francine: the trump tour arrives in seoul. saudi freeze. a crackdown on accounts of those suspected of corruption. president trump says he has confidence in the king. draghi versus zombies. will we get draghi's take on nonperforming lones, and how to bring the zombie banks back to life? good morning. this is "bloomberg surveillance" and i'm francine lacqua in london.

let's quickly check on your data. overall, european stocks seem to peaks.ing for two year the dollar strengthening and u.s. treasury yields are inching higher as president trump arrived in korea for a two day visit. nejra: in washington, the house tax money committee began four days of work to hammer out the details of the republican tax cut plan. house republicans adopted a package of changes, including a measure to limit the so-called carried interest tax break. this promoted serious reactions from democrats. u.s. president donald trump has vouched for saudi arabia's leadership after the anticorruption crackdown. he tweeted, i have great confidence in king salman and the crown prince of saudi arabia. they know exactly what they are doing. fourl, 11 princes,

ministers and dozens of former ministers and willem businessman were taken into custody. u.k. retail sales fell the most in seven months in october, indicating caution amongst consumers weeks before the crucial christmas shopping system. sales fell 1% and were up just 0.2% in total terms. barclays says annual household spending slowed from 3% in september, the weakest in more than a year. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. .'m nejra cehic this is bloomberg. francine: thank you. we are expecting draghi to give a speech any moment at -- or on europe's changing banking landscape forum in frankfurt. joining us first is paul donovan. the markets are worried.

when you look at what the fed and ecb can do, who has the toughest job? ecb hasll, i think the got a tougher job, in all fairness to mr. draghi, which is not something i often feel like saying. does not really work as a monetary union. the u.s. has got fiscal union, it has got a banking union. that means the transmission of central-bank policy is more effective, more predictable and more manageable. in the eurozone we can't say that. there are greater challenges ahead for the eurozone. we start to see politicians try to tackle some of the structural problems of the euro with the central bank trying to mitigate the downside of those solutions. francine: when you look at too much central-bank qe in europe, is too much a concern, compared

to what we have seen in the past? paul: i am concerned to the ecb is going on for too long with the quantitative policy. mr. draghi's seeming addiction to easing is something which i think is potentially damaging in the market. i don't think it will be a significant inflation, but i think there are some challenges here. francine: let's listen to the ecb president speaking in frankfurt. sector,the banking across the whole of the euro area. now, three years on, we can begin to take stock in what has been accomplished. what is clear is that europeans have been instrumental in building a stronger and more resilient banking sector. the country in which a bank is located has also become a less important factor in how its

credit risk is perceived. these two achievements have been crucial complements for our monetary policy. since banks are the main channel for financial discussion in the euro area, sound banks has helped transmit our policy more evenly across the euro area. it has allowed us to pursue an accommodative policy for as long as necessary without building up significant financial stability risks. that buildingubt the european provision has been a remarkable undertaking. today we have about 900 supervisors and staff working at the ecb, who together with

7400 national supervisors, directly oversee around 22 ts,llion euro asse representing about 200% of the euro area gdp. but more important than its scale have been the changes a single supervisor has prompted in the conduct of supervision. he has broken with the past in a single but fundamental way. that is, it has brought about a more uniform approach in how banks are supervised, leading to a more resilient banking sector overall. the key catalyst for this change, alongside with new european union regulations, has the the harmonization of supervisory review and ev aluation process. this harmonization has allowed

supervisors to converge towards common benchmarks in how they assess risks, and it has helped them to be consistent in how their risk assessments are then linked to supervisory capital and to other measures. to illustrate the difference the has made, in 2014, correlation between scores and capital requirements was 26 cents in the euro area. in 2016, it's 76%. haspean supervision therefore, resulted in a substantial strengthening of shock absorbing capacity within the sector. bankstal capital ratio cb hasise in the e increased by more than 170 basis points since early 2015.

the quality of capital has gone up as well. the high loss absorbing component now makes up the largest share of total capital of euro area banks. specific weaknesses are also now being addressed in their entirety across the euro area. ncy is tackling nonperforming loans. we all know the damage that high levels of mpl's can do to banks' health and credit growth. internal analysis shows that over recent years, banks with high stocks of mpl's have consistently lent less than banks with better credit quality, therefore providing less support to firms and households. though mpl levels have been coming down for consistent

institutions, from around 7.5% thearly 2015 to 5.5% now, problem is not yet solved. many banks still lack the ability to absorb large losses. high.ratio remains we therefore need a joint effort by banks, supervisors, regulators and national authorities to address this an orderly manner. first and foremost by creating an environment where mpl can be effectively managed and efficiently disposed of. element of, the european supervision has not only reduced the risk of individual banks failing, there has also, as we hoped, then success in reducing the importance of location in different sections of bank risk.

because single, rigorous supervision is an essential precondition for the other tiers of the banking union. indeed, looking at the largest banks from which we have data available, the correlation between bank credit default swaps and those of sovereigns is now considerably weaker than at the height of the rises. still, there's no room for complacency since these improvements are likely to have been driven in part by the improved economic situation. it is therefore crucial that for the reforms to de-link banks from sovereigns do not lose steam. all these supervisory efforts have not only produced a more robust banking sector. they have also provided crucial

support for our monetary policy, since we entered a new easing phase in mid-2014. this support has come from two main sources. first, stronger supervision has improved the transmission of our policy for banks. there's now plenty of evidence to suggest the level of bank capital, the key variable in how during downturns, enhanced also for monetary policy transmission. it's therefore no surprise that the improved health of the banking sector, coupled with our credit easing measures, has coincided with the marked improvement in the transmission process. previous asymmetries in think lending rates across the euro area how do largely been reversed. the cost of bank borrowing has stabilized at historical lows everywhere in the euro area and

so is the dispersion of lending rates across countries, and also funding rates. we can now say that our past policy measures and lending rates is near completion. ratescline in lending have been noticeable for small loans in vulnerable counties, which are a proxy for the financial conditions. are highly dependent on banks. their options are limited when it comes to success in market finance. while these small loans spring between vulnerable and more resilient countries has now mayor out to a record low of five basis points. pricelow even created p that has been crucial for the broadening of economic and

employment recovery. it employs a 70% of the labor force. the second way in which stronger supervision has supported our monetary policy is by helping contain any financial stability risk that may emerge during a long period of low rates. one channel through which that risk can appear is the search for yield effects. low rates can induce banks into making lower quality loans, leading to higher loan losses. but with a strong supervisor ensuring well-capitalized banks, the quality of lending tends to be higher. this is confirmed by looking at low level data in spain, which finds that when overnight rates

fall, highly capitalized banks grant fewer loan applications to risky firms than lowly capitalized banks with fewer loan defaults. with the more resilient banking sector int h the euro area, we have seen this positive picture develop. declined ashas monetary policy has eased. default rates have fallen. and forward-looking measures also suggest a decline in credit risk. this has, of course, been driven by improvements in credit quality, is the macro institution has improved. but it could also reflect the role of higher capital in resulting agency problems. the more a bank is capitalized, the more its owners stand to

lose. and cause loses. so, the more equity a bank holds, the greater its incentive to make higher-quality loans. other financial stability issues associated with low rates have also not materialized thinks in part to the supervisory framework. we currently see no signs of credit fueled housing bubbles, which are at the root of most serious financial crises. since 2016, bank lending for house purchases has risen on average by 2.9% per year. well below the growth rates recorded in the runup to the crisis. some local pockets of risk, of course, have emerged, but both ively takingare acti

steps to counter them. we have also seen little evidence of negative interest profitability, an issue which has caused a lot of concern. this would pose a financial stability risk to the extent that it hinders banks from building of capital through retained earnings and makes raising market equity. net interest income has remained quite stable over the last two years. in overnight rates have drifted lower. banks return on equity has been rising and is convergent towards their cost of equity. for the banks under ecb supervision, return on equity has risen from 4.4% at the end

of 2015 to 7.1% at the start of this year. rates isct on negative largely due to the general equilibrium effects of monetary policy, effects that we have explained many times, when policy is accommodative, the main proponents of profitability largely offset each other. since the positive impact of a stronger economy and low loss provisions largely counters out any negative effect on net interest income. for some banks, however, these negative effects might be larger than for others. this is where strong supervision is again crucial. supervision, ecb banking supervision carries out detailed, comparative

assessments of banks' business loans, which read into the ongoing supervisory dialogue between the supervisory teams and banks. this process is not prescriptive, but it helps bring to light important issues, such as the sustainability of banks' business models in a low rate environment and their operating costs in comparison with their fears, which in some countries are a concluding factor to low profitability. now, let me conclude. we are now three years into the life of the pmi banking supervision. the track record so far is encouraging. though the single supervisory is still a young and developing institution, it has in many ways adapted to the high expectations that accompanied. uniformnd

supervision has led to higher levels of capital in a more resilient sector overall. the credit risk of banks is now less determined by the credit risk of their country of establishment. thank just incidentally the fantasticofor work they have done over the last three years. things that in hindsight would have been unthinkable two years ago. we owe gratitude to them. healthier banks have been turned helped the ecb's accommodative policy, leading to a stronger in broader recovery. in the -- the new supervisory framework has helped mitigate any financial stability risks

that might have arisen as a result. supervisionropean and european monetary policy have proven to complement each other well. it is an approach which confirms the synergies that can be achieved when the right policies are combined at the euro area level. thank you. [applause] francine: that was mario draghi speaking about the banking supervision. he said it is clear that european supervision has been instrumental in building a stronger and more resilient banking sector. he's book nonperforming loans, saying that problem is not solved yet. -- he spoke about nonperforming loans, saying that problem is not solved it. still with me is paul donovan. you can see italy. there's this go back to why they are not lending? paul: this is part of the

problem. the data is quite slow to update, but yes, we have this legacy of nonperforming loans and they have got to try to deal with them and we end up with negative bank lending growth in italy still. and what i think is one of the criticisms of what draghi was saying, we are harmonizing it, but if you cannot borrow money, your interest rate is not the ecb's finance rate. it is infinitive because nobody will lend you money at any price. that is one of the challenges that you have when you have this really quite significant divergence of loan growth in the euro area. francine: what comes after this? the bond purchases are going to change in january, but we do not have an end date. it still feels like an ecb that is dovish. paul: the ecb president is quite dovish. i do link the ecb -- i do not think the ecb as a whole is

dovish. what we have ended up with is that grand european tradition to compromise. rather than announcing a taper down to zero, we have got the promise of some kind of decision next year. no decision is a division ii taper 20 abruptly, or they announced a taper to zero. i think this was a compromised deal. draghi is pushing out this easing as long as he can. the northern europeans are saying, no, we have got to slow this down. so, they halve the bond purchases. francine: there was a change at the top of the fed announced. then, we had a resignation of bill dudley. anseems 2018 could be inflection point. paul: yes, we have got a change at the top, as you see. there are three vacancies in the fed for governors. and four, if yellen resigns as a

governor, which is not guaranteed. it is likely, but not absolutely guarantee. if yellen became concerned about the independence of the fed, she might try to stay on as a governor. dudley is not a presidential nomination, not a congressional appointment. he was appointed by the new york fed and then vetted and approved by the board of governors, so it is indirect political involvement. i think there is going to be a shift. i think the staff economists are saying they have a degree of continuity. even with these changes there is some continuity that comes through. the risks are heightened in 2018, absolutely. francine: is it more than the european central bank? we were talking about whether it is time for a german to take the helm. it feels like we have policies that will be dictated by new people that have not done this before. paul: so, i think there is a clear difference.

that you have got a more politicized environment and of course, the federal reserve is not legally guaranteed independence. it's independent by culture and tradition, not in the constitution. for the eurozone, it is more difficult to undermine that independence. now, it can be done. i would argue that eurozone ecb independence has been mitigated. but collectively, it is still not a politically influenced entity. that is one of the key differences that exists. there will always be somewhat more heightened risks in the states. francine: what is the biggest risk for the economies? paul: i don't think it is a serious risk. yes, you could be hyper aggressive. but realistically, as long as you have got a coveted economist running things, what could possibly go wrong?

i think if we look at what is happening, liquidity preference, demand for cash is very clearly declining in the states, and in my view, is declining in europe. if the demand is coming down, the supply for cash should be coming down. that is appropriate and it is because central banks can reduce the money supply that they can maintain the value to keep inflation under control. so, i think it is an entirely appropriate policy at the moment. yesterday, he said there is no danger of deflation. then, when will inflation actually pick up? banksindependent central have been extremely good at their jobs and they have managed to get inflation, after 30 years of relatively high inflation, they got inflation back to about

2%. the problem we have with this is, if i look at the states, what isat i half of driving inflation today, it is entirely made up prices. so, that component is a lot more difficult to predict. the market component is relatively easy to predict. that will create a degree of uncertainty in the future. box saying, i've hit the target. francine: we talk brexit with jeremy corbyn. that is as we spoke to the labor leader yesterday. this is bloomberg. ♪ who knew that phones would start doing everything?

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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. >> this is one bird surveillance. the tax-writing committee is beginning hammering out the

tax-cut plan. house republicans adopted a package of changes offered by the chairman, including a measure to limit the carried interest tax break. five hoursppeared into a market. donald trump has vouched for saudi arabia's leadership after the crackdown. greateted i have confidence in saudi arabia. they know exactly what they are doing. people were taken into custody. has made huge progress in bank resolution. they spoke exclusively to bloomberg. insured risk management has improved in the bank.

this is going to adapting a business model that makes a huge step forward. the new zealand prime minister has set her nation would fit from the transpacific partnership. she indicated she won't let concern over dispute resolution derail the trade deal. i will continue to do so by not preempting the position negotiated around the table. we need to make sure we are very clear. there are three benefits in the agreement. most inl sales fell the october. the british retail consortium

said sales fell 1%. fran -- annual growth slowed to 2.4% last month. 8 global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. thank you so much. jeremy corbyn has reached out to his companies. the speech to the confederation repeatedly emphasized party has a common ground with business. he told bloomberg that companies should engage with the public hearing -- public. the had a look at principles behind it. look at our plans on education. come and talk to us. have a chat. they may not like it all or they

might like it all. we are putting out how the british economy and society could be much better and happier if we spent more in the public realm in order that the economy could grow for the benefit of all. francine: the global chief economist is still with us. when you look at what is politics and brexit negotiations, there is uncertainty. think that's going to be relatively unlikely. the labour party has a lot to take on with brexit. boundaries for the constituencies are being redrawn. the conservative party has an incentive to get the boundaries redrawn. there is a bias in favor of labor.

the main parties have reasons why the don't want an election, certainly not before the deadline in 2019. francine: if you look at the news out of china. what is the biggest risk out there? is it still come from china now the party congress is out of the late? they can roll over, it could still be messy. >> i am worried about the chinese debt. it is internal. effectively, it's a wealth transfer within the country. government has got a great deal of control of that. it increases control over the lending because they put in place capital controls locking

money into china. are moremists important than the politicians. of they are probably going to set in its five-year plan, some type of informal cap on debt gdp. that would slow down but it growth and i think that would be appropriate. they can't go on borrowing at the place -- pace they are doing. the pboc governor keeps warning about excessive debt. >> he is talking about growth. that is valid. if you keep carrying on like this, you have to borrow from the germans. they keep asking with their money back. the idea that we try and stabilize the debt p/e ratio, we are not beholden to overseas lenders, we don't run the risk

of a crisis. francine: what is the biggest risk out there western mark brexit has been largely brushed off. would it be really watered-down? do you see a canary in the coal mine? >> there a number of risks still ahead. i don't think the markets are giving a great deal of attention to the midterm elections in the united states. what that might mean in terms of washington policy, that's an important consideration. there is a sense of complacency about inflation. a lot of inflation now is inherently administered prices and unpredictable. as sweden demonstrated, those prices can go up as well as down and they can raise and laois and inflationay cause -- and that can cause problems. yes, this is

something that matters a great deal to the u.k. and enormously to ireland and a bit to europe. to the rest of the world, it's not something they are focused on. francine: the concern is that somehow the trump administration realizes they lost touch with their base? >> there are a mix of issues. to the republicans win? there is the gerrymandering of constituencies the is an advantage to the republican party. the democrats could win. they could mobilize there's orders. are mobilizedrs by the trump presidency. if you get that, you get gridlock. i think paying attention to the numbers of congress and the number of senators who announced retirement before christmas, that's going to be medical.

increases the possibility of a change in control. there is also trump's reaction to possible change. is he frustrated by congress over tax reform? does he choose to pursue the areas he can control, immigration, trade, deregulation? that would be a valid concern as well. francine: wonderful. thank you so much. speakingwe are to -- to the vice-chairman of rothschild. we will talk to him about the two-year high and the come back in switzerland. this is bloomberg. ♪

onncine: let's check markets. [inaudible] francine: mark, we are having issues with your sound. i don't do them as well as market. we will get back to mark in a second. let's show you a chart on oil. donald trump is about four saudi arabia's leadership after the anticorruption crackdown. he has great confidence. this is reverberated through the

market as oil traded near the highest closing in more than two years. prices were elevated by signs of a tightening supply. let's bring in the former chief executive. is vice-chairman at rothschilds. he is a little bit of an expert. thank you both for joining us. let me start with you. what do we know about what the saudi arabian heard will do on oil. they could come down the line. one out of nine barrels is produced in saudi arabia. whatever happens in saudi arabia , there is turmoil for the world of oil. the company's that are fixed u.s., thehale in the

uncertainty in saudi arabia and the fact that the number of wells in the u.s. is going down rather than up makes the price of oil going up. with additional uncertainty of arabia,pens in saudi prices go up automatically. francine: you know the middle east region. this caught investors by surprise. reallything nobody was forecasting, something inconceivable for everyone who knows saudi arabia. surprised when the crown prince was ousted by the new crown prince. we were not surprised reticular early when the clerics were put in jail. of convicting members

of the royal family was totally unheard of and unexpected. it is of course in my view is not a new thing it. it is a battle for power. , i am confident the new is a breath of fresh air for saudi arabia. francine: what do you make of the changes in saudi arabia? this is looking at oil rigs. i don't know how much it has to do with that. this is just new oil rigs in the u.s., shale is dictating what the price of oil does. >> there are three areas to look at from an economic point of view. the first is what happens with the stability of the regime.

that clearly matters in terms of oil production and so forth. i don't think there is going to be a problem there. the second issue is investment in saudi arabia. rule of law, to what extent are investors going to be convinced rule of law is going to be followed. this is being done by royal decree, a source of concern. there has been speculation some of these assets will be seized and used for domestic investment. that has significant implications for capital flows. be awould effectively goods and services trade, possibly where the assets are. there is that aspect as well. there is a lot going on, which i think we can look at. move as the chart

showing is not necessarily a big concern. we were already seeing oil prices somewhat elevated and the demand was indicating we were going to be hovering around $60 a barrel i the end of the year. the economics of what is happening in saudi is not a huge issue. in terms of economic activity in the global economy. francine: when you look at opec, it's been a year since they have been rebounding the market i cutting production. have they been more or less successful? >> without russia, nothing would happen. it has been successful. 4% of the number global consumption. it is going up. what for me is the most $60, even $60 is

shale oil producers in the u.s. are not increasing the number of wells and they are increasing production. are moving iny $70,rea between $60 and which is certainly quite good for russia and saudi arabia and consumers in the western world. it would be something reasonable, much more reasonable than the $26 we saw 18 months ago. francine: is it still in that range? the range widens or its more or less stable? >> we are essentially range bound with the oil price. that is toward the top end of the range. it is an oil price that is range

bound. upside,to see much more we start seeing what economists infrastructure and you demand more structure. i agree entirely at the moment and the oil profile is positive at the moment. there is the possibility of a structural shift at some point. if start comparing. francine: what happens to iran? they were trying to open up hassan oil markets internationally. it has taken a hit since donald trump decertified the nuclear deal. where does this leave the industry? this three months ago, around the development of biggest gas deposit in the

world. it is positive i believe. i thought it would follow. stoppedty, donald trump international companies from investing in iran. i believe at the end, the sanctions will not be hard enough to for bid international places going to iran, at least european oil companies. francine: thank you so much. thank you for being with us. up next, we talk italy. aboutan we read into this next springs general election? we will discuss that next. this is bloomberg. ♪

watching you're bloomberg surveillance. let's talk italy. the general election will be no later than may next year did the former premier could make a stunning comeback.

he still needs to overturn the european court ban on his running for office. he has consistently denied wrongdoing. let's go to the former chief executive. european andk to italian executives, are they concerned about what comes next and italian politics? thehey are concerned about movement to take power in italy. this is the populist italian way. they very much care about it. francine: if you are an international investor, do you hold off buying italian? what do they ask you the most? >> i would say looking at things from a cynical point of view, the international investor is so

accustomed to italian politics. they continue to invest in italy. we assist many clients who want to invest in italy. i don't see any. stars, thet of five results of the sicilian elections will be regarded as a positive for international investors. francine: does the italian person want to vote on banks and bailouts? are they concerned about immigration? one of the policy priorities. >> the next generation will be around immigration. it's been the big italian turmoil, receiving 200,000 immigrants coming into italy. in the past, they were moving

north. they were going to austria and france. today, they stay in italy because the border with those countries are closed. that in my view is the major issue around which the political election will turn. francine: you think tanks need to lend more? i speak to italian bank ceos and they say they do lend. that may be one of the reasons why it's not filtering to the real economy. francine: the nonperforming loans are the result of the italian rices. during 2008t 20% and 2013. thanks have nonperforming loans. it is going down. it's not too slowly. i would say it's at a pace is

reasonable. the demand for new loans is growing. istotal, the banking system solving its problems. francine: thank you so much as always. he is the vice chairman at rothschild. bloomberg surveillance continues. tom keene' joins me. he is going to be talking about his stake in cap a pacific. we will talk about president trump's pivot to asia. is bloomberg. -- this is bloomberg. ♪ retail.

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in soeul. saudi freeze. the kingdom cracks down on account suspected of corruption. mario draghi's says europe's mcl problem is not solved. we are told, she would have liked a clear exit from qe. this is "bloomberg surveillance" and i'm francine lacqua in london. tom keene is in new york. we need to talk about what is going on in the fed. of course, we go to saudi, and we go elsewhere to draghi. tom: president dudley announcing his resignation from the federal reserve bank of new york, very important position in the states. that will happen six months out, even eight months out from now. his speech was on lessons learned from the financial crisis and a lot of it touched on the lessons from europe.

i had some questions for chairman powell, the nominee for the fed. he was very careful on how he phrased his answers. francine: it made for a good viewing, tom. well done. here's taylor riggs. islor: president trump calling on north korea to make a deal on its missile and nuclear weapons program. the president is in seoul, where he met with south korea's president. the u.s. is ready to use the full range of military capabilities, if needed, but it makes sense for north korea to come to the bargaining table, he says. possibly buying the advance agent missile defense system. the sale could take several years to complete. president trump urged japan to purchase american-made weapons. on capitol hill, the house committee has voted to limit the so-called carried interest tax break often used by private equity and hedge fund managers.

this would triple the amount of time assets would have to be held to qualify for the cap looking rate of 44%. the house is bending four days making changes to the republican tax bill. british consumers are being cautious just before the crucial christmas shopping season. u.k. retail sales fell in october by the most in seven months. at the same time, barclays credit card unit says annual growth in british household spending slowed to 2.4% last month, the weakest in more than a year. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm taylor riggs. this is bloomberg. tom: thank you, taylor. equities, bonds, currencies, commodities. record highs on the dow yesterday. s&p, above 2600. futures are getting there. oil also getting up there, $60 a barrel on american oil. euro, weaker. eight handlen

print would be extorted area. uan in aet the yen-ya moment. this there's close watching as the turkish currency unravels. francine: this is what i'm looking at. we are watching president donald trump calling on north korea to make a deal on its missile program. and then, what we saw in asia was record gains. crude oil, of course on the back of saudi arabia, currently unchanged, 57.32. tom: we have a state dinner videofest for you from korea. right now on the bloomberg, that yen-won the number of korean won on japanese yen.

here is one of the missile firings out of north korea. another one. this was good news for any and all. this is a strengthening of the korean won. a real indicator of the market's calm, even around the diplomacy angst we see as the president visits south korea right now. now joining us in london, erik nielsen, one of the great optimists on the european experiment. tea by the river thames in london. erik, do you have the optimism and more importantly, does mr. draghi have optimism on economic growth in europe? erik: yeah, he has had for a while. the ecb revised the forecast. i think today gave a good indication that he is still optimistic, and rightly so.

this andoked at all of the back-and-forth. it is really the linkage of what the bank of england and ecb is doing, and of course the fed, about the optimism out there. that was really in the deadly speech yesterday. francine: it certainly was, but if you look at the world economy, the biggest central-bank hiccup could come in communications. the only unwinding qe too quickly, but there are a lot of changes at the top. you had powell coming in, you had the ecb president's term coming to an end. what is the biggest risk in central-bank policy? know. we don't quite he is the first non-economist we have had for a long time. maybe that is not a problem, but he might not have his own framework to think about the

next crisis when it happens. then you have the replacement of stanley fischer and dudle y. we are in a place where it is difficult to know what to do. it is not like they are playing games with us, but it is a very difficult task. i think you said it right, communication will be very important. there is a conference coming up next week at the ecb. we will see if they can figure out how to do it. francine: barbie underestimating politics in saudi arabia -- are we underestimating politics in thasaudi arabia? then, they are also the u.s. midterm elections and that is a host of other issues. erik: i think we could be underestimating them. when you look at the global environment, it is really scary. when i hear from investors -- i was in the states a few weeks ago -- it is almost too big to

comprehend. they could be something here on saudi arabia, but we don't know how to deal with it. tom: let me go here to the inflation dynamics of the three regions of the net the kingdom, rather -- not japan, but below the united states and below, lesser inflation expectations. i want to zoom in on this. i think it is instructive to see the slow of these five-year forwards. the u.s. is just dead in the water. draghi has a little angst coming up. the u.k. is ambivalent as well. do you have any clarity on where inflation is going in the transatlantic region? [laughter] erik: if i did, i would not be sitting here. it is the number one question in the central bank community. we don't really understand where inflation is, meaning we don't know why it is not here, with the exception of the u.k. we have some understanding of

that now. i will make two points. an first is, it is still output gap story. inflation is a story of demand and supply. number two is there are a couple things happening in our community, in terms of purchases and the shift of what to buy and the price action. there's the central banks. that is why they need to and they do go very gradually. francine: erik, we spoke to jean-claude trichet yesterday. do we believe inflation will be around there? erik: i never thought there was any material risk of a deflation. and i don't think there is now. inflation will move higher, but the interesting

thing for central banks in the market is, the central banks have sort of given up on inflation as a target. both the ecb and fed. they say, we can normalize, though we cannot forecast inflation at the target. if there were a very strict central banker, you should say, if i can't forecast the target on the horizon, shouldn't i push ahead? francine: would you take a bet on whether too much qe and accommodation hurts more? erik: that is exactly right and that is where communication comes in. i don't think they are doing a fantastic job. there are side effects. feelapparently now the side effect of what they are doing has become bigger and therefore, it is better to be slow. it seems to me there is a

discomfort about asset prices more generally and 80 financial stability. -- more generally and financial stability. francine: why not? erik: because they have one target and they keep saying they have one target, but we all know they have more targets. they are sort of say one thing and mean the other. the problem with this for the ecb is because they are not so clear on it, people think they have scarcity problems and so, are withdrawing. if that is the real reason, which i doubt, then they are making a policy mistake. this i don't think is coming through very clearly. nielsen: eri erik stays with us. 5:30 in new york, akbar al baker. ♪

taylor: this is "bloomberg surveillance" an d i'm taylor riggs. target has raised the annual for ca profit forecast for the second time this year. for the second time since two thousand nine, the japanese automaker took a 2% share in the u.s. ninthmpany said a straight monthly sales record in september. by 2030, china's asset management industry will expand

to $17 trillion. the report says the biggest winners will be chinese advisers. foreign institutions will get just 16% of the money pile. wind turbines are leading to cutbacks. the finish coming plans to eliminate about 6000 jobs, or roughly one quarter of its workforce. that is according to an executive familiar with the matter. siemens gamesa has lowered the profit forecast twice. francine: thank you, taylor. known for the art of the deal, president donald trump says it is time for north korea to strike a deal. the president was speaking alongside the south korean president, stressing it is time to confront the communist country's nuclear ambitions. president trump: as the south korean people know so well, it

is time to act with urgency and with great determination. all nations must implement u.n. security council regulations and cease trade and business entirely with north korea. francine: well, president trump did not say if the u.s. would hold direct talks with pyongyang. stephen, what did you make of what the president said? was he on message? yes, he was on message, but it is interesting that one of the first options he said was, it is time for pyongyang to come to the table, time to have some dialogue and get a deal done, instead of saying without all the fire and fury rhetoric, which unsettled the south koreans. we are only 30 miles over these hills from the north korean border. they have thousands of artillery cannons aimed at seoul.

is fire and fury, pyongyang not the only one who is going to get that. seoul is going to get that, too. the fairly new president moon has campaigned on dialogue with north korea. he wants that instead of the outright sanctions and of course, he does not want military actions. francine: stephen, i was listening to the press conference and at some point, president trump said, i think we are making a lot of progress. i think they understand we have great strength. do we know, are there back channels for them to talk to north korea in any way? stephen: right now he is not confirming that there is a dialogue, of course, with pyongyang. i would be surprised if at this point there is a back channel. they will go to beijing tomorrow. as a unified front.

donald front was obviously chama yesterday with shinzo abe from japan. a little more difficult relationship with president moon, but the three of them want to show a unified force, going to beijing. donald trump today said, we will see how cooperative xi jinping has been and will be towards north korea. so, perhaps the four of them could exert some pressure on pyongyang. tom: i love your use of the word "chummy." i assume you got that out of kissinger's classic textbook. if we are chummy, who are the koreans, who are the japanese and who are the chinese listening to?are the y listening to the rhetoric and tweets of the president, or are they trying to glean anything from the state department of the united states of america? stephen: well, they are listening to the tweets of donald trump and some would say the rhetoric coming from the white house because it is a departure from past presidents. a lot of the south koreans have

been looking at the white house and united states as kind of a beacon of stability in this region, not one who is using the rhetoric of communist regimes, fire and fury, like donald trump has. again, this is a critical visit. right now donald trump is having a lavish state dinner. this is the first state dinner for a u.s. president in south korea in 25 years. there have been 19 official visits, but there has not been a state visit in 25 years. they will obviously be doing a lot of discussing and talking about a range of these issues at the dinner table, as they did at the bilateral table earlier this afternoon. tom: stephen engle, thank you very much. francine? francine: yeah, tom, when you look at i guess, korea and the president, this goes back to

china. we had some foreign-exchange reserves from china. do we worry that actually come even though this debt is held domestically in china, the u.s. could aggravate china when they mean to deal with korea? >> that is the elephant in the room. the risk of a nuclear attack, o f a sort. for markets, the fear is trump pushes china into a place they do not want to be, by sanctions and other things. suddenly, the world's with between u.s. and america first thing and china, and that is not good for the world. tom: erik nielsen, thank you. we will come back to talk to dr. nielsen about the world. coming up, a very important andersation tuesday, across much of the nation it is an important election day.

thomas perez is an important chairman of the democrats regroup for 2018 and 2020. this is bloomberg. ♪

francine: this is "bloomberg surveillance" with tom and francine. tom, let's time of brexit and labour. jeremy corbyn has reached out to british companies as he seeks to become the next prime minister. the labour party leader repeatedly emphasized his party

has come a ground with business d investment. >> have a look at the principles behind it, which are about a fair and equal society, an investment in the future. look at our plans. if you wish, come and talk to us. they might not like it all, they might like it all. that we are putting out a serious offer there, about how the british economy and society could, in our view, the much better and happier if we spend a bit more on the public realm so our economy could grow for the better. francine: that was jeremy corbyn wardsing to anna ed yesterday. erik nielsen is still with us. we don't know what brexit negotiations will bring. we don't know how long the

conservatives will remain in charge. erik: everybody should take labour very seriously. the current government seems to be on the edge of collapse, on the edge of a civil war. it is a real possibility we government labour monday. it is a major party and we should take it seriously. he is right to talk about the need for more public investment in infrastructure in this country. we live in london, but outside of great britain -- it has investment in public infrastructure in the broader sense. of the things that come with public services. francine: erik, when it comes to the boe -- we had the first rate hike in 10 years last week or the week before. is it one and done? or is it a very gradual path? erik: it is a very difficult one. at unicredit, we think it was one and done.

but it has been argued quite forcefully that it was not. you have a place for the economy to normalize rates. they say they are going to do a couple more. cannot doubt it because they are taking a bet that brexit will go well, and i have my doubts. francine: erik nielsen stays with us. alsog up later today, we speak with the equity group investment founder at 8:00 a.m. in new york. this is bloomberg. ♪

tom: and good morning. interesting markets. they grind higher. international relations and foreign policy news this

morning. to first word news. here is taylor riggs. opposed laste month's decision. in an interview with matt miller, she that she would have liked a clear egg that and the different vision. exit and aar different vision. >> you could see in the next year how it is developing. german eighth download expressed his dissent within a day of the announcement. trump calls north korea a threat that is a danger to the entire world. he met with another president and called on nations to stop doing business with north korea.

for theit is time regime to come to the negotiating table. trump is standing by saudi arabia's king and crown prince. he tweeted they know what they are doing. 11 saudi princes and dozens of former ministers have been arrested. one of them is bin talal. the gunmen in the church shooting may have been able to slip through a that ground check. the air force failed to report convictionc violence . in the u k, theresa may's ministers are taking the first steps to making it a global trading nation. they are rewriting custom laws.

one priority is keeping hold of 40 existing trade deals the eu has with others. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. francine: qatar airways have -- pacific.hares of this comes after american airlines rejected an offer. we are joined by qatar airways' ceo. thank you for joining us. stake, what is your plan for the investment? are you looking for a seat on the board. it is one of the largest airlines and southeast asia.

we are a strategic investor. we are keen to invest in them. francine: will you look for more core operation on operations? -- more cooperation on operations. that line.lost we will get back to him shortly. they are expecting a loss this fiscal year. this goes back to the story in the middle east. it is unclear to see when this saudi-led blockage will stop. tom: i look at it as the competition, the politics with riyadh and the competition with emirates and the certitude of building a hub. qatar compete with the lead

that emirates has? it will be interesting how qatar does this. inis almost a minority cathay pacific. it is almost assertive that the chinese will make cathay pacific their major airline. francine: if you look at the fact it needs to try to add 22 destinations in the next 22 months, to make up for the loss due to the blockage led by saudi. ceo, mr. we have the akbar al baker back. i was going to ask whether you i was goingncer: --

to ask whether you wanted any co-sharing? akbar: we would be keen to do co-sharing with cathay, as we do with the other airlines we have a relation with. it is important to have synergy between us and them and the other airlines we hold a stake in. fuel purchases, joint maintenance together. this gives benefit to both sides. will impactw much your revenue positively in the next couple of years? early for me to say. go thesee how things next two years. if i am still around, i will be

able to give you the answer. francine: when do you expect the saudi-led blockage to end. akbar: it is difficult to say when it will be lifted. we are depending on trump to .nfluence the other side such practices do not conform with international law and they are hurting one of the main airlines of the united states in the region and he should not allow this to continue and he should not condone this block age. we want to congratulate you. essentially, you built the airline. a flight to hong kong will cost me $1600. a outrageous price for

nonstop flight. how are you going to change that emirates, with dubai, eithiad? handbag incan buy a macy's. it is up to you. if you want the high standards, the best product in the world, you have to pay for it. you are some -- it is very simple. how are you going to keep and compete in the brutal airline business you know so well? people had written off itar airways the first year took over.

have the best airline in the world. we have proven the skeptics wrong. i will prove you wrong to say how well we run our airline and how we are continuing to attract more and more customers who are prepared to pay the price we are asking. when i talk about expansion into the united states, what is your plan to do more at jfk, lax, across the nation? what do the next five years bring you in america? akbar: we are satisfied with the frequencies we have. we don't have major expansion plans in the united states. we will add two or three additional destinations. question, the tensions with saudi arabia are

tangible. what is your best outcome as a businessman from delhomme to riyadh -- from doha to riyadh? qatar is far as concerned, we have proven we can stand up to pressure. we will not sacrifice sovereignty and dignity. four monthsn we are into the blockade and the airline continues to prosper and and purchasingrk more boeing airplanes. toncine: are you talking anyone in the trump administration? you were hoping the president would interview -- intervene in the saudi-led blockade. toar: it is not my business

make contacts with anyone in the administration. it is a business for mine government. i do not interfere in something that relates to and it airline. -- something that does not relate to the airline. francine: is there a region in the world you are looking to expand? mentioned what do we have established in the united states we are satisfied with. we will have around three to four additional destinations in the united states. tom: thank you. baker is with qatar airways. promotion for a cartier. i not sure. they are great how they get message -- they are

great how they get their message across. qatar airways.h oft under 10% acquisition cathay pacific in the news. with "bloomberg surveillance" on television. stay with us. from london, new york, this is bloomberg. ♪

francine: this is "bloomberg surveillance." let's talk about tax and trump and congressional republicans. they have plan to cut taxes and overhaul the system. chuck schumer is calling on the new york delegation to take a stand against the gop tax plan. joining us now, leslie. -- erik nielsen is still with us. is there any way to tweak it to make it fair? trump is seeking to sell this as a tax cut for the middle class. he is proposing to simplify the tax code. in doing so, he removed eduction that are crucial to members of the middle class.

for medical expenses, the ability to -- he wants to eliminate the deduction for interest rates on student loans. that allows americans to go to college, something that is expensive to do in the united dates. it, it becomest difficult. there is a lot of analysis being done. least one third of the middle class will not benefit from this. he is talking about eliminating state tax, something targeted at wealthy americans. it is difficult to see how this plan benefits the middle class. certain parts of the middle class. it also depends on growth. it is unclear this will translate to growth. francine: what are the chances this will get pushed through before christmas? leslie: if it goes to the house, it will go to committee, it will

likely have a lot of amendments attached to it and there will be a lot of politics over the next week as we approach any kind of conversation in the senate. trump is not at home to manage this, not that that would go well. a lot of things have nothing to do with the tax fund, but rx -- but are affecting it. the russian investigations are moving forward. it will be complex. a lot of our european and international audience don't -- how about the tuition at wesleyan? -- $52,474 a0, year.

is the partition of this tax wealthy and the professional class? this bill goes after professional class in new york, pre a, denver, sacramento. they're going after people eveng $80,000, $400,000, $800,000 and up a year. leslie: it is a complex calculation. you could say it is unfair to an exemption or deduction for the interest rate payments on student loans, or any kind of credit towards tuition. earn morele will money and do better than those who cannot go to college. on the other hand, if it is essential towards social erodes thatit

capacity for social mobility. it is targeting the middle class and professional class to the extent people are relying on those loans to go to college. goinghy are republicans after professional income making class of versus the wealthy? what is the chip on their shoulder about the professional class out there? the goalonald trump -- has been to simplify the tax code, and act a range of cuts and bring down the driving force is to bring down the corporate tax rate. the big question with the tax how is this going to be financed? that is where we have no clear answer. deductions these

that help the middle class what comes to medical expenses, fundon, it is an effort to an expensive tax cut. it is not the kind of redistribution donald trump campaigned on and it does not look like it will be terrific for the middle class. it will benefit some, the overall exemption is increasing in a certain category, but when you talk about specific benefits the middle classes receive that , theseheir life easier are things that will hit another -- hit a number of american families hard. francine: if you have questions or anything else for erik

nielsen, tap on bloomberg on your tv . also message us on your video screen. this is bloomberg. ♪

of change forime central banks. none more than the federal reserve system. the new york fed has huge execution powers for the federal open market committee. leading that, william dudley. he gave his final speech, near final speech yesterday as he announced his resignation. at what i have seen so far, i would say so far, so good. keep it up. i am sad i am stepping down. i am sad to see janet stepping down. she has done a fantastic job. it is not just us. there are people behind us

supporting the mission as well. if you are going to have a transition, this is a good time to have a transition versus 2007, 2008. what is the number one lesson for europe out of this? is it out of the swiss banks? you need more capital on the looks? -- on the books. we have learnt more capital is needed. we have more, so that is good. what europe has not learned is the framework for the regulatory section. it restricts -- in the core countries. flow acrossoes not europe as easily as it does in cushioningereby help

the blows. that needs to be learned. you look at the main concerns in the world, we touched on china. where does italy sit on this? we have a elections coming. what do we do with these nonperforming loans? erik: italy has a clear question on what the government will look like afterwards. made,normal progress is we have seen significant ,eductions from a high level the second highest in the eurozone. reductions,biggest partly because mentality has changed and because of politics policies touse of

push --. updateank you for the this morning. the president moves from japan to korea. we will have coverage on that. hour,g us in the next edward. his book on trade, american and global trade dynamics is extraordinary. a good time to catch up with him. let me look at equities, bonds, currencies and commodities. american oil is getting out. euro weakness here. and from a beautiful new york, this is bloomberg. ♪

tuesday, the president and first lady do back

to back state dinners. the united states navy has seven aircraft carrier simultaneously underway. the stock market grinds higher. the yield curve flattens. fox tv, disney courts the murdochs. they are no longer talking, except they are talking. , everyone.g this is "bloomberg surveillance." go.it i am tom keene. in london, francine lacqua. we talk about the kingdom, but flow stillnews active in saudi arabia.

francine: the anticorruption crackdown is expanding. what we understand is the central bank is asking banks in the kingdom to freeze certain assets and accounts. we don't have the list. i don't have the list at the moment. a goes beyond those detained. that is according to three people with knowledge. tom: right now, our first word news in new york city, here is taylor riggs. president is in seoul, where he met with their president. they are ready to use it for

range of military capability if needed. sense for north korea to come to the bargaining table. according to officials, a sale could take several years to complete. trump urges japan to buy american-made weapons. voted toommittee has limit the carried interest tax break. the new limit would triple the amount of time assets would have to be held to qualify for the capital gains rate. spending four days making changes to the republican tax bill. an executive board member would have rather gone a different direction with quantitative easing. bloomberg spoke with sabine.

>> i made my position clear. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. tom: equities are deceptive. curve flattening. this is something we will discuss with mr. simpson. american oil getting out. equityhowing of the

markets. turkish lira, i put that up there to impress francine. francine: i am so impressed. treasury yields rising. talking about north korea, trying to make a deal. stocks.king at european if you look at oil, this is impacted by what is going on in saudi arabia. york, 57.36.new mentioned seven u.s. aircraft carriers underway. many are in the north pacific. stability here in the summer.

tom: i have a chart i am looking some of the losses in saudi arabia. looking at the emerging-market indices. those are in yellow. the kingdom holding. these are three lines that have been normalized. fallingdom holding is dramatically. the crackdown is widening. tom: that is quite good. normalize saudi dynamic. we need to have a markets discussion.

get back to square one on investments. we dragged on set in london. marcus, let me go to you. rising like indices the dow, or is there a distinction? >> there is a distinction. growth has been coming in my sleep. the ecb has things in check. european stocks are doing fine. the leading around the world is the nikkei. it keeps going up. it does come down to a domestic feel versus international. is it too late to get on board international? >> we don't think it is too late. the catch-up is still happening.

we want to rotate to where the capital goes. specifically in europe, we like europe and japan. in emerging markets, we like asia. what point is europe overbought? i have everyone coming on another program saying i want to get into europe. at some point, this will look expensive. we tried to gauge the technical positions. when we look at it, europe and other global equity markets don't seem to be overbought. flowing a lot of money into global bond markets. even though markets have pushed higher, it is trading at a nice valuation. are we too optimistic about the political landscape in europe? we have had ohlone -- have

catalonia. marcus: inflation is falling on the coreularly measure. economies are coming back strong. the now cast for growth is strong. valuations and earnings, we still have some catch up. but not a raging bull here, europe compared to other markets does not look overpriced. the politics are better than they have been. francine: -- smooth the last meeting

the blow. he is roughly a 10 to 12 month reinvestment. are elections coming up in march. we had firepower for the french elections. catalonia situation has fallen away for now. are not as big as they were. we have had softbank, t-mobile fall apart. now we have broadcom, qualcomm. become deluded? with the money so cheap, are we going to get back to normal? terry: there has been a lot of

financial engineering. we try to look at the top line of revenue growth. we see this across global markets. better a reflection of global growth and demand. are you seeing pricing power or unit growth? terry: we are seeing ppi rise. it is a reflection of higher commodity prices. tom: we will come back with mr. simpson. coming up, this is a dense, rich book on trade dynamics for the new united states. edward alden will join us. a timely book given the president's travels.

stay with us. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." broadcom is going for the qualcomm deal. prepared to -- if they reject be biggest deal ever. taylor: delta airlines is close to placing an order.

according to people familiar -- that is your bloomberg business flash. the tax or form is moving so quickly. a tax policy center. they put up an analysis last night. they took it down because of a typo. another look is from the washington post. david brooks with an outstanding effort. the gop tax bill is weighted towards the freeloader, the heir. that describes kevin cirilli. the passive investor who spends his time yachting and charity balling.

lots of high income people currently working as employees cannot get ite done. why is kevin brady and republicans doing this? : the rhetoric is different than the policy. democrats are pouncing on this, saying the tax plan is for the wealthy and large corporations. this is the selling season, where lawmakers have to sell this. gary cohn is going to be in the senate. is arranged by a democrat from west virginia. trying to peel off democrats. they want to make the notion they are reaching out to democrats and selling it to the middle class. tom: they are selling it to the

middle class, but that is not the professional class. there is a group in the middle that does not have a constituency. who is the professional class' c onstituency? who is their representative? i was listening to the house ways and means committee and i spoke to several sources. asset managers are mad about this portion. realtorsreal estate, angry. my sources said, in some cases, it is in their best interest to act as if they are more angry than they are. this is a massive tax break. ifs is as good as it gets they want to hold onto 2018. the idea of the president

is so distant on the other side of the world, does that matter he is not an washington? they are happy the president is overseas. it has allowed them to continue with the markup, without distraction. cohn's meeting with democrats today. that is when we get a senate version of the next bill. porridge --r: .ook for corn porridge the president and first lady are at a state dinner. here they are with mr. and mrs. moon. the president on the road. coming up, this election day at the nation. it is an off off year.

thomas perez in the 9:00 hour. from london, new york, please stay with us. this is bloomberg. ♪

francine: this is "bloomberg surveillance." to the middle east. we understand saudi arabia's crackdown isn expanding. the central bank is asking

lenders to freeze the accounts of dozens of individuals who are not under arrest, as well as those being detained. in dubaitive editor is . this is a great scoop. this is a huge deal. what more do we know? will we have a list of names of the people who got their assets frozen? >> we may, but right now, we do not have it. sources are telling us banks are being asked to freeze accounts of anyone who's name is on these lists. .t does expand beyond the list was originally 49 people. now, we are talking about hundreds. it is having an impact on markets. rumors are circulating about which individuals are under

investigation or arrest. it is impacting those individuals' companies. it is dragging down the saudi market. after that, the uncertainty regarding these saudi-iranian tension at the moment and you have arab markets down a lot today. are the stress levels like? if you are a saudi ceo today, is there a pattern unfolding or do we have no idea who they are targeting? riad: they are targeting some senior people. they don't seem to be going after mid-level people. it is the top echelon of saudi business and politics that are what theestigated by government is pushing hard as an anticorruption drive, to try to change the way business is done.

that is the government line. fulfilling a promise to saudi's they will change the way business is done. by is thei am struck adjacency here. i see other equity markets down within the middle east. what are the effects of this monday, this tuesday. what are the effects to kuwait and the other nations of the gcc? saudi arabia is the biggest economy. it's influence extends it beyond its borders. it will have a ripple effect to neighboring countries. full knowledge of exactly what is happening. it does create uncertainty whether there will be more of going to be an impact on the neighboring countries or not? equation.he iran

you had the lebanese prime minister resigning just before this started. you have a rocket fired from yemen on to riyadh. you have rhetoric coming from saudi arabia and iran, which is causing nervousness. tom: what is the effect of the onket attack on the weekend this tuesday? what is the outcome? it is a ratcheting up of tension between the two big powers in the region. saudi arabia is pointing the finger at iran. iran is denying it and accusing stirring the pot to cause unnecessary tension. sense of unease here about what is happening. we had one commentator saying

there might not be a direct war, but the prophecy wars will intensify. thank you for the update. , asian,le eastern african editor for bloomberg news. we will come back with terry simpson of black rock. we have a lot to talk about. need to talk about the chicago white sox and chicago cubs. sam is in the house. mr. zell on the spirit of real estate in america. stay with us. this is bloomberg. ♪ 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. tom: good morning everyone. francine lacqua in london. i'm tom keene in new york.

we have shown this many times. the exuberance of the market. it is maybe less exuberant see than you think. all you need to know terry simpson is the idea of the blowout in 2001 and the 37,000.nt is down near 2000 and couldn't. >> we still can push higher. markets are trying to trade on fundamentals. a lot of that tax reform is probably not priced into the markets. that could be nice for investors. tom: almost up-to-date with blackrock. down the income statement or better revenue growth? at both.e to look you're looking at 7% or 8% right now. u.s. large caps. those are fairly good numbers. not as strong as the first half. we are telling investors not to expect double-digit numbers.

tom: you and i did the math. what is your frontier right now math guy? one of the reasons we are still advising clients to remain in equity is because that's where you're going to get returns. bond markets are good. if you look at trying to get total return you still have to have more till towards the equity markets. are there any industries that look overvalued? if you look at technology within the u.s. how much it has rallied year to date a lot of investors get worried about this. we look at the prospects of certain businesses and how things are changing in the tech sector. we think valuations are supported to push a little bit higher. probablyy tech is undervalued or overbought here.

do have an exposure to the emerging markets in particular to china? >> one of the things we're looking at in the relation between europe and emerging markets, there's a nice symbiotic relationship. we talked about this in one of the early segments. if europe is enjoying nice cyclical recovery because em is so dependent on europe sooner or later you should start to see emerging markets picking back up. we haven't seen that pickup yet from emerging markets year to date. developing markets are growing much faster than em. tom: very good. terry simpson with us this morning. right now here's taylor riggs. the second european central bank policymaker has revealed that she opposed last month's decision to keep quantitative easing open-ended. interview with matt miller she said she would have liked a clear exit and different decision.

>> i made my position clear in october. i would have liked to see a clear exit. there was a different decision made and we will see in the next year how things are developing. a fellow german and longtime critic of the plan expressed his dissent within a day of the announcement. the gunman in the texas church shooting may have been able to slip through a background check to buy the weapon he used in the massacre. the air force fell to report the attackers 2012 domestic violence conviction to the fbi's criminal database. the senate may look in the gaps in the firearms background check system. theresa may's ministers are to in the first steps toward making the country a global trading nation after brexit. they are rewriting customs laws that will come into force once the u.k. links the -- leaves the eu.

global news 24 hours a day powered by more than 2700 journalists and analysts in over 120 countries. i'm taylor riggs. this is bloomberg. steel will come up in the state dinner in korea. the president dining, roughly 12 or 13 hours difference there, 6:00 in the evening as the president makes comments right now in korea. it is a perfect time to speak with edward alden, the council on foreign relations. failure tomuch about adjust and very importantly out in a new paperback edition with an exquisite foreword which begins in pennsylvania. you go back 54 years to jfk's visit to the struggling steel

town of the 60's and then you move forward to president trump's visit. why do you go to pennsylvania to talk about trade with korea? >> that's where president trump gave by far the most important speech of the campaign in june 2016. he laid out in detail everything he was going to do on trade policy. by far his most substantive speech. the last time a presidential candidate had been in that town was jfk in 1966. -- 1962. it's one of the places that got left behind in the global economy. francine lacqua is interview with secretary ross in london. ross navarro, many people will say is a zero sum trade policy for the united states. does the president still ascribe to ross navarro? does.re's no question he

how is he going to carry this stuff out in reality. that thed an editorial trade policy so far has been ignorant but not substantively harmful. we are waiting to see where a lot of the shoes are going to drop it when he says things like he did in japan -- the japanese cars in the united states. i worry about the president's grasp on detail. he has just finished taking questions in korea. talk to me about the midterm elections. the trump into something that really reconnects with their base or changed tack? >> the problem is going to be if he goes down the road of tearing of the north american free trade agreement. it is going to hurt a lot of the constituents in the places that voted for donald trump. who arearly farmers very dependent on the market with mexico. his sweet spot is to continue to

talk tough on trade that not to do things that are actually damaging to his constituents and that's a very tough housing act because he has been promising for 10 months now all of the magical things he's going to do. he hasn't really delivered on any of that and the pressures going to start to increase. francine: wasn't he actually voted in on these policies? voted forpeople who him really understand the consequences of him moving forward? tears up nafta and the largest market for u.s. corn and a number of other market -- u.s. agricultural products. are only nowle waking up to what's at stake if the president goes forward. .om: terry simpson when you are having a cup of coffee, is this really front and center where this could be the shock trade dynamics? >> is definitely important.

when we look at nafta and relations with mexico and canada is obviously important. terry simpson is way too young to remember the uproar over twin deficits decades ago. ted, you and i aren't. is this a theme we are going to have? are we going to have a deteriorating trade deficit? >> we have one right now. i think it's going to get worse. if you look what's happening package, youreform go back to early reagan years, that's what we saw. tom: the moneys got to flow in from other nations. that supports bond prices. does that keep yields down lower than the gloom crew thinks? >> is going to create more money

to flow in the united states. adjusting monetary policy pushing interest rates higher. were in capital is going to come in looking for that bid. interest rates stay depressed. francine: how much time do you spend thinking about the fed and its independence? >> it's not my central topic. i work much more on the international stuff. trade policy. everybody seems reasonably pleased with the president's choice for a replacement for janet yellen so i don't think there's a lot of concern on that front right now. francine: do you worry about it? >> is important because said governors have been pushed into political thinking. in this current environment it shows the trump is not going to break that policy or go back to history as an example. fed independence will be important going forward. tom: terry simpson with us of blackrock.

this is the book, it is really wonderful with a new foreword about foreign trade. ted alden will continue with us. bloomberg surveillance on bloomberg television. alongmoon, she dragged bob moon and they get you prepared on radio. coast-to-coast, new york, boston. this is bloomberg. ♪

francine: coming up shortly, bloomberg daybreak: america's. alix steel joins us now. good morning.

alix: we will be talking a lot about oil. is $62 a barrel. the central bank in saudi arabia is asking banks in the kingdom to freeze the accounts of those that have not yet been arrested. francisco blanch will be joining us to break it all down and he's going to help me tease ahead to my shale special. 9:00 p.m. on thursday. it's my shale special called the next shale revolution. tom: alix steel, thank you so much. francine on oil we've got up nearly $60 a barrel. it really is front and center all of a sudden. it has really caught up with us quickly. francine: it is partly as they try and figure out exactly what the saudi upheaval means.

it's just spurring risk premiums. let's stick with oil in saudi arabia. we are back with terry simpson of blackrock and ted alden from cfr. are we still range bound for oil? >> we are trading at the top of the range and you have had a lot of good developments if you are and oil investor. supply cut reductions from opec and people pricing in the expected supply cuts going to 2018. throw into the recipe geopolitical risk coming from saudi arabia. this is one of the risks we are at the top end of the range. francine: when you look at what the investors in oil traders are looking at how concerned are they about the upheaval in saudi arabia and how concerned are they this will have repercussions with iran and iraq? isto geopolitical risk

always going to be a big variable for oil prices moving forward. keep oiltinues it can prices higher. at the end of the day there is still a broader story. that are demand and supply reduction is going to weigh out here not just the geopolitical risk. tom: i'm bringing this chart up. ted alden, this is saudi oil adjusted for inflation and rising wealth. it's an approximation. the math is a little squishy. we are back to 1960 6, 19 65, almost early vietnam pricing. what does that mean for our trading partners? i did a chart of turkish lira oil. it is expensive. a real driver of our trade deficit used to be oil imports.

tom: that has gone away. because of domestic production and falling price. balance --ings the energy is not going to be a big part of it. of awhat are the dynamics stronger dollar and depreciating em currencies in the troubled countries of the world? does oil break their backs? >> it could be a serious problem. i don't know if we are going to as itl continue to rise has been. hadhen we have conversations with policymakers in the middle east they are somewhat being forced to because oil prices have been relatively low. fiscal put pressure on balance. if they don't diversify their economy it can be a very big challenge going forward. i want to talk about

saudi arabia and president trump however we are just getting breaking news out of the ecb. wanted to lengthen the inflation process to all tools. key ecb policymakers are said to have challenged the qe pledged that mario draghi has been putting in place. seeing as a may be lot more dovish compared to his key members. tom: these are extremely important headlines. i am unwilling to say that it's a reaffirmation of the bundesbank tone. france adjoins find men in the demand for a linkage to inflation. these are very important headlines given the mix of debate over quantitative tightening. francine: basically three of the top policymakers you mentioned

pushing to alter this commitment to keep time bonds until inflation improves. if you see a significant split question it will future policymaking from the ecb. tom: ted alden, thank you. the book is failure to adjust. i can't say enough about this effort. it is absolutely fabulous. the richness of it with a new forward which directly addresses the trade policy of the president. ted alden, thank you. with terry simpson of blackrock, stay with us. this is bloomberg. ♪

>> this is bloomberg surveillance. i'm taylor riggs. bmw has lost ground to global luxury car later mercedes-benz. profits from carmaking now trail mercedes and the company reduced its outlook for full-year revenue. bmw has been spending more to refresh its conventional car lineup so to make money. -- so it can make money.

self also developing driving electric vehicles. toyota has raised its annual profit forecast for a second time this year. the japanese automaker took a 15% share in the u.s. that's bigger than ford. company's rav4 compact crossover setting a ninth straight monthly sales record in september. by the year 2030 china's asset management industry is expected to expand according to a report by casey clark. foreign institutions will get just 6% of the money pile. it is the single best chart and it is a shock not of softbank, t-mobile, how about disney and fox. the white line is disney. these are two beleaguered media

stocks relative to the juggernauts that are out there. us witheney with bloomberg intelligence. there's a little bit about performance with us. -- here. what's the backstory? the urgency for mr. murdock? >> it's a shock that rupert murdoch would think of selling anything. he been probably four or five decades building this conglomerate, global media enterprise and rupert murdoch has been loath to sell anything during his career. the news that they were potentially in talks with disney was really shocking to the market. tom: because they are so family identified are they the kingdom of isolation? are they isolated from the dynamics of the media business? >> i don't think so. they are a global media company and they are facing the same challenges in the united states that other big media companies are facing. people are cutting the cord. they're not paying for media the

way they used to. all media companies including the great foxes of the world have to rethink their portfolio of assets and do i need to read juggle what i own and where i own it. that's what brought disney and fox to the table to discuss. francine: you need to leave to go to surveillance radio. that theytually mean will have a lot more suitors? >> potentially. i think to the extent disney and fox get a transaction together i think disney would be very interested in sky. third reasons i think they're in discussion is disney needs to grow its international media exposure. getting an opportunity to get into fox would be great. is still aiming for this regulatory approval next year to buy full control of skied.

what are the chances of that actually happening? the odds are still north of 50% that fox will be able to buy sky if it chooses. i think the regulatory process is going much slower than investors would like. the pieces are falling in favor of 21st century fox and that is clearly what sky is looking for. that would create a pan-european media company that would be much better positioned to deal with some of the upstarts like netflix across europe. and content has without a doubt be on the consolidation phase. do you see m&a increasing or is it going to be more difficult as central bank start normalizing? .> we look at tax reform it could reduce m&a and create more cash coming back to the united states at the same time. it's going to have different effects of how m&a gets funded.

think central banks shifting the monetary policy adjustment is going to slow m&a particularly in this industry where you're trying to create value. thank you so much. paul sweeney and terry simpson. they will join us on radio shortly. also on radio and on tv today a conversation with tom perez, dnc chairman. the talk will be surrounding tax cuts. that will begin on radio at 9:30 a.m. in new york. this is bloomberg. ♪

jonathan: the president touches

down in south korea sending a message across the board as kim jong-un comes to the table and do a deal. twitter diplomacy emboldening saudi arabia. trump undercuts foreign policy adviser, tweeting his support for the weekends purge. crude holds onto its highs level in two years. political upheaval in the middle east feels a rally in energy stocks. rally in energy stocks. i'm jonathan ferro alongside david westin and alix steel. the s&p 500 closing at another record high on a five-day winning streak. futures treading water at the moment. in the fx market the dollar showing definite strength against the rest of the g10 space. broad-based dollar strength to start the day on euro dollar. in the treasury market yields pretty much unchanged. portuguese ten-year debt south of 2%. alix: i also thought that was crazy.