let's call the whole thing off. 17 days after elon musk wanted to take tesla rabbit, he buckles under pressure. even as the car flattens, traditional economic models don't provide clarity for that i experience mexico and the u.s. are waiting on deal. they are close to an agreement. it is a sad day in the nation's capital because of the death of john mccain. welcome to bloomberg daybreak on this monday. i am david westin with alix steel. alix: i wasn't surprised. i didn't think it would be as quick. i didn't think it would be the next 24 hours. david: a real loss, particularly of this man at this time.

he was for plainspoken truth. it's a real loss. alix: it's not a great way to start the show on monday. david: it's great to have you back. it alix: it's good to be back. i am well rested. in the markets, you have the s&p hitting a record. the nasdaq closed a record. futures are up by six points. euro-dollar is mixed. german business confidence came in strong. my 2/10 spread it, this and jaw dropping. i come back and it's that 18 or 19. the yield curve is an 18. david: we were 20 on friday. it was a big deal. pointed outband that he didn't care. david: it's time for the morning

brief. the ul slow option $30 billion in notes. earnings., we get on thursday, we get core numbers giving us a new read on inflation. let's look at the first take from bloomberg. we are joined by michael mckee. he is back from jackson hole. gina is our chief equity strategist. let's start with tesla. this is with going on with the stock. it is still not doing very well. this is why. elon musk posted that the better path is for tesla to remain. believe we arers better off as a public company. i knew it would be challenging, but it's more time-consuming and distracting then anticipated. gina: the key word there is distraction.

clearly, the volatility that tweets because of the and the privatization has been damaging. it investors on the whole are ultimately going to be very graceful that it's now in the past. extraordinarying products for the future. this is what the company is founded on. ultimately, they will put this in the past. alix: it still hurts credibility. the investigation is not over. michael: 10 they keep up the production run for the model 3. they are projecting 55,000 for the quarter. they have not hit those numbers in the past. one of the larger questions i saw is he burned out? should he step aside as ceo, put in somebody who could run the company on a day-to-day basis?

not only is he running tesla, spacex, the hyperloop people. is this too much for one person? is the company to dependent on this one guy? alix: if you're not sleeping. in a real way, if you are struggling and you need help, where is the board? the yield curve and the fed, we were just talking about it. it's an unbelievable move. the question is what does jay powell say on friday the change the conversation? we have a neutral rate of interest. that's according to conventional thinking. policymakers should navigate by the stars. they are very much akin to the

celeste deal stars. i would not think he would talk about stars. : they are notel fixed in the star. the fed is trying to steer by stars that are moving around. he made itestion is clear they are going to continue raising rates click -- gradually. does that invert deal curve? that was a major topic of conversation with fed officials out there. they are not convinced of the yield curve is telling us the same story as in the past. there are safe havens coming into the united states. you have a massive budget deficit. growthon a sugar high of that is going to come down. there is concern about the longer growth prospects of the country. reflection accurate of any refresh -- recession

danger. a lot of people say we have to be careful. .im bullard said it best the last time we get close to inversion, we went into recession. ,ven if the factors are true it's worth paying attention to. david: most of the fed people think we can keep raising. the equity markets are not concerned. gina: the equity market is zeroing in on him acknowledging that there are risks emerging. tone sixvery hawkish months ago. the last fed chairman that we hawkish.- he is more there was a lot of acknowledgment of wrists. there was a balanced commentary. there is a rollback on expectations for fed policy shifts, but there was a different tone. the equity market glommed onto

that. maybe outlook is more balanced. at the same time, there was better earnings last week. we could have trade policy resolutions. that in combination with a general uptrend has been very positive. david: that is our third story. what's going on with the peso? it looks like we may be getting closer to a deal with mexico on nafta. the dollar climbed next to the peso. what is the situation right now with negotiations? michael: we are close to a handshake deal with mexico on nafta. we don't know what has been negotiated. there are reports about various aspects of the treaty. if that's the case, they would bring canada back into the

negotiations. the mexicans and usn differences in certain areas that they may have bridged. the u.s. and canada have other dairy.s over gary -- in, they bring canada back how hard is it going to be? they put an artificial deadline on getting something done this week because they would like to have a deal signed before the mexican president leaves office. if they don't get it done this week, what does the new president want to do in mexico as far as the negotiation. can they get it done that fast? i have my doubts. alix: what is priced into the market? if we get something, is that priced in at all? will it not happen? last year over the and a half, it's been a very

narrow trade affecting the auto sector. you can expend that -- extend that. with second-quarter earnings season coming in better-than-expected, we start to see trade risk being removed. this is not going to have a our outlook.ct on the one segment that still suffers and has suffered tremendously is on those. any resolution between the u.s. and mexico in regards to autos is a positive. it may not produce traffic flows, but it promotes certainty. it would relieve a lot of uncertainty. michael: even if you get a deal, china is still out there. the chinese came to visit and nothing was accomplished. that leaves the $200 billion on

the table for the president. alix: that's fine. thank you both very much. you can check out all the charts we will use now and throughout the show on tv go in your terminal. coming up, the fed is keeping it cool in jackson hole despite pressure from the president. this is bloomberg. ♪

david: the yield curve continues to flatten and the fed talks about raising rates.

he warned about his experience when you tighten into a flattening yield curve. >> we played it wrong in 2000. in 2006, the yield curve was inverted and we played wrong. i want to take this seriously. even when you look at models, it doesn't fit into the models the way we would like. you have to take it seriously as a signal. david: welcome now megan greene a capitaliami, markets head of global research and chief investments. let's start right here in new york. this is the big debate, do we pay attention to models or experience. we heard mr. bollard say i was there. an intellectual argument. the best way to hedge equity risk is to be in long-term

bonds. that may not mean were going into recession. the reality is that if it's different this time, investors think it means a recession. different, its could be a prophecy. david: do we keep on this path? real --nk it's a possibility. i don't think it means recession. there is a lot to factor in here. an inverted yield curve is very possible. does it mean a recession is eminent? i would say it's to the contrary. i think it's going to continue. alix: the atlanta fed president said he would height. he would not want to hike into a yield curve inversion. over fedcontrol policy? constrainhink it will

the front. i think we get one more rate hike this year. we might get to. alix: you are not alone. --ammad ali are you said mohammed all area in -- no matter how confident the regional bank presidents were a jackson hole, there is an external question that influences what the fed will end up doing it in december. what do you think? i think there could be real wage increases. they have been minimal. driver the fundamental between the lack of wage growth? i would say it's the technological revolution, automation. wagethe people from higher jobs toward retail, these are

keeping real wages down. the fed can hike one more time. i think we are in a goldilocks environment where we have low inversion, strong growth, and a fed that has the capacity to normalize policy. david: i love that expression. what does that say about how the fed manages going forward? do we have to rethink the phillips curve? megan: i think we have to rethink the fundamental models. it's the gold standard for economic growth and it doesn't work anymore. i think there are structural breaks from the past, some of which we are mentioning. it just doesn't hold up anymore. favorite quotey from jay powell on friday.

according to the conventional thinking, they should navigate by these stars. they are very much like celeste yield stars. you tend to look at the traditional models and how the fed it reacts, when you have the fed chair saying they may not work and we are flying by the seat of our pants, how do you handle that? catherine: i wouldn't say the fullest curve is defunct. the rate of unemployment is lower. i love talking about the phillips curve. 5% unemployment engendered inflation. i think it's 3.5%. even though we're getting there, it's not the structural phenomenon that were lower. that means interest rates are also lower.

inputs havethe changed. david: how much money does the federal government borrow? how does that factor into this. if they have to borrow more and more money? megan: they have to borrow so much more money because of tax reform and expenditures. the appetite for that is insatiable. japan, they have started to diverge. i think it's going to continue to do so. that keeps the demand for treasuries high. 3%, we cantreasuries bank on them selling off in a tremendous way. to demand for them is going collapse precipitously. greene andn

catherine rivera will be staying with us. thee it fears back onto course it was on. elon musk says the company will go private after all. more on that next. this is bloomberg. ♪

david: elon musk call the going private thing off. he said he believed the better half was for tesla to remain public. most shareholders believe we are better as a public company. i knew it would be challenging, but it would be more time-consuming and difficult then anticipated. we are back to public. what do we know about once going on in the production process? david: they've gotten up to more than 4000 cars a week.

the goal is 5000 or more. it's not clear if they can get to 5000 and hit it sustainably. it's one thing to hit that for a week or two. you have a lot of people working the line. they were on their way there. they've got to improve quality. that's the fine detail of every car that runs off the line. they found some of those issues to the kind of lacking. there is a ways to go, but they were on pace to get there. that really is key. david: a lot of reports out on 3's aremodel three -- going to be fixed. it's fairly common for in terms of the production rate get up to 5000 cars a week, whatever the issues might be, it's taken too long.

they started production about a year ago. major carmakers with have these issues worked out. they would be up to full production in a few months. at the early issues would be worked out. this is a big issue for them. if they can't get the full production and they can't get quality right, that slows everything down. it makes this a cash flow issue for them. tesla.take potshots at david: they have a problem with the public. thank you so much. it's great to have you on it today. joining us is a record and from the michigan ross school of business. apart from the production problems, what about the company and how it's being run?

what did we learn from that post friday night? >> he has been the lone ranger. he tweets without consulting the board. that offends the board and puts them in a very difficult position. it makes them wonder if he is the right guy to be ceo. alix: that investigation is still a problem. eric: i think that's right. tweaksstion is was the funding secured misleading at the time it was made such that it costs people to lose money? that he has backed out of the deal is not what the sec cares about. david: what are the odds they will get a coo. eric: i think the board needs to think about the future of musk.

is he that important? does the company need vision or does it need somebody who knows how to get the manufacturing right and really run a company. maybe he should be the chief strategy officer. not the ceo. david: this contract says he has to be involved in the production process, but not necessarily run the company overall. they need to be generating some new cash. they don't have enough to get them through to the end. does having him there help or hurt raising capital? eric: it used to help them. the is to have this magic constant brought in cash or in he just had to say something and it appeared. i'd only gets true anymore. i think people will look at this as an investment and say is this company going to make money?

is it going to make money quickly. alix: thank you. it's good to catch up with you. if you love elon musk and you love your tesla, you are in it to win it. it's very difficult. to stay in it if he keeps it public. that's part of what drove him. alix: what would it mean to give --those shares western mark shares? it's close to a breakthrough between the u.s. and mexico, they are resolving their differences on nasa. -- nafta. xfinity mobile is a new wireless network

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s&p up by about seven points in the futures market. european stocks also a little stronger with the exception of italian equities, and part because you have the italian government saying they won't support and eu budget. in other asset classes, it is a similar kind of story. euro-dollar pretty much flat. what will be the next boost and catalyst for the euro as it wound up recovering last week? the other currency pair to watch has to come in the way of dollar you on -- of dollars-yuan. spread, 90 basis points, 1%.crude up by 3/10 of about 18 basis points. my jaw dropped. couldn't believe it.

let's get an update on headlines outside the business world from kailey leinz with first word news. kailey: good morning. senator john mccain's death has led to a rare show of unity. 's mccain allies -- mccain's tribute.d foes gave president trump tweeted his deepest sympathies and respect. the president had criticized mccain repeatedly. mccain will lie in state in the capitol rotunda this week. the u.s. trade war with china is about to get uglier. hawks in the truck administration -- in the trump administration have gained the upper hand and are about to launch a full initiative, planning new tariffs on additional $200 billion chinese products.

the u.s. and mexico could resolve their trade differences as early as today. that would clear the way for candidate to rejoin talks to rewrite the north american trade agreement. bloomberg has learned that have been significant breakthroughs during the past several days on two of the biggest issues, cars and energy. global news 24 hours a day, on air and on tictoc, powered by more than 2700 journalists and analysts in more than 120 countries. i'm kailey leinz. this is bloomberg. david: nafta negotiations with mexico continue. on saturday, president trump tweeted, "our relationship with mexico is getting closer by the hour. some really good people in both the new and old government working together. a big new trade agreement with mexico should be -- could be happening soon!" let's put up with the sticking points appear to be at this point. autos, they seem to have gotten pretty close to there. energy has been an issue.

guest: that's right. we don't know the actual details yet, so it is hard to guess what they've decided on things like procurement, for example. it is possible we get a agreement between the u.s. and mexico over the next couple days. canada is the biggest sticking point. is a bit of a soft deadline. the president has to give congress 90 days warning that they are going to sign a treaty. amlo comes into power december 1. if they can get something together with canada in the next week, that would be great. we seeing that reflected in the peso. buy signal for you, or is there fundamental political risk you have to look at in mexico as well? reporter: i think we are very close to fair value on the mexican peso. we went long at $20 just before and low -- just before amlo came

into power. we remain positive across the board and across asset classes. i think the gains are marginal at best. my sources, the energy dispute has been resolved. the thing that i think is still killng is the automatic after a certain period of time. there is a resolution in the very near term. i am very positive with regard to u.s.-mexican bilateral agreement. could it be trilateral? great. if not, canada and the u.s. have a free trade agreement that predates nafta. canada would refer back to its

free trade agreement from 1989. david: if you team up with mexico, there's going to be a lot of pressure on mr. trudeau to make a deal. guest: he wants to make a deal. canada and u.s. trade is immense. over the next week, i do expect canada to get on board at the table with regards to dairy and dispute panels. really what canada says is the to digme we don't want our disputes in u.s. courts, which is what the u.s. is looking for. we like the international arbiter outside of the u.s.. make headwayy will and ultimately we will have a trilateral agreement. alix: the broader question in terms of emerging markets is for the dollar and the moves in the pboc friday. you can see the tweaks the pboc

has been fixing in the countercyclical buffer. what is your take? reporter: a think the pboc move could be a bit of a game changer. if you look at the u.s. dollar stronger over the past couple of months, the pboc is going to lean against reminded weakness because they are worried about capital flight. most moves in the u.s. dollar have already been priced in, so we might see a slight move up. the biggest moves have already happened, and that should take some pressure off of emerging markets. ittinggh they are s on debt. you can see there the

blue number is dollar-denominated debt. emergingnherently make markets less of a good bet? reporter: it does structurally speaking. a lot of these emerging markets are invoking trading u.s. dollars, so it is even more of a squeeze on emerging markets. they have more to withstand this than the last time around, was the dollar strengthening it certainly has looked dicey. there are certain things that unite them. alix: if the dollar has topped out here, where can be the most upside? reporter: i like emerging markets. i think they are not extremely

cheap, but certainly not overvalued. you don't want to enter a legal currency where you think the currency is going to continue to weaken. agree that in recent years, the fed has caused some type of bubble in the emerging markets .pace if you compare it versus the asian or latin american crisis , the profile1990's with latin america and emerging markets is far better. we are looking at shorter duration profiles, hire local currency versus that time. i think economic growth is positive, although not r obust. i think that there are interesting spaces, specifically in brazil.

brazil looks undervalued come but brl is undervalued. i think the elections are more likely than not going to pan out from the market perspective. this could provide a nice opportunity like in mexico just before amlo was elected. winning and not being so it aggressively leftist, or in this case in brazil, not winning at all. david: where should we be in deficit or surplus? huge, looking is at the current account. debt is a reflection of internal indebtedness. given that so much of that borrowing was in u.s. dollars, i that a country can afford to throw at that when there is a squeeze on them. alix: great to see you both.

thank you very much for joining us. coming up, start your engines. we discussed the record $48 million ferrari. david didn't buy it. that's coming up next. david: i'm going to keep looking at it. that is a gorgeous car. alix: is that all you care about, how fast you can go? we will break it down next. this is bloomberg.

♪ this is "bloomberg daybreak: europe go i'm kailey leinz. coming up in the next hour, the former minneapolis fed president

and bloomberg view columnist. now to your bloomberg business flash. exxon mobil has been looking to buy renewable energy for delivery in texas. bloomberg has learned the company asked wind and --ar fire contractors for and solar contractors for contracts that would last 20 years. foods is starting to gain ground against other chains since amazon took it over. whole foods gained foot traffic last year at the expense of stores such as trader joe's, walgreens, and dollar tree. traditional groceries like grazier have -- like kroger have managed to hold their own. the mostch asians" was popular movie in america for the second week in the row.

the movies distributor warner bros. has already started to work on a sequel. that's your bloomberg business flash. alix: thank you so much. we turn now to wall street beat. first up, apple's new bite. the world's most valuable company plans to triple down on the iphone x, offering three new models this fall. --n, mining gear mo gear moguls prepare the companies for public markets. and the next and 62 250 gto fetching the highest price ever paid for a classic car. david: we now welcome jason kelly, bloomberg's new york bureau chief. we will start with the iphone. x models coming out. it is not a fundamentally new model. it is sort of adjusting it. reporter: one of the things

people are interested in this about as consumers and investors and wall street is this seems to be the new rhythm for apple, that they don't do a whole big remake every year. these are just essentially like s models, as they say. david: they call it an s year. i've never heard that. taylor: it will be kind of new, tweak some of the things -- reporter: tweak some of the things. were knows all things apple -- our gadget to roof knows -- our gadget guru know all things apple. alix: you all know i haven't iphone 5, so maybe i can actually upgrade now. that is exactly what they were hoping for. this is not going to bring in users from samsung, for example. david: and it will cost you less for a full x or other models.

goes sort of steady as she . this would make sense. reporter: i think we should set aside some time in the future for when you get that new iphone. [laughter] alix: it is so much easier than having to read like this on my iphone. reporter: what a black-and-white tv to hd. alix: you are so right. reporter: you can call people with your face. it is amazing. alix: let's go to crypto tycoons. companies areency thinking about going public. that would give a real litmus test as to what their founders are worth and what sort of transparency we will see from these companies. reporter: you actually did see how much the founders own and make, and how much they could make in the future. if there's one thing we know

about crypto in general, it is there some big questions around how much things are worth, even the underlying technology. i do think this is interesting e i was thinking back to -- old cliche about is the -- about the levi's for the pickaxes in gold mining country. that is what they are. as long as the market is around, these guys are set up to do well. but we don't know how much they are ultimately going to be worth . ok, ferrari. let's get to it. at the bigauction auto show in california, this is a 1962 250 gto. there were a total of 36 made ever.

it won 16 different meats. how could you not want that car? reporter: if you don't have $250 million. i saw this picture, and i am not as much of an aficionado as you are, i thought this reminded me of ferris bueller. [laughter] but it turns out at the same option, they were option off -- they were auctioning off the only remaining replica used in the filming of "ferris bueller's which is not an actual ferrari. they were replicas, and they sold one. david: there's another one of those that was sold privately for $70 million. this is the highest at auction, but there was another reportedly went for $70 million. alix: can you really make a

phone call with your face? [laughter] david: with yours, probably. not mine. alix: thanks so much, jason kelly. you can tune into jason on "business week" daily from 2:00 to 5:00 p.m. david, you have a very special interview coming up wednesday. david: i was able to sit down with warren buffett. it is always a treat to sit down with him. we have a few questions, including what he is going to do with the $110 billion he is sitting on. alix: how do someone like him look at it when he looks at the news? david: coming up, we are discussing the life and legacy of senator john mccain. aboutl talk to al hunt this remarkable senator and american. live from new york, this is bloomberg.

♪

david: late saturday we received word senator john mccain of arizona had passed away at his home at his ranch with his family. senator mccain left a legacy like no other, from his heroism during five years of imprisonment in north vietnam's fearless work on issues he cared about the most, including things like the military, campaign finance reform, and immigration. we welcome someone who knew senator mccain well come our colleague al hunt. thank you so much for joining us. reporter: it is a sad day. david: 4s and the country, really. you've written a wonderful piece for bloomberg. give us your thoughts about what we've lost in this. reporter: it is fair to say we have lost a great man. displayed someone who always extraordinary courage. you could agree with him or disagree with him come up john .ccain was always in the arena

he was a devoted patriot he made mistakes. he would it be that. one of the most important political figures i've known in the last 60 or 70 years that weren't president of the united states. that is an extreme your life. david: and the other one was? reporter: ted kennedy. they were i the 11:00 its, but good friends. floor, they had no idea what it was all about, and i said -- they said to one another, let's get into this fight. within a minute or two they were roaring at each other. it looked like one of the great battles of the senate floor, and in they walked off the floor laughing together. they loved politics. they love the chamber. they took the stuff seriously, but also like to have fun. david: senator mccain was never

afraid to take on a battle, whether a winning or losing battle. things like campaign-finance reform. he took on so many of those battles, yet in the end it is not clear that he won them. has he established a foundation that maybe other people can build upon? reporter: you lay down a marker, and reform is like plotting a plant. you always have to repot it because it always needs it. it is a marker that i think will be there. what is striking about what he a greathe became advocate for campaign-finance reform because he himself was caught in the charles keating scandal in the keating five. he took some gifts from a businessman he shouldn't have. it was a painful experience for said i am going to lead the effort to reform, even more genetic he was the man tortured for five and a half north vietnamese

prison. david: and because of that experience, he spoke out very strongly during the george w. bush administration about the so-called enhanced interrogation. he even spoke out against the current cia director because he believed she had been involved in enhanced interrogation. reporter: he did. it is something about which he felt very strongly. he thought it was counterproductive and against everything america sit for. extraordinarily strong man. he was basically a conservative, but his political idol was teddy roosevelt, one of the great activist republicans. david: what does it do to the

senate? we have a republican governor in arizona who will appoint a successor. reporter: they will name someone, and that person will be a reliable republican vote, i suspect, unless the governor should name senator mccain's widow. i rather doubt he will. i'm not sure she would even really wanted. we always love to say they were giants in the past that we exaggerate, but the senate really has lost a whale. this is not somebody who will be replaced. i quickly added, this is one guy willing to stand up to donald trump. there are not many in that body. david: thank you, bloomberg columnist al hunt. this is bloomberg.

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thing off, 17 days after wanting to take tesla private. powell says celestial stars are guiding policy. as the curve flattens, typical models don't provide the best clarity for fed hikes. china's central bank intervenes to support the human and is it enough as trade tensions simmer? this is the dome in washington where the nation's mourning the death of senator john mccain. daybreak,""bloomberg on this monday. i am here with alix steel. alix: there will be a minute of silence coming up. david: we will think about john mccain and his legacy. it leaves thee

senate and the passing of the guards and who will take his place. in the senate is a term that is overused. you also spoke about bipartisan we don't have a lot of this. alix: also when he voted down the repeal of obamacare and that in the senate. s&p closed at a record high. nasdaq as well. euro-dollar flat. confidence rising for the first time in nine months. points,pread 19 basis no doubt will come under pressure with $36 billion being auctioned later today. $104 billion of fixed notes throughout the week. the dollar loses of steam -- the dollar loses steam. it is good to see you. david: it is good to be back.

time now for the morning brief. the u.s. will auction $36 billion in two-year notes later today. tuesday, second order -- quarter earnings from tiffany's and best numbers important to the fed. let's get a check on what is making headlines outside the business world.. let's go to kailey leinz. she is here with "first word news." kailey: the u.s. and mexico were on berridge of a breakthrough. they could early -- every as early as today. the u.s. and mexico have worked out major differences in energy and cars are in the u.s. trade war with china is about to get uglier. hawks in the trump administration have gained the upper hand. talks between the two nations

resulted in little progress toward a cease-fire. now the u.s. is planning on new tariffs on additional $200 billion of chinese goods and beijing has bowed to retaliate. mccainls for senator will be held in he died of brain cancer. he was in the u.s. in arizona capital. there will be a funeral national -- at the national cathedral. he will be buried on sunday. global news 24 hours a day, online and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i'm kailey leinz. this is bloomberg. david: as central bankers gathered in jackson hole, one of the topics of conversation was the yield curve for u.s. treasuries, and how they plan to raise rates and how it affects the curve. >> the treasury curve is consistent with what we have

been seeing in the economic outlook and consistent about what the feds have been saying about past rates. >> there is no reason to challenge the curve at this time. in other circumstances if it was higher, then i might say we are taking recession risk and i am willing to trade that off. we are not in that situation today. inflation is low and barely up to target. >> the yield curve is not as flat as what we see broader. are reasons toe think it may not be singling -- signaling the same as it has in the past. usuallyted curve is correlated with the economy going in recession. there is reason to believe the long and is depressed for other reasons. in particular, demand for asset and quality into the u.s. treasury. i would also remind you this is not our objective to manage the

yield curve. we use it as a signal to see what it tells us about our policy. david: with us from washington is narayana kocherlakota, former minneapolis fed president any view columnist. jump in on the last point for what does the yield curve tell us about monetary policy? thank you for having me on. i thought it was summarized very well. the fed is not trying to target the yield curve. you try to use it as a signal. in the past, it has been correlated with recessions. it is a signal of a potential recessionary risk. it will be an important but not -- inputtive in point

as a policy maker. david: what would this curve be telling you, and how would you react to it? is it different than five years ago? of the challenges with the yield curve is that we have a strong correlated of pattern in the data desk ive data and there is no theoretical understanding of what it is. that means you come to 2018 and you are not sure whether or not ive pattern will be there. a signal of potential recessionary risk and the fed should be taking on board the rate hikes. it is the reason why the path of rate hikes should be lower and

slower than maybe otherwise. alix: if the yield curve isn't giving us a clear signal, are other policies not as well? chairman powell talked on friday and said that will the rate of objective according to conventional thinking policymakers should go by the stars, akin to celestial stars page agree that traditional models don't work and they cannot be looked at as a signal to win to hike rates? narayana: i made economist. i took a slightly different message from what chairman paul was saying and that is there is powellinty -- chairman was saying and that there was uncertainty. the fed star for itself is 2%.

conversations even in the midst of high exactlyment about what the u star was. maybe it can be lower than it was historically. i thought chairman powell's speech was on point that you do use one model and one specification and you have to think about the uncertainty associated with them. david: if you listen at the beginning to the fed president bullard, he said he was not to pay as much attention. he said it didn't work out well when we hiked inverted curves. that wehink he is right should look at the economic

models? narayana: i thought certainly those experiences are ones that are material. attempt toare an build in many pieces of information beyond one person's memories of their experience. overly sharp line drawn between theory and data. models come from data. they are an attempt to draw upon many sources of information. they get summarized in numbers star. star and r -- if i was still a policy maker, i would be paying attention to what happened in 2000 and 2006. they are not the final word. you want to pay attention to the fact that unemployment is low compared to historically, and we have big fiscal policy change on

the part of the administration in congress. we have to take that into account. alix: great to see you. narayana kocherlakota, former minneapolis said president and bloomberg columnist. joining us is nathan sheets. he is a fixed income with the federal reserve in two decades -- 42 decades. for two decades. does the bond market have a put on the fence? the bond market is more pessimistic than the federal reserve is. there are extraordinary factors that are holding down the long end of the yield curve like central bank purchases and rates abroad and so forth. , the message from the

bond market is a cautionary tale for the federal reserve. it is one that jay powell and his colleagues are internalizing. i take the message of his remark to be that he is trying to thread the needle between not tightening enough and over tightening. so far, he has done a pretty good job. david: if there is a difference between the bond market and the fed, what does the bond market see that the fed doesn't? would you not have inflation taking off the way one would expect with low employment? what is the fed missing? ishan: the bond market remembering where we have been over the past five to seven years. has thrown a lot of stimulus at the economy, and the economy has been lackluster. the fed feels the economy has turned the corner, and now things are accelerating and away we haven't seen recently -- in

away with haven't seen recently. 2018 or 2019 different than 2013 and 2014? that remains to be seen. alix: it goes to structural changes. for the 10 year treasury market, the yellow line are short positions spiking and the curve continues to flatten is the blue line. shorts, to cover the and it is flatter. highlightss chart that the bond market is not unanimous. there are many investors out there and in the hedge fund community that are expecting rates to rise. ratesave been expecting to rise for several years, and it has not happened yet. maybe tension in the hedge funds and the real money in the bond market. david: nathan sheets of fixed

income. he is staying with us. coming up, close to a breakthrough. the u.s. and mexico are close to solving differences it will canada come back to the negotiating table? we will talk about that next. this is bloomberg. ♪

♪ >> this is "bloomberg daybreak." i'm kailey leinz with your bloomberg business flash. bloomberg has learned that iphone will launch three new phones that will keep the edge to edge design of last year's flagship. the new phones will have a wider range of prices, features, and sizes to increase appeal. none of the three will be new designs like the iphone x was.

it is a setback for buyer and johnson & johnson. a study found that the sarao toe drug did not stop blood clots. cells and theson buyer has -- bloomberg has lose that berkshire hathaway has stake in the company. they will acquire 4% of one 97 communications. the investment would value the company at $10 billion. that is your "bloomberg business flash." david: president trump tweeted that we may be close to a deal with mexico on nafta and the pace is up against the dollar on the news. joining us is michael mckee, our policy correspondent.

nathan sheets is with us as well very take us into -- as well. michael, take us into it. where are we? michael: the u.s. has more protection for companies in mexico. when the things with the president lopez coming in, he could possibly nationalize the mexican oil company or have deals and there are protections. they apparently made progress and the trump administration wants more cars made in the united states. there are compromises. we do not know on what they have done on procurement. there are rumors that the u.s. has backed up demand every five dispute resolution settlement, we do not know what they have done.

that is one of the keys for canada when they come back. is it dispute resolution important in mexico? michael: that falls under investor protection which is a clause in most trade deals. allows companies to see you. in theory, it allows companies to sue the united states pay trade experts say it is standard to have it in their as we don't do that. it is not a threat to the united states. we have rarely been sued and haven't lost under that clause. alix: nathan, from the market perspective, how you view it? if we can have resolution on the uncertainty regarding nafta, that would be constructive. by the same token, there are important? 's. marks.n

will they do it the sunset clause? what will canada's interest be? there is a narrative that president trump likes the uncertainty, and he is happy to make progress on talks but is in no hurry. that uncertainty from president trump -- that president trump embraces is negative for the market. if we go back to what he said before he got elected, we would have thought you would've pulled out of nafta altogether. so this is progress in some sense. it seemsbsolutely, and more likely it will have nafta in some form than not, and that is constructive. -- presidentresent bowing to political realities. alix: we will talk more about china later on. mike, did we learn anything

about how the eels have played out in conversations in relation to china? michael: it seems like the two are unrelated. china seems to have gotten his goat. to talk to came over lower-level officials and went home with no progress made. that puts the $200 billion in additional tariffs on the table. it would be good to get something on trade and something positive for the president to talk about and use as leverage against the chinese. it does not look like anything. david: couldn't we simplify it? we basically split the difference, didn't we? we haven't in the 60's and we wanted it in the 80's. michael: it is complicated. do thing they are trying to is raise mexican wages so mexico is less competitive with the u.s. and you could build cars here. mexico agreeing to a certain

percentage of cars being made with workers making $16 an hour. canada is being paid in the 20's. the u.s. giving up the right to block some products of mexico coming into the country. it is a cop had a document with 30 chapters. -- it is a complicated document with 30 chapters. alix: within the dollar rise of little. mckee, thank you very much. coming up, tesla ditching the plan to go private. more on that next. this is bloomberg. ♪

♪ elon musk called the whole going private thing off posting "i believe the better path for tesla to remain public.

it is a parent the existing shareholders are better off. i knew the process of going private would be challenging, but it would be more time-consuming and distracted than in this is a -- initially anticipated." joining us is jeffrey osborne. he has a price target of $200. welcome, it is great to have you here. jeff: thank you for having me. whole exchangehe -- has the whole exchange changed your view on tesla? jeff: it has been choose your own adventure and one adventure going private is off table -- off the table. the risk profile has stepped up now that the sec has publicly announced they have subpoenaed the company coupled with debt coming due over the next couple of months.

they need to ask kate well and manage cash flow well. the risk is higher over the past couple of weeks. david: give us more on the debt due. how much is due and how much will it be to raise the capital market? jeff: there is debt coming due. there's $920 million that are below conversion price. you would have to pay cash for those and they are due in march. we are modeling the company raising an additional $2 billion in the fourth quarter. resultsd to have solid resort in the third quarter and get the sec author back so to speak in terms of the ability to speak of it. ability. they do not know is elon musk

would be viable and potentially the company or the board. there are questions more than answers that have evolved. alix: jeff osborne, senior analyst. thank you for your perspective. there's also a lawsuit. david: there is a lot of liability potentially. alix: the question is, how long does it take for the cloud to clear? lawsuits tend to last longer than six months. coming up, the u.n. looks as the pboc steps in. will they counter pessimism on value and trade tensions? this is bloomberg. ♪

♪ this is "bloomberg daybreak p are gold tech at a record -- "bloomberg

daybreak." tech at record high. tech down. will buy trump says we their debt, but you have government officials in italy saying they will not approve the eu budget rule. in other asset classes, the dollar rolling over a bit and pushing other currencies a bit. it is up by 1/10 of 1%. it has a ripple in crude as well. dollar-yen, the pboc comes in and says we do not want that. the point to spread and 19 basis points and fixed rate auctions coming up. i'm guessing light volume. david: for the last week in august, no. we will still watch them.

let's get a check on what is making headlines outside the business world. we turn to kailey leinz with first word news. president emmanuel macron says the u.s. seems to be turning its back. they can no longer fully .ount on security they look for a defense project today. authorities in jacksonville florida say a gunman at a shooting at a video game tournament was attending the event. he was a 24-year-old man from baltimore. police say he killed two people and wounded nine others before shooting himself. congressional democrats not saying whether they think president trump has committed impeachable defenses. they promise investigations if the party gains control in the house. republicans have seized on the threat for the turnout of the elections. global news 24 hours a day, online and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i'm kailey leinz. this is bloomberg.

hand --he pboc lens a ends a hand. we are going to show a chart. everything it bounces down below the red is when they intervened. joining us from washington is tom orla, our chief analysts -- tom orlik our chief analyst. tom: the pboc has a range of tools and they escalate and severity depending on the situation. the most recent shift took place on friday. the pboc reintroduced what they call the cyclical measure in the calculation of the daily parity against the dollar. a confusing term.

it means that the pboc is saying they can set the rate how the yuan traits against the dollar in a way which reflects their view, not the view of the market. is a: how much of this matter of controlling or managing the economy overall and the growth rate overall? with --ed to drilling dealing with the trade deficit in the united states? tom: there are a bunch of factors going on. growth in china is getting week. exporting.an by as you suggest, looming trade conflict with the u.s.. a weaker yuan could offset the cost of tariffs. at the same time, we only have to 2015, 2016 for the week you

on and there was as consensual uan.or the week you -- wait yuan. the cost started to outweigh the benefits and stabilize the currency. david: always great to have you. is nathan sheets of pgim fixed income. you know china well. what is the chinese approach to managing their economy and currency? nathan: there were good reasons for it to depreciate. it reflected a softening of the economy and easing of monetary policy. by the same token, they remember 2015 and 2016 well, when depreciated currency caused

expectations of further onreciation and put pressure capital outflows on their economy and the global economy. it is clear by the move last week they don't want to go back. there are limits to the decline in currency. alix: we talk about the broader market and risk. i was surprised about the asset classes. if you take a look at the top panel, it is of correlation of the world index and a commodity index versus the u.n.. they are one of the highs we have seen in years. is underhen china stress, the market is under stress. we saw that in mid-2015 and 2016. the pboc has plenty of currency and it should be a stabilizing factor for global markets. alix: does that mean you have to go by risk?

as long as the pboc says it won't appreciate, does it have to be a buy risk scenario? nathan: i would say that has now attenuated somewhat. there are other things to worry about. i'm balance, i am constructive. is someone buys risk, i won't discourage them from doing that. david: when it comes to emerging markets overall, to what extents should investors take solace from the fact that the pboc is going to intervene? nathan: i am a notch more constructive on emerging markets than many analysts and commentators. i think the undermine -- underlined fundamentals are strong. the chinese are not going to allow their economy to slow to medically. it will slow gradually with

underlying economic fundamentals. will support the emerging-market complex in the years ahead. trade,hen you factor in how you look at the market when you had the pboc as stabilizing and we saw trade talks less we go nowhere, what do you think about that? nathan: there is another risk. quickest way foru president trump and president xi jinping think they both have winning hands. how does one or the other back down? addressingrump is the situation with nafta to clear the docket to focus on tensions with china. this is a risk and perhaps the biggest risk to the global economy.

david: with president trump, there seems to be a mixture of geopolitics and international economic management. does the fact that president trump told mike pompeo not to visit them, does that look back at the trade discussions with china? the trade tensions reflect many things. they reflect concern about openness. they also reflect president trump's efforts to put leverage on china to help them with north korea. that is absolutely right. if he is not happy with north korea, their week -- will be more rusher on the trade. alix: if the market sells off into midterm elections come will be get a deal on china? is there reaction in the market? .athan: i believe there is

we started to see trade moves meaningfully affect the s&p, president trump would declare victory and walk off. believee governors -- i ultimately, president trump will be pragmatic in the way he pursues it. he seems to be caught in the markets are politics. alix: earnings were so strong last quarter. nathan sheets will stick with us. coming up, the shopping habits of the luxury consumer. we will break down what to see in tiffany's numbers. that is next. this is bloomberg. ♪

♪ daybreak.""bloomberg i'm kailey leinz in the hewlett-packard enterprise green room. a 2018 advisor. not to "bloomberg business whole foods is gaining ground. trafficods gained foot last year at expensive stores like trader joe's and dollar tree. traditional grocers like kroger have held their own. exxon mobil has been looking to buy renewable energy for delivery in texas. they have wind and solar powers and asked them to pitch contracts that would last 20 years. an analyst says the involvement of exxons says renewables can be cost competitive.

crazy rich asians was the top film for the second week in a row. in north america row. the film about lifestyles of singapore's rich and famous took in $25 million at the box office. the distributor, warner bros., has started working on a sequel. that is your "bloomberg business flash." alix: i love that. david: it is part of a trilogy. alix: that i don't know. another busy week for retail earnings. tiffany and best buy reporting tomorrow. dollar tree and dollar general on thursday. , seniorus is seema shah retail analyst. for tiffany's, what will it tell us about the china and international demand and high-end consumer? tiffany was strong in

quarter one. also commentary on other regions that will tell you how the chinese tourist is traveling. and what are we seeing in the local markets in terms of the luxury u.s. consumer? when it seemed like consumers were struggling, lower and tiffany's did better in what do you expect in terms of that product? seema: they saw a rise in engagement jewelry in q1. they are being were innovated in their product and attracting millennials and having a revised marketing strategy. that will weigh on operating margins in the near term and other initiatives. david: how much do anticipate business with china right now? mid teens.he david: how much growth?

michael seema: a large part. alix: what will we learn from tiffany's into the retail holiday season? wide rangewill get a of customer demographics with the earnings. you will see what the luxury consumer does. specifically, category wise, you might hear commentary on how back to school and back to college was, which gives you an indication of how strong holidays will be. you'll see a wide variety where consumers spend and how the switch to e-commerce goes. alix: thank you very much. david: still with us is nathan sheets. what is the state of u.s. consumer right now? nathan: the u.s. consumer is very strong and enjoying the tax market, arong labor

strong balance sheet. u.s. consumers are in a good place. consistent with that discussion, the top of the income distribution is particularly strong. earners in the united states command more than half of the total income. that divergence is getting greater. david: what percentage of that do spend as consumers? isn't there a disproportionate a month get spent by the lower? absolutely, and one of the features of the room is them -- revision of the national income is we found it was more saving in the u.s. economy. there was debate whether we save too much. i don't think so. i think it supports the u.s. corporate sector. what are the implications of this rising inequality in the united states? alix: and what is the rising

inequality and the corporate bond market? the white line is the retail spread for high-yield, up 5.4 basis points versus the blue line which is overall high-yield market. the underperformance in the retail corporate bond market -- do think that continues? nathan: that reflects concerns about the structure of retail over the medium term, and the move from brick and mortar into e-commerce. the flipside is some retail earnings this time around have been quite strong. it may be that some brick and mortar companies like target and walmart are figuring out how to do it both ways. david: how concerned should we be about leverage overall in the corporate sector? financial, out because financial has deleverage because of regulation, the

nonfinancial leverage is up historic levels. nathan: when i look at aggregate nonfinancial leverage in the u.s. economy, that measure is quite tame. as you peace apart various parts of the u.s. economy, there is a bt of leverage in the triple space and their morphemes that there are more that are triple leverage is what we face in the economy. alix: that leads how strong company balance sheets are. pricing you expect power to show up, and is the consumer able to handle higher prices on their end? consumer think the will be able to absorb higher prices. the question is, where are we

going to see the higher prices? relationship all the way through has been very subdued. wages are not rising and prices are not rising. this, in turn, is giving it time to be very gradual. it is not clear where we will see pricing power in the economy. alix: so great to see you. pricing power and i filled my $2.74, and it was very doable. david: do you have more money? alix: i am on a budget now, remember? ising up, the u.s. treasury auctioning off money.

remember, bloomberg users and with the charts on gtv . charts and a save the ones we are looking at throughout the hour this is bloomberg. ♪ . hour. this is bloomberg. ♪

♪ alix: the u.s. treasury auction today, two-year treasury notes. what will the takedown be at what price? if you end up having the curve flattening, does it put more pressure on it? david: how many times have we had this conversation question mark there is more money being borrowed and what will it do? it seems like the demand is there appeared a step in and say they will buy it. alix: it seemed like a calm market, now you are seeing selling across the board and concentrated on the backend. you have yields up by two basis points in the u.s.

where with michael mckee, our international correspondent. what do think we will learn today? michael: we will learn what demand is out there. this is only the beginning of a big week. there is $200 billion worth of treasuries going to auction between bills and notes. what impact does that have, not only on demand for the notes, and there seems to be unlimited demand, but how it affects the yield curve, and do we see a flattening because of additional demand coming in? alix: we have seen demand in the supplynd, despite worries we had. there continues to be demand. how low can the spread go? michael: and investors are looking at from five to 10 to see what demand there is for longer data.

there is concern about how the u.s. economy will perform going forward, and where inflation is going. the short run does not seem to be an issue, but longer run, what is the question between fives and tens? david: the treasury in the second half goes on and on. it gets to be a lot of money in the second half. michael: it will be an enormous amount. we have made the argument for decades that this kind of the deficit in the united states government crowds out other borrowing. it is hard to see the effects. we started to bring that down. during the period when we had deficits of reagan and bush years, you still sought interest rates go down. what would they have been otherwise? we don't know. we do not have a good example of the time of big deficit in the united states in the bond market, and we seek rates go up. also see increased

rates for savings around the united states and there is need for particularly long-term money. of that is bought by the insurance companies who have maturity profiles. there are more people with more money who could invest with this. if you think the economy is going down, you'll put money in treasury. people have not appreciated that all the money that is coming back from overseas invested in treasuries, they disinvesting and now they are buying them ed and- they disinvest now they are buying them back in treasuries and that is having an impact. alix: that is interesting. michael mckee, thank you very much. all of this is head of an interview you have ahead. david: the main thing he wants to know in the next five to 10

years is where the tenure is question ma? alix: david is interviewing warren buffett thursday at 11:30 a.m. coming up on bloomberg markets the open, i am joined by the chief global try to just -- strategist. here.et check dow jones futures up 142 around highs of the session. italian equities adding hit. selloff in the bond market picking up, and the dollar rolling over and the euro-dollar is higher. the curve is coming in 19 basis points. this is bloomberg. ♪

alix: for our viewers worldwide, i am alix steel. already minutes until the start of trading. this account down to the open. ♪

alix: coming up, mosques -- m usk's electric reversal. he abandoned plans under shareholder pressure. by risk management and gradualism. the yield curve hits its lattice in over a decade. emerging rake through. the u.s. mexico closing in on a nafta agreement creating an opening for canada to rejoin. in markets here the rally we saw on friday continues underway. s&p closing at a record since jenna were 26. the dollar rolling over a little bit. winning the euro is inching up. the 10 year yield to 83. selling all across the bond market. crude flat after the dollar reversed its movement earlier. jay powell