churning. nejra: i am taking a look out bonds. you can see the stoxx 600 pretty goingreading water, not anywhere to far. certainly not picking up on the exuberance we saw in u.s. stocks friday. a big week for treasuries. the 10 year yield pretty much unchanged. spanish down six points. there is not a huge amount of clarity with parallel worlds in barcelona. tom: spanish that is a lower yi. that green should be read come

on the spanish yields. the yields come down. let me go over to the bloomberg. this is some of the economic data this week. we are really focused on washington. coreis the p.c.e. inflation statistic. 2% is sort of a historic benchmark. this has been.e about 2% over the last 20 years. 1.65 -- theaverages 20 year average is 1.65%. feda: as you point out, the , one of the big things for the treasury markets to watch this week. the nomination of a new fed chair and the fed meeting. also jobs data. this is the 10 year treasury yield. where is it going to go? it dipped just below 2.4%. welcome to the new range -- or is it? this will take some direction. this week we will see if there

is more volatility. tom: we need to brief you on tax reform. we will do that with kevin cirilli in the next hour. but right now, the political ballet became front and center with the idea that the special counsel will make first indictments, arraignment's first arrests, this monday. london, stephanie baker studer. how much equivalency is there to watergate? >> it remains to be seen what happens today. we are expecting indictments. the first under mueller's investigation to be made. it really depends on who he targets, what the charges are. we know he has been investigating paul manafort and michael flynn.

are the charges related to objection of justice? to paul related manafort and money laundering or tax evasion? theseends on how close get to the white house. that is what we should be watching. tom: for a global audience, what is important is the all capital letter tweet "do something." obviously, his "do something" is to go after the democrats. but what is the response of trump supporters that could actually be productive over the next 48 hours? stephanie: we have seen trump tried to deflect attention away from this by focusing in on the reports about how the democrats and clinton have funded this dossier written by a former british spy, focusing on

clinton's emails again, and thising in on this report, deal, that hillary clinton did when she was secretary of state to allow a russian nuclear agency to gain control of u.s. uranium in exchange for a donation to the clinton foundation. these are all things he has focused on as a way to distract ellerfrom the mu investigation. tweeting that out, that has shifted the debate over the weekend. the talk shows were talking about the dossier and uranium deal. that has worked temporarily. but today, the focus will shift again to mueller. nejra: the president himself sort of acknowledged this in a tweet. basically, he said something to the effect that this is all

coming out just as they are getting some progress on tax reform. how much could this actually derail the tax reform process? stephanie: it will overshadow what is going to be a big week for trump. he is expect it to unveil tax legislation this week, along willa new fed chair he name. he is also leaving friday for a 12 week trip to asia. trip that puts them on the world stage, going to china. the mueller investigation will be a big distraction on a week where he wants to be focused on his new fed pick and tax reform. nejra: stephanie baker joining us. peter joins us now, from mizuho. we were just talking about how this is proving to be a distraction feel we talked about 2.4%. is this an inflection point for

you? what is the biggest driver? the fed nomination? peter: i really cannot predict the investigation, so i am looking to save anything of economic significance comes out from that. there are two major points. tax form and the fed chair. the market is leaning towards jerome powell being the next fed chair. the way the market is looking, this is pricing in too much dovishness into this outcome. my personal view is that i would expect the fed under jerome is easier onse he banking supervision, that we should be thinking that, if he is slightly more hawkish than wo off, you net the t and the path of expected interest rates should be the same. so i think the market is pricing this into dovish-- in too

dovish. nejra: were they not just pricing out taylor or were they pricing in powell? peter: given everything that has happened since we started, putting yellen out of the taxing, given that we have reform is now significantly more probable than it was, i think we are at a price in a more dovish path. that is what is interesting to me. we seem to be underestimating the potency of a fiscally positive tax plan, and we seem to be underestimating that rates to zero. he is still looking to raise rates. tom: why are we looking at december 13? here is a fed chair, in place with immense prestige, even by her critics.

why should she clear the deck, raise rates now, so the next person is clearly set out -- up? peter:here is a fed chair, in ti can give is that it seems like the fed has put a tremendous amount of commitment into not allowing there to be a taper tantrum of types. ,e are moving in tomorrow quantitative tightening starts. if there is an adverse reaction to that, i think the fed would feel they have put a lot of work in, and the like may have undermined that. this is why i think we have to be soft thist will meeting, but continued to prep the market out for december 2017 and possibly a bit more 42018. ins plan, given how phased it is, does not have significant economic impact until about this time next year. tom: thank you. we'll continue this discussion. the chatwell with us -- peter chatwell with us from mizuho.

in the next hour, kevin cirilli and we will go through the minutae of what could be mueller's day in washington. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." that's get the bloomberg business flash. it is a sign that x years for structuring are over at hsbc. the british bank reported a third straight quarterly increase in revenue. earlier this month, john flint was named to succeed as ceo. we will hear from hsbc's finance dr. shortly.

akzonobel confirms it has had talks with axalta in merging. a deal would help keep akzo independent. earlier this year, akzo fought off a takeover bid. novartis making a bid to strengthen its oncology portfolio pay the drug maker offered -- the company makes therapeutic products for cancer and other diseases. that is your bloomberg business flash. nejra: thanks. catalonia's ousted president has declared the creation of europe's newest republic. hundreds of thousands of pro-unity demonstrators took to the streets of us learned yesterday after friday's declaration of independence. with us is our reporter maria tedeo in barcelona.

parallel worlds in barcelona. what is next? >> the big question is whether the ousted regional president -- remember, he was this missed from office friday -- will show up to work here in barcelona. -- he is nohe was longer in charge. the question is if you will continue to defy the central government. we also expect the state prosecutor to press charges against him but will not ask for his arrest. the question is what comes next in terms of the prosecution, whether he will face charges of sedition. expected, all of this after that unilateral declaration of independence. is clearly an extra ordinary moment for spain. it all comes down to the police, not the federal government might not the investigators.

what are the police in barcelona doing today? who do they report to? maria: that is a crucial question. there are 17,000 armed police officers here in catalonia that would usually answer to the regional authorities. the interior minister has made it clear -- we now work as a single unit. national police, civil guard, and the catalonia regional police. they appear to be cooperating this morning. the last time they have to work together was the illegal referendum october 1. that now, it seems they are -- they arele working together. but that is something we will have to keep an eye on. it looks like the regional police will have to do it, which is the question. nejra: thank you. peter chatwell, head of european rates strategy in mu

mizuho still here. about the risks in catalonia? peter: we are. we favor looking at the curve as a way to express this. i can explain what i think is happening with the spread. first, there were some investors looking to short spanish government bonds, looking to sell bonds they do not own. the ecb monetary easing would allow those shorts to be cut out. there is also a big spanish redemption this week. investors who currently own the spain with a short bond, they just received a lot of money into their accounts. there are probably thinking -- they are probably thinking that is nice, but i may not be comfortable with investing all of that cash back into the front end of the spanish curve, let me

take some duration on the spanish curve. so they can take money out of the spanish curve -- cached -- but put money into the spanish duration. they are putting on a curve flattening of you that is creating a downward pressure on the long-term yields of the spanish yields. tom: we have the boe thursday, the fed on wednesday. fine. i want to look back to mr. draghi last week. good draghi blank -- did draghi blink? peter: i did not notice him blinking. he was not wearing his rate cut tight. other -- he was not wearing his rate cut tie. other than that, that was classic draghi. achieving maximum impact with monetary policy. tom: how do you equate euro

correlated to interest rates in europe? peter: i think that will stay broken. what continues to materialize over a three-year horizon is that the euro is once again investable. you will see real money. foreign exchange managers, asset into the moving back euro. they realize this is an asset class that is once again investable. negative interest rates will not be here permanently. this generates a symmetry. we see this playing out. this is one of the reasons why peripheral spreads are tightening in so much. even as the currency is rising. i do not expect the relationship between yields and currencies to be reestablished in the near-term. , as long-term yields remain low, because of qe still being executed for the

foreseeable future, and the redemption flows are frankly enormous. make it so the euro can continue to appreciate. i think we get back to 1.20 over the year term. but the long-term interest rates will elaborate on the redemption flow. tom: well, we cannot elaborate right now. it is called "commercials." we will be back with peter chatwell. bloomberg markets today, it a conversation with mark mobius on emerging markets on radio today. this is bloomberg. ♪

♪ i am nejra cehic in london, with tom keene in new york. a sunny day in london. hsbc reported a third consecutive rise in quarterly revenue. europe's biggest bank beat analyst estimates. of ourall, the focus asian businesses is continuing -- has continued delivering the strong offering of services and products, including the digital is,bilities of our is is allowing customers axis over mobile apps. that is starting to reflect in the numbers we put in the marketplace this morning. overall, asia hugely important for us. mackay of hsbc there.

i guess it is time. cast unseen, working with president obama, a bloomberg view columnist. always very fair with republicans. he has an interesting book out. i will step lightly. it is called "impeachment: a citizen's guide." something we all need. the constitutional structure of impeachment is very different. futures are in for the dow, closing friday 22,434. -- sorry, it is still joe girardi's new york. this is bloomberg. ♪

♪ ,"m: "bloomberg surveillance getting your monday, getting your november started. nejra cehic in for francine. about eight things to talk about

in washington today. she starts with one of them with our first word news -- here is taylor riggs. taylor: the house's cheap tax writer has backed off a proposal to end the federal income tax rate for property taxes. gave in to concerns from republican lawmakers in high tax states. brady is expected to release the actual text of the bill wednesday. this is the week trump says he will make an announcement about the next chairman of the federal reserve. according to people familiar with the matter, he is leaning towards jerome powell. in an instagram video, the president said people would be very impressed by his selection. newfirst has of catalonia's reality may come today. that is when civil servants decide whether to follow calls from the independence movement spanisht their new masters. in barcelona, hundreds of thousands of people protested the declaration of independence. has -- prime to

minister has ousted cabinet over thend taken police. prime minister theresa may demanded new to protect staff and colleagues from unwanted sexual or sexist behavior. hasnior member of her team been accused of inappropriate behavior. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thanks. it is 32 pages long. ubs has put out a really good report on the age old debate of active versus passive. rner joinsrner -- we us now. i looked at your report. is one million of these reports. let's start with a simple

question -- why are european active managers, managers who pick stocks, why do they outperform u.s. active managers? >> i think there are two reasons. the first have to do with efficiencies in the market. the u.s. market is probably a bit more efficient. you also find there is more retail activity in the european markets. a number of academic studies retailers tend to -- tom: in europe, is there a vanguard? the overwhelming reality of the education on passive investment has been the vanguard phenomenon for well over 20 years. does europe have a vanguard? >> europe does not have a vanguard. it does not have a black rock, it does not have a state street.

passive funds have not penetrated the european market as much as we have seen in the u.s. two reasons are -- one is this to be should channels be of average retail investors getting funds from their commercial bank , which is generally less incentivized to sell passive funds. an active managers actually perform better in europe than what we see in the u.s. nejra: i am hearing a lot about transparency coming through, giving a boost particularly to the etf industry. mike: investors will see a lot more of what they are being charged from a fee perspective, but it is unknown if that will change consumer behavior. you all -- you also have a lot sold, not bought, by investors. one of the great push backs in america is the idea that what

active managers need is more volatility and a good old all-american, or all european, bear market to reassert their performance. we have to go to relative mathematics. within that is the idea that we need a bear market. do we need a bear market to reassert active excellence? mike: i do not think we need to go as far as saying we need a bear market, but we certainly need to see less correlation between asset classes. we have seen a little bit of that this year, and certainly active performance has picked up after a difficult 2016. but to go as far as saying we need a bear market, i do not think so. we just need a little less correlation or between asset classes and within asset classes, the individual securities. when does this debate between active and passive become less relevant? there is passive and

active-passive. you also have the rise of smart beta. mike: it will all blur at one point, but you are seeing influx into traditional passive funds, particularly in the u.s. you are seeing a lot of outflows from actively managed funds. until we get roasted to equilibrium, this debate will continue on for at least a couple of years. nejra: peter chatwell, what do you -- where to use it? peter: did you examine the impact of equity rates? since we have seen negative interest rates, there has not been a significant trend one way or another. so we still see active fund managers are performing since the financial crisis and since quantitative easing was put in place in europe. tom: what are flows right now? what is the actual, to the great idea to watch what people do

with their money -- i get a real clear idea of what they are doing with their money in the u.s., which is passive, passive, passive. what do they do in europe? mike: it is still a 50-50 split into active and passive in the equity space. country bya little country, but you have a relative balance in terms of where money is going between actives and passives. tom: looking more at the rate there such a, is thing as passive bond work portfolios that outperform active? peter: i am pretty sure there are. there are a number of active investors who take a negative view on duration. if you look at european government bonds or look at the performance of greek government bonds, they have been a star

performer in european interest rate markets over the past year. will be ay sure there number of active investors who has been trying to take lower risk strategies in an effort to outperform. i speak to a number of investors who do not reflect the same view that we do and, so, would have been caught out. moved onswers we have to bonds, is this the one area where active managers can still outperform in europe? because this is a much anger market and equities. mike: i think so. it also has to do with the benchmark opposition. it depends on how much of the benchmark they are able to capture. active managers move outside of that benchmark to generate alpha where passive managers are locked in to that benchmark. tom: i am getting tweaked out on our matching bowties. comparisonbowtie

here. i am sorry. do not give mr. werner any garbage -- it looks kind of like the baseball manager in america. do you do that everyday? mike: i do. i get the bowties from new york. nejra: i have to say that mike outperforms on the bowties. [laughter] mike werner, thank you. we will continue with peter chatwell, who did not wear a bowtie. -- coast-to-coast, on sirius xm. this is bloomberg. ♪

♪ nejra: i am nejra cehic in london with tom keene in new york. the bank of england could raise interest rates for the first time in a decade later this week. that of medellin mayor nine-member committee suspected to raise rates after better-than-expected u.k. growth in the third quarter. but the decision is unlikely to be unanimous. zuho ishatwell of mi still with us. like you, i will be waiting outside the bank of england with bated breath. how much will the actual votes matter to sterling? peter: bearing in mind, i think it would be an error to raise rates. i hope it is 6.3. if it is 6.3, at least there is some possibility that this is not the start of an aggressive cycle.

that would mean that sterling does not have to sustain too much upward momentum. that is one of the reasons why i think this would be an error. lots ofing rises, then the helpful sides of the rebalance in the u.k. economy we have had since brexit would be undone. yes, we get less headline inflation going forward, but we also lose out on a number of important factors. most importantly, if sterling rises, the impact on gdp growth would be -- not contractionary, but caused there to be less growth potential going forward. nejra: do you think it is an error even if there is a hike in november and then one and done? peter: in that case, what is the point? is it just to undo the cut of

last august, which i also think was unnecessary, then what is the mpc doing to their credibility? if you look at some of the late anrance in, there is interesting paper by the symmetry of policy moves when you approach the zero bound. what it means is a tweet five basis point hike from 25 basis points would have much more impact of at 825 basis point cut -- of a 25 basis point cut. tom: is the inflation in the the samegdom transitory, less transitory, more transitory than what chair yellen faces? peter: i think it is transitory but slower. we have a lot of inflation caused by higher import prices. on butis the past is

slowly. they are competing with each other. the overall impact is still to play out. we have headline inflation going over 3% over here. but we will start to see these g asationary impulses wanin we move into next year. that is the other thing i take into account in thinking the bank of england probably does not need to hike rates, and, if so, only needs to do one at most. because the inflationary impact should start to dissipate next year. tom: this is a really important question for 2018. would you ring that over to the united states? are we going to have a 2018 with no pricing power by corporations in the united states? peter: what is different between the u.k. and the u.s. is you do not have structural uncertainty over who you will trade with over the coming years.

over hereng power will be troublesome going forward, but over in the u.s., i theot so concerned about subdued outlook for inflation. in the u.s., because you have the opposite of eight positive impulse coming in from policymakers, the that should be throughright to look transitory factors and we actually the phillips curve. think about what could have caused the phillips curve to have this big residual, to have unexplained actors in the recent history. nejra: how are you trading the gilt market then if you see inflationary pressures waning? look at isthing to long-term yields are probably attractive here. add into this the potential of a policy error. you could actually drag on

growth and inflation going forward. that means long-term interest rates look relatively attractive. even though visually they do not look quite appealing. what i would be thinking is that on the announcement that the mpc curveates up, i think the flattery is a great thing to have on. nejra: we will be back with peter chatwell of mizuho. take a look at tv . you can see everything we are talking about on the show. also, the key charts tom and i put up. and you click on any of the headlines to get more information. tv on your bloomberg. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." let's get the bloomberg business flash. parent group four $1 billion. the dealny and says will help increase its presence

in europe. to people familiar with the matter, the ecb wants to know if unicredit's bank price is inflated by fees that should be struck out. in japan, more fallout from the scandal fromdata kobe steel. the company has that it will not pay its dividends. hiscompany acknowledged executives cannot predict how the scandal will affect earnings in the next months. that is your bloomberg business flash. nejra: thanks. peter chatwell, mizuho head of european rates strategy, still with us. points.t 38 basis used to buy this call for tony five basis points by the end of the year. why? peter: the main thing the markets are underestimating is the shortage, lack of bund

movement in the market. it is a simple stock versus flow demand argument. we have run the numbers for next year. the market is still underestimating the market next year it is that the flow of buying will not be that much it has in bunds then been the previous nine months. that is because the redemptions are enormous. a lot of the bundesbank's buying has been in shorter maturities. so we can assume of the german redemptions next year, we can assume one third of those, about qe, will be owned by the program and, therefore, be reinvested. that means the flow will only be reducing by about 17% rather than 50%. tom: let's go to a chart of the free worlds of peter chatwell. 2007 and a rate structure for

europe, the united states, and for england. they sort of bunch up in .12. -- 2012. andunited states there, england inflated their. -- there. is there any way where europe generates a higher inflation? time, ivertime -- over think that is a probable outcome. but if you think about where the ecb is forecasting, forecasting inflation at 1.5% in 2019. in terms of headline inflation causing their to be a higher yield premium on nominal bonds, that is some way away. all we can really do is price of that into the forward path of interest rates.

that means we should think about the long end of the curve getting steeper in europe. whilstt we have got is qe is going, there will be a shortage of bonds out there. and we need to factor that this will be reinvested for a long time. 2020 at the earliest. only once the balance sheet is reduced and the impact of qe watch out and bund yield start to rise. needyou and i do not toward about this, so you need to give nejra cehic advice right now. should she acquire the 100 year austrian piece? if you look at the duration of the french bought -- bond 100 years out, the austrian piece, does that say "nejra cehic" like nothing else i have ever seen? [laughter] nejra is managing her

pension with a one-year horizon, the value is pretty good. so i think that will have a positive impact to her portfolio. but after that, then there are some questions about what asset classy want to be investing in. nejra: briefly, what about japanese investors managing their pensions? how does that impact where european rates go from here? peter: again, i think it is a dynamic that is often under looked. if you look at japan, prime minister at the has just -- primus there abe -- prime minister abe has just been reelected. you know how to think about the bank of japan's qqe taking place over a number of years. so the risk of that program ending soon has dramatically diminished. that means japanese investors will have to go on a hunt for yield. typically, they are yield

hungry, need to achieve high interest rates. it means when you take into account the effects, european yields are tractive. germany's the most attractive from a ruling standpoint. if you are a japanese investor, you want to invest there, because they can generate higher returns than they can in their domestic market. it also means qqe is more effective, because it has more depreciation at the end then it would appreciate other currencies. this is how we have to think about them investing over the coming year. nejra: petr cech -- tom: peter chatwell, thank you. let me set up the morning for you. really, and at ordinary week very weak. the dow at 23,000.

tax reform scheduled for wednesday from the house. a fed meeting wednesday. scarlet fu will lead our coverage with, i believe, michael mckee in washington. the day after that, the bank of england. , very important nejra -- the bank of england, very important. jra will be standing outside the bank of england. and, the latest on the more investigation. important conversation on the courage to stay in the market. this is bloomberg. ♪

this morning, markets shortening. the fed meets wednesday.

will the president decide on a new fed chairman? shows "zerouse anxiety" as first indictments come from special counsel mueller. trick-or-treat. the dow. you have not participated in one of history's bull markets. i'm going as cash for halloween. chris grisanti is going as a call option. francine.c is in for this is extraordinary history being made for spain. nejra: it really is. you have a parallel world going on in barcelona. you have children going back to school, parents returning to their jobs. you have the madrid government planning to take over the catalonian government. spanish yields continue to move lower.

the german spread continues to tighten. extraordinary focus on washington, but yes, a lot going on. here is taylor riggs. taylor: we are starting with that catalonia extraordinary fon washington, but story in barcelona. hundreds of thousands of people protest.e streets to test may come today when civil servants in catalonia decide whether to follow their calls to resist their spanish masters. there are reports that catalan leaders could be charged with rebellion. is united nations says iran complying with terms of the nuclear agreement. the head of the you when nuclear watchdog -- u.n. nuclear watchdog says all countries are abiding by the terms.

first charges may be announced today in the investigation into russian involvement in the election last year. the special counsel's grand jury has approved the first indictments. president trump called the investigation a witchhunt. puerto rico plans to cancel a controversial $300 million project to rebuild the island's power grid. whitefish energy holdings had just two employees before winning the no-bid contract. it is located in the hometown of the energy secretary, ryan zinke. tom: equities, bonds, currencies, commodities. a little bit of risk off today. crude, $60.

next screen. the vix has come in. oddities in the vix. close to a record on the dow. the 10 year yield, the 10-year treasury yield, 2.4%. ield isyear bund yeil unchanged. spain is down despite all of the concerns around catalonia. european equities pretty much treading water. tom: let's look at the bloomberg. core inflation. this is transitory over here, this move down. the 20-year average. down our something to talk about.

it has been a great rhetorical challenge for the fed. nejra: i'm showing the 10-year yield here, tom. at 2.3974.ped below you have the fed decision, but what is going to overshadow that is president trump choosing a fed chair and politics and we have the jobs day at the end of the week. tom: very good. he can speak -- we can speak for easily one hour with kevin cirilli this morning. chief washington correspondent. hotel over aams fancy breakfast, what is the conversation going to be over mr. mueller? are they guessing who is going to be arrested? kevin: there is a lot of chat, but i don't want to speculate. that said, i can tell you that are spoken with several sources

and i think the broader takeaway is that we are going to be hearing a lot of of the foreign agents registration unit. faru. that is the registration and disclosures required for consultants that they have to register with and that is a key source of disclosure laws for a lot of these political pundits and consultants, if they are representing foreign governments or not disclosing properly -- that could cause problems. tom: brilliant. really valuable. for a global audience and for those of us who got a c in civics, explain how people are innocent until proved guilty differently here. is a heavyweight guy that is going to come out with indictments. they are innocent until proven guilty, but what is different and distinctive in that process here? legacy is mueller's

hanging in the balance here. his entire career will be thought of through this political lens. in the beginning, we were looking through a political lens , but now we are looking through a judicial one. now this investigation moves to a stage in which it is going to go through the legal, judicial court process. there will be court dates, court documents, all of that taking central focus. great clarification, kevin. it is clear that this is going to provide some distraction to tax reform. the house committee set to release a tax bill this week. could it provide any sort of material delay to tax reform? kevin: that is a great question. the foreign agent registration unit is so interesting. that will receive criticism from

republicans, but it could also from democrats, in particular for how russia has targeted to look at consultants and have folks not disclose over the past several decades. it has permeated this washington culture on both sides of the aisle. with regard to tax reform, i really don't think this will have much of an impact on how they are able to get something done or if they are able to get something done. what will have more of an impact is whether or not republicans can get all on the same page. this week is when they are going to release their tax bill. next week is when there is going to be the committee markup. outside of washington, that is the big meeting where folks are going to fight over the tax language. tom: one more question, if i could. i guess mr. powell has the leg up on the derby. when with the president want to make the announcement? isn't today a good time or am i wrong on that? kevin: we watching john taylor,

jerome powell. i think it is mr. powell. i will level with you. i was leaving the office last friday at 5:00 and the president put on an instagram. saying, we are going to get the announcement last week -- next week. tom: kevin, thank you so much. he is from revere, massachusetts and he is what you want and i want in an fbi agent. the kim of through the food chain of the fbi and served duty in among other places miami and new york city, it is in a many know is doing a day after day for the fbi, bill gavin of boston. wonderful to have you with us today. what happens when someone is arrested? do they literally knock on the door of their house? i think that probably we

are ahead of ourselves with this whole mueller affair. first of all, nothing should have come out already based on the fact that anything that goes before a grand jury is covered by the fact that you cannot say anything come eight is supposed to be secret. i'm sure that it did not come out through mueller's committee itself. my personal observation is that it probably seeped out from somebody that was on the grand jury itself. i'm not too sure there is going to be any arrest. usually, in a case like this, where it is not a horrendous crime, i think that what usually happens is that the indictment comes out. if it gets unsealed, they will probably be in touch with the individual who is the subject of the and the -- of the indictment

and they will have them turn themselves in. i will think anybody will be arresting anybody at 5:00 in the morning, knocking on their door. anything can happen, but that would be my sense of things. that it would be a little bit more sedate than somebody knocking the door down first thing in the morning. but after the arrest, they have photographed and appear before a magistrate for the first hearing and, usually, that is when bail is set if it is set at all. i imagine they will be set. that is with the process will probably be like. whatwhat do mean wean -- do we mean when we say unseal the indictment? i think about a waxed stand and you are unsealing it -- wax

stamp and you are unsealing it. what does unsealing and indictment mean? bill: it means the indictment itself is secret and a judge will say, ok, now it is time to open it. seal or anything like that, it is just that the veil of secrecy -- the facts that are involved. does not keep it remained under seal, the details, then it becomes a public document for somebody to take a peek at and see with context of the indictment is about. cirillir. gavin, kevin said that robert mueller's legacy hangs in the balance. would you agree? bill: no. robert mueller is indeed one of the most forthright, honest people that i know and i don't think any image of robert mueller hangs in the balance

with this particular case. doing the case based on the best person just by both parties to do something like this. i don't think the image of bob mueller hangs in the balance over this particular case. tom: bill gavin, thank you so much. greatly appreciate it. he is a former agent with the federal bureau of investigation. excuse me, i was looking at the breaking news coming in. this is an home building. this affects every community and city in america. this is out of miami and arlington. so much withg reduced nominal gdp. the synergies are there. we will have much more on this. of an immodest transaction $9 billion. this is bloomberg. ♪

is "bloomberg surveillance." six years of retrenchment and restructuring are over. the british bank reported income raising at hbc's maine businesses. akzonobel confirms it has had talks with a rival about merging its paint and coatings business. axalta. just breaking in the last few minutes, it may lead to a merger in the u.s. top homebuilder. a stock deal valued at $9.3

billion, the value of the stock is a 27% premium. that is your bloomberg business flash. tom: taylor, thanks so much. there is too much to talk about in this historic bull market. christopher grisanti is with grisanti capital management. years of putting money to work quietly in a select group of blue-chip stocks trying to not lose money. let me get to the three legged stool. my three-legged stool is cash, more cash, and even more cash. stoolof the legs of your is most intriguing right now? chris: i think the old are you get, the less you know and it is smart to admit that that is the truth. as we get older and more experienced, we have more experience i think we are in the foothills of a bubble that is being created.

tech is taking over, growth stocks are crushing value stocks. i think maybe it is a little bit early to be in cash. tom: this morning, a brilliant note on this text surge. let's go back to 1997, 1999. in 1997, we had the bubble issues, but it took two years or three years to get there. chris: you get kind of lonely holding that cash. cash is about the scariest thing for a portfolio manager this halloween because it has absolutely crush you. instead of doing cash, do what i .ould call chicken tech apple, oracle, they have less than a market multiple, but can participate in the rally. if the rally decides to turn over, you won't get crushed, as you would owning tesla or something like that. , you have mentioned apple and oracle.

what about amazon? chris: amazon is tough for us value guys to own because of you have a revenue shortfall, which are words never associated with amazon but some they will be, that stock can drop 20% or 30% over the course of a quarter and then you are really disappointing your clients and you have really taken too much risk in a portfolio that is mandated not to go in that direction. tom: when everything is said and done, i'm going to bring the chart up right here, this is the dow. it shows the level of exuberance versus where grisanti is. grisanti is right here. 1997, before the march 2000 peak the equivalent. -- we are nowhere near the stupidity. chris: i agree. why cash?

we are getting there. in 1999, it got above its valuation. as a prudent investor, what do you do with your money? tom: is ge a value here? chris: we don't have a corner on the market of intelligence, but i think it is a value trap. the reason i think so's i think the new guy is going to come in, he is going to assess the situation, he's going to kitchen sink the earnings. i think he will have to cut the dividend. in the last earnings report, they elected not to take a dividend. there are issues that have yet to reveal themselves, i think. nejra: do you see evidence of companies increasing their capex and what does that tell you about where the market goes? chris: we do.

again, everything -- everything is an overstatement -- most things are symptomatic of a strong economy, of a bubble that is forming, but not yet fully increasing in see technology, industrials, biotechnology, and pharmaceuticals. that is exciting as investors and that is a good sign of a tailwind. it creates more jobs, more earnings, and we should push the market higher, even with the high valuations we have. tom: maybe we will get to the tech stocks in the next half hour with him. coming up on bloomberg radio, a conversation with a bloomberg view columnist, served the nation with president obama, someone who has written stridently about the republicans as a good force in society. his new book on impeachment. ♪

tom: "bloomberg surveillance." we and you are riveted on the activities in washington and barcelona and in london, to an extent. is in london. i'm tom keene in new york. chris grisanti is with us. he likes apple. show us the new apple watch. chris: there you go. up: we are all apple-toyed .

i don't have an apple watch. there is the case for apple. is a manufacturing company. what is the sum of the parts worth? chris: we think it is worth close to $200 over the next year. even with high expectations for the iphone x. tom: i collect the iphone ex. -- call it the iphone ex. chris: there have been rumors about the softness of the iphone 8 and we think that is because people are waiting for the iphone x. tom: what does it do to gross margins? right -- am i right that operating margins have not eroded? chris: not only have they not eroded, but we expect them to

increase 200-300 basis points. they could beat earnings expectations by 10% or close to 20%. tom: you are telling me that gross margins are going to go up two full percentage points? chris: two full percentaget hreeto three -- two to t full percentage points. we think the $1100 phone can add strength to the bottom line. apple is a phone company that also says other stuff. tom: really? are you kidding me? i've had three phones in my house break in the last 24 hours. mark mobius later today. ♪

tom: good morning, everyone. tom keene in new york with nejra cehic in for francine lacqua. let's get to our first word news.

taylor: on capitol hill, the house chief tax writer has backed off a proposal for property taxes. house ways and means committee chairman kevin brady gave into concerns from republican lawmakers in high tax states. he is expected to release the --ual president trump will make a chairman -- an announcement about the next chair of the federal reserve. he is leading to a dust leaning to appointing that governor -- he's leaning to appointing fed governor jerome powell. willonian civil servants decide whether to resist their new spanish masters. hundreds of thousands protest of the declaration of independence. spanish prime minister has begun the process of reasserting control.

british prime minister theresa may is calling for an end to sexual harassment at the top level of politics. she has written to the speaker of the house of commons, demanding new rules to protect staff and colleagues from unwanted sexual or sexist behavior by lawmakers. she has also ordered an inquiry into a senior member of her team accused of inappropriate behavior. day innews 24 hours per more than 120 countries. i'm taylor riggs. this is bloomberg. tom: thanks so much. we need to get a fed briefing as we moved to wednesday. the chief market economist at bnp paribas joins us this morning. we have the oddity of a fed meeting where nothing is going to happen. i don't buy it for a minute. what do you look for in the statement that could surprise? paul: i'm not sure there is going to be any great surprise to be honest, tom. the thing we've got to look for

are the individual speeches afterward, in particular, what is being surprising over the last couple months is the weakness in inflation. energize the to doves to be more vocal in opposition to a december rate hike? tom: here is the chart, folks. service sector inflation. down we go with a little bit of an uptick in goods. inflation, well below zero. absolutely outright extraordinary. how transitory is transitory? paul: it is not transitory. six out of the last seven months, we have had a downward in inflation. if you take out shelter from the inflation in cpi, the u.s. is running below europe. running below europe. that tells you that the fed has failed manifestly to get

inflation up and i think that is because, if you look at the last two or three years, inflation expectations have slipped, as chair yellen admitted last week. they just did not get inflation expectations up. nejra: in that case, what are you expecting from the wage figures coming out of the jobs numbers this week? paul: well, i would expect that we slip back a little bit, to be honest. the survey is looking for 0.2% on the month. i think there is a chance that we could get a bit of give back and get lower than the 0.2% that seems to be the longer-term backing average. the surprise on wages is probably going to be to the downside, even though people are using for -- looking for rates from payrolls. tom: just an outside question here as we look at the fed derby. uppers mr. powell has the

leg right now. ken john taylor be a dove? paul: very difficult for him to be a dove, i think. i guess he is not as hawkish as a simple look would suggest because otherwise he would not be in the running at all. i think the key thing about john taylor is he would be putting highway on the fact -- high weight on the fact that inflation is on target. nonetheless, i think he would be a bit more hawkish than chair yellen. tom: thank you so much, paul. grisanti chris with us right now -- chris grisanti with us right now. i know you care about the fed derby, but we don't even have real rates up to the zero bound. restrictive,e near where a guy like you becomes concerned. absoluteth on the

level of rates, which remain on an absolute basis well below normal, and on the personality of either yellen or powell. taylor would worry us a little more. i think it would worry the market in the short-term. i agree with paul in the sense that i think none of them will be terrible restrictive at this point given the data we are giving. nejra: also on taylor, the taylor rule is a rule, not a law. chris: right. it is easy to make rules as an academic. it is a lot harder to govern a federal reserve meeting with 14 governors. so, i think you are not going to see the growth change if taylor actually got the job, but i do think that the market would react in the short-term rather negatively to a taylor appointment. nejra: we keep talking about the 2.4% in the 10-year yield. have we reached a secular low

when it comes to yields? chris: i think we have, but i've been calling the low for about five years now. if i'm going to be honest with myself. [laughter] chris: i do disagree with paul a little bit in the sense that i think we may get a low number this friday, but i think wages are finally on the uptake. full employment seems finally. tom: this goes to the reading you and i did when we had brown hair. bankdea of a central getting out in front of inflation, i see no historical evidence of it. they are reactive institutions, aren't they? chris: yes, but in this particular case, i think it is sui generis. are nine years into an economic cycle. there are some folks that want the pragmatic thing of wanting to have some room to lower when things get bad.

to let's get fed funds up 150. tom: the fact is, we are not because every central bank, not to pick on chair yellen, but we see it in the ecb, around the world, they just want to see inflation as a fact. and not as an expectation. chris: well, we are starting to see with seven it in the wage category -- we are starting to see whiffs of it in the wage category. then it will dribble down. tom: i mean i see some service sector inflation. nobody including chair yellen cares what tom keene thinks. am i right? it ain't there? chris: it is certainly more there than it was two years ago. i think you are seeing wage pressures you have not seen an almost 10 years. they are not strong wage pressures, but they are certainly changed more than two years ago.

tom: chris grisanti here with us on the fed derby. nejra cehic at the bank of england on thursday. it is your briefing on television. we call that "bloomberg surveillance." over on radio, climb into your automobile, bob mueller, coast-to-coast "bloomberg daybreak." in new york, boston, bay area, washington, houston, l.a., and then going to houston again. stay with us. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." let's get the bloomberg business flash.

a $1 billion sale. says it will help increase its presence in europe. bad loan's landmark sale. according to people familiar with the matter, the ecb wants to know if the italian bank's price is inflated by fees that should be stripped out. no comment yet from unicredit or the ecb. in japan, more fallout from the fake products data scandal at kobe steel. they say it won't pay its dividend. kobe steel acknowledged that executives can't predict how the scandal will affect earnings in the next few months. nejra: thanks so much, taylor. 'facebooks strategy to stamp out -- facebook's strategy to stamp out fake news is not working. this comes ahead of the

congressional hearings into tech companies which start tomorrow. we are joined by bloomberg tech reporter sarah free up the broke this story. what is the key takeaway here? is it that facebook is trying, but it is not enough? >> i think that is absolutely right. as facebook is trying to experiment with what might work for stomping down fake news, it is becoming even more widespread and international. the company right now with the third-party fact checkers as a dashboard where they have to go in and individually marked weather stories are true or false and there is not a lot of machine learning or tech actually involved in it. facebook is working on those systems, but it is going to take a long time and they don't want to rush to a solution for fear of creating a system that is flawed. nejra: yes, what about the potential consequences here? could this impact facebook's revenue, user growth? is just ahink this

very dangerous position for them to be in and they want to go slowly and surely to make sure they get it right because facebook does not want to be a media company. they do not want to be the arbiter of what is true and false. they don't think their users should want that either, but this is becoming an issue. this is being highlighted in the investigation into russia and how they manipulated voters ahead of the u.s. presidential election. fake news is becoming a tool for foreign governments to try to basically spread propaganda. the company has a responsibility to try to look at how they can fix it. but there is not a lot of easy ways to do that. tom: sarah, i think you are absolutely dead on. it is a massive case, perhaps, perchance, of let's shoot the messenger. taken thiser has hook, line, and sinker. you got to be kidding me.

facebook toting police this? is that right? sarah: there has been a lot of pressure on the company. mark zuckerberg, in the days after the u.s. presidential election, he said it would be crazy to think that fake news on the network would have swayed voters. he quickly to change his stance and he quickly -- he did a lot of reflecting. he said facebook should have responsibility over how it distributes information. tom: wait a minute. "the new york times" has a responsibility to distribute the news. i want to know what mark zuckerberg and his troops are going to say tomorrow in congress. they are going to go in, raise h,eir hand, say blah blah bla what are they actually going to do to stop the idiots on facebook? sarah: i think that they are going to make the case to congress that they are adding

transparency to their advertising platform. the crux of the debate with congress is this $100,000 that were spent in russian ads head of the election, not so much the fake news. of course, that is the broader picture. tom: but sarah, why do you go after facebook instead of the bad guys doing the fake news? iisanti i think --sarah: think that is a very good point. i think they will make that point too. should it even be facebook's responsibility to prevent russia from manipulating the u.s. election? or is that the responsibility of our intelligence community. tom: we hereby need to tell you you need to move to the east coast so you can get on "surveillance" more often. sarah: i agree. tom: thank you so much. christopher grisanti, let's get to the question. are they a media company? chris: i think they are and we are letting them off the hook. tom: they do a correction, they

do a correction the next day. chris: they are bigger than "the new york times" -- tom: i don't read them. i read the new york times. chris: the number of voters that read facebook is exponentially larger than the number that reads "the new york times." i think they have a civic responsibility to say, don't believe everything you read. tom: i put out a video on acebook and they have to put banner that it may or may not be true? i've supposed to put up that it is fake news? chris: not you, but facebook could banner it or patrol it more, but you can't absolve them of responsibility. nejra: chris, as an investor looking at facebook, if it still has the users and the ad revenue, at what point do you really start to care in terms of whether you sell the stock?

chris: now i'm bifurcating civic responsibility from profit. we are facebook holders and that is one of the technology stocks we continue to own because it is a juggernaut. the ad revenue, especially on the mobile side, remains with explosive growth is google revealed on friday. we think facebook will reveal later this week what they earned. i think it continues. i think it is a terrific investment at this level. tom: chris grisanti. sarah frier. her story is out today on bloomberg news across all of our digital media. speaking of digital media, you can see the sausage made on "surveillance." there is a tv button, there is a radio button. it buffers. it is buffering. there it is! you can come down here and say, we saw that killer shark with chris grisanti -- chart with chris grisanti.

you can steal that chart. this is bloomberg. ♪

the distractions of

"bloomberg surveillance"! an incredibly busy week. in washington, we may see speculations about indictment, .rraignment, maybe arrests bill gavin pushing against the idea that we will see arrests. tax reform on wednesday -- maybe. we have a fed meeting wednesday. bank of england, thursday. somewhere in the middle of all that, maybe we will see a new chairman. it is a slow week, which means it is time to diverge to the bull market. single best chart. to take a different tack with chris grisanti, i want to go back to the 1960's. this is associated with the carter malaise where the moving average touches the long-term moving average. it was a brutal time for institutional managers.

there is a sort of malaise in the last decade. coming?ee malaises chris: i don't think so. what i am wanting to warn people about is that the low volatility we see now, it has not been this low since the kennedy administration. that is not normal. i don't see malaise. i see continued upward movement. 3% -- 2.3% forve two quarters in a row. thisve had no 3% drawdowns year in the s&p and that is the first time that has happened since 1963. i see volatility ahead. yes? nejra: sorry, chris. i just wanted to ask, we've mentioned a lot of big things happening in the u.s. this week and how that feeds into the equity rally, i want to take this global and ask about china. if china sneezes, does the u.s.

equity rally catch a cold? chris: i think so, but i don't see them sneezing. i see the cold as going away. in other words, we see relaxation ahead for chinese fiscal policy and i think that you will see lower rates there over the next year. i think the communist party meetings have shown that he is in total control. i think he wants to see flourishing economic growth and i think we will see more of that next year. nejra: what about deleveraging? we have seen yields in china rising. the shanghai composite falling the most since august. the lack of volatility we saw through congress starting to stutter somewhat. does the deleveraging concern you? chris: long-term, it certainly does. i think we tend to be reaching a crescendo in the short term on that trend. i think what you are going to andour rates peaking

gradually coming down in the spring of next year. i think the market will anticipate that. tom: i want to come over here to the dampening we have seen right now with the vix. it bears repeating. it really bears repeating. what is important here is here is the middle of the last decade. this is different. it is linear and it is long. the people hoping and praying for a new volatility, what are the things that get at that? i don't see it. chris: what causes the market move? it could be the employment of taylor as fed chair. tom: rate normalization is what is missing. bring up the chart again. bre is point a, here is point . the different is rate normalization. chris: that is one of the differences. tom: come on, it is a major

factor. chris: we have a market looking forward to tax reform. that is pushing the market up and therefore volatility down. we have gdp growth that finally hit 3% for the first time since 2012. that is good. you have a confluence of good events. the only problem is a value investor is where do we go from here? is this as good as it gets? there is a lot of fear of that. in terms of the fear and we talk a lot about this being , are youd bull market seeing more of the bulls come on board? chris: yes and that worries me -- thesense of really value index was actually flat. you are getting this bifurcation.

it is not a total market lovefest. it is really focused on high growth stocks in technology. tom: chris grisanti, think you so much. we should mention, we are 10 weeks, seven weeks, five weeks away from what we will see on the apple x, as well. it is almost november! yen shows weekend strength. sterling, 1.3163. there is your foreign exchange rate report. stay with us today on bloomberg across all of our media. 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. >> investors bracing for a week

full of market moving news. the president's fed chair pick, u.s. payrolls. the first charges from special counsel robert mueller could come this morning. shrugging off political chaos in europe. hundreds of thousands of pro-unity demonstrators flood barcelona's streets. from new york city, good morning, good morning. this is "bloomberg daybreak" along with jonathan ferro -- i'm jonathan ferro along with david westin. we come into another trading week at an all-time high. futures just a little bit softer. we come down by about 0.1%. in europe, the main event, not the politics -- economic confidence in the eurozone at a 17-year high. we bounce back by 0.25%. treasuries were stable.