head to xfinity.com/stream to start watching. simple to rent, easy to buy, awesome to go. matt: the rand hits its lowest point in two years as south africa's economy contracts. more pain ahead in emerging markets. stocks and benchmarks lower on fears of higher funding costs. and brexit tax stop. the eu is set to explore options for the irish border. mark carney refuses to rule out

staying in his post until 2024 a second extension. i'm matt miller in berlin here for francine lacqua. let's check in with the markets. after the emerging markets rout my gmmes, take a look at screen. first off on the equity index you can see asia's equity index falling 4.5% there. the lois, hong kong down 2.5%. singapore down 1.5%. are seeing emergency market indexes getting absolutely thrashed and clearly not for the first session in a row. hong kong approaching 10% year to date. through this is coming in currencies. you can see in the middle of the

screen, the indian rupee down again and all of the other emerging-market currencies taking a hit over the last few weeks. but you haveback to look far and wide to find them. in commodities, copper gaining a little bit but brent crude down. nymex is down back below $70. crude is a space to watch and then sovereign bonds, all down the column. these black boxes signify the asset has moved more than three standard deviations away from its 90 day score. it's been a tough day for sovereign bonds. let's get the first word news from taylor riggs. taylor: argentina showing the

economic outlook has deteriorated amid a new currency crisis. he also forecasted a deepening recession. mademf said officials progress with argentine leaders. following a credit line agreed in june after a sharp selling off of the peso. >> we expect that the deal will be signed during the board meeting that will take place in the second half of september but we need a technical agreement before that. taylor: donald trump and his allies have attacked a soon to be published book by bob woodward titled "fear." it shows the president as mercurial and a liar and his staff disdainful of his boss. trump says it is already discredited and describes it as a con. over in italy, half of the populist coalition running the

country, is discussing a 2019 budget deficit below the eu's 3% of gdp limit. this is an attempt to send a reassertion -- reasserting message about government spending. they have not yet released a final decision. they declined to say whether the target could be below 2%. arepean union officials exploring how to unlock a wider irish deal by making the border backdrop more palatable to the u.k.. the eu stopped at a earlier version of the plan that was rejected by theresa may and was heavy-handed. they also said the willingness to be flexible lies behind an eu request last week for more details on what separates northern ireland from the mainland. german chancellor angela merkel has added some political weight behind a move of clearing to frankfurt.

speaking at a banking conference yesterday, she fell short of a full endorsement. it comes after months of lobbying by the coo of deutsche borse. he wants the interest rate euro areago to the after u.k. leaves the block. in japan, regions are struggling to recover from damage from the typhoon that left nine people dead, hundreds of thousands of buildings without power, and the main airport closed. can't cite international airport remains shut today. it was the strongest cyclone to come ashore and 25 years. it damaged the road and rail bridge connecting t -- connecting the airport to the mainland. news 24 hours a day powered by more than 2700 journalists and analysts in 120 countries. this is bloomberg.

matt: thank you very much. taylor with your first word news. it's good to emerging markets. stocks in currencies are under pressure this morning. let's get to emerging markets. stocks and currencies are under pressure this morning. is news that south africa has slumped back into a recession. the south african rand hit its lowest level in more than two years. he saw chinese indexes get slaughtered in the overnight trade. joining us now is the chief economist and head of research omfif.i half -- how much further do we have to go in this emerging market slump? can you see an end in sight? the emerging market slump

is now reaching a state where it is more of a contagion. idiosyncratichad elements of different countries but now it's becoming more serious. a key factor is what the fed will be doing in its september meeting. what the signals will be for the further monetary policy. there are some strengths for emerging markets when you look at fundamentals. they are much better prepared than in previous prices that we've seen. the global financial safety net is also stronger. seen progress in terms of reserves. there is significant reserve accumulation over the past year. there is also a regional financial agreement. but it's still not enough. there were proposals by the international monetary fund that were rejected last year in december. it would reward countries was stronger fundamentals.

they would get financing from the imf without stigma of getting help from the imf. there is strengthening of the global financial safety net but it's still not what it should be. fundamentals are stronger in some countries but they are all viable now because of the current account deficit position and fiscal positions of some particular markets that could spill over. it could get worse before it gets better. how much's talk about of the spillover we are going to see. when you look at what has happened, there are countries that clearly deserve the slap on the wrist from markets because of mismanagement over years. there are countries that are maybe getting slapped a little bit too hard. are you seeing the kind of spillover to develop markets that would signify a contagion? viraj: to some extent we agree

that there has been a series of local shocks that have started to see contagion effects but we also think differentiation will be the key at least i comes to asset prices going forward. strategically, we quite like asia. we think it's been heavily sold. the fundamental story they're still quite supportive. we think stability will be the policy with the chinese yuan. the relative performance of assets has output -- can outperform a bit. at developed markets as well, the key story is how long the dollar run goes for. that may be topping out and again differentiation may be the theme. what you think about that and how long will the dollar rally go? how much will the fed hike?

how problematic is that for these markets that have already gotten hit so hard? danae: differentiation is key, i would agree. have prepared the emerging markets vulnerability index. strengthening to federal reserve's. it looks at factors such as the current account balance. such as credits to the private sector. and you look at countries of argentina, or countries like china, they are lower on the scale. it's important to focus on the fundamentals but there is some behavior we have seen that may continue. in terms of the federal reserve, there is conflict for the federal reserve in terms of what the u.s. economy is doing versus the external conditions. we had some acknowledgment on powell said where

there are some risks externally but the u.s. economy is doing well. you have that policy mix of simple stimulus and monetary tightening that is creating with in markets. we will see the path for monetary policy further down the line the rest. viraj will stay with us. we have a lot more to go through. it's a big day for markets and there is plenty going on in em and develop markets. talka stands firm as new on a nafta deal resumes in washington. justin trudeau says he'd rather see the current act killed then budge on key sticking points. we talked trade next. italyaying by the rules, is discussing a budget deficit

below the eu's limit, sending bond yields lower. is it time for a sigh of relief? this is bloomberg. ♪

matt: economics, finance, politics. this is "bloomberg surveillance." the rand has slumped to its lowest level since 2016 as south

africa enters a recession for the first time in more than a decade. the country's finance minister says it's not cause for panic. he joins us now on the phone. thank you very much for your time. about thest ask you , the quarter on quarter gdp slump. was that a surprise to you? it was lower -- it was deeper than we expected. we didn't think that it would slide into another construction we did not deliver adequate like agriculture.

>> will you be have to cutting your gdp forecast because of this number or your expectations in the following quarters? the opportunity we have is now our midterm budgets to look at numbers. the normalization of the out put of agriculture. some of the sectors have picked up like mining. investing more in some of the sectors and infrastructure and think we should be able to turn it around. concerned about the slide in the currency?

i dropped to a two-year low. if i look at the one-month volatility, it has jumped to a five-year high. something you can do to halt this volatility in the rand? know, we haveou an exchange rate that is unlikely to be changed easily. monitor to the bank to development and take appropriate action. the rand is one of the most traded currencies in the emerging markets. it's volatility lies in that more than anything else. is if our exports were would be able to weather the storm.

matt: what can you do in the finance ministry, what can the president do, in order to help restore market confidence both domestically and overseas in south africa? nhlanhla: we are putting respond topackage to the external shocks as we speak. we already had a discussion about a month ago or two in july and august and we are meeting again on wednesday to present a package that is a structural reform package. it includes our list of plans

and undoing of some of the policies. an economic regulator. [indiscernible] a policy statement in october. these initiatives are already underway. of your midterm budget, are you going to be able to stick to 3.6% fiscal deficit to haver are you going to boost spending and borrowing? nhlanhla: we are looking at the numbers. we are not able to say now. we will have official to medications issue does a government area -- official communications issued as a government. you have this package

to show the market confidence, do you work with rating agencies? are you concerned that agencies will cut the outlook on south african debt to negative? nhlanhla: we stay in touch with the agencies but they have their timing and terms of when they engage with us. phone andpick up the call them every time there is a because they also look at performance in general, not only one event. when i look at your situation, it is made worse by the trade concerns. some would say trade war being waged by the president of the u.s.. how is that affecting your economy? all of those external stocks -- shocks have a huge negative impact but our focus is

on more what it is we can do to create opportunities and insulate ourselves. there's not much you can do about the external shocks other than try to insulate yourself against them. you are in beijing right now. are you there to talk trade with the chinese? nhlanhla: we have been talking trade. connecting them to the african state. to improve china africa cooperation. we think there's opportunity as well in the space. we are in the province of hunan tomorrow and the day after. all of these initiatives are to boost confidence.

matt: thank you very much for your time. really appreciate it. south african finance minister nhlanhla nene join us on the phone from beijing. let's switch gears from south africa back here to the continent of europe. in italy, half of the coalition is said to be discussing a 2019 budget deficit below the eu's 3% gdp limit. maybe a sigh of relief. three and 10 year bond yields falling coming off of last week's five-year high. here you see yields down to 2.93%. investors feel relieved here. danae and us are viraj. what do you think of that pretty

juicy yield in italy? a lot of investors were waiting for that return. should investors feel safer now? viraj: i don't think we are quite out of the woods yet when it comes to the italian budget story. we expect volatility to be expressed in the italian bond market but when it comes to spending back into the euro, i think it's more of a sentiment story. ishink euro-dollar right now a story of political uncertainty from both europe and the u.s.. story.ems to be the it's difficult to have a convincing direction. euro-dollar is pretty flat when you have dual political uncertainty. matt: doesn't matter so much

what happens in rome or is it more important to look at brussels in berlin? and berlin are more important but italy has been a key risk for the euro area and will continue to be. what happens in rome is also important. italy has dominated so much. euro, thearound the central bank in monetary policy the virgins between the u.s. and europe, and the euro dollars a general pathway. we have seen some areas of crisis, specifically greece with the bailout -- with exiting the bailout this august. we see risks initially. you still have very weak fundamentals in the general reform of the euro area and how that affects the italian banking sector. i wouldn't say we're out of the woods yet. npl's and the rest of

europe seem to be recovering fairly well. italians would claim they are in the same boat there. but the banking sector is still a big problem. danae: yes, absolutely. this is about the general reforms we are seeing at the euro area level. banking unions, strengthening the architecture of the monetary union, we have seen some proposals by micron and merkel but they're also facing domestic constraints in terms of their political capital and how far they can go with reforms. there are still very big differences in the euro area in terms of how to proceed. we have a lot of changes in key positions in europe over who will be the next president of the commission, who will be the next president of the european central bank, so all of these internal politics, which country gets what and who gets their way , how far do we go with reforms?

i finance minister, a common budget, what with the new architecture be. there's a lot of politics going on there. this will have an important impact on the banking sector as well. matt: all of that weighing to some extent on the euro. we will talk about that. -- viraj and danae will stay with us. a lot more to go through. brexit. will england's unreliable boyfriend stick around? mark carney telling lawmakers he's had talks about extending his term again. he will discuss. this is bloomberg. ♪

matt: economics, politics, finance. this is "bloomberg surveillance." i'm matt miller in berlin.

argentina's central bank has published a survey showing the country's economic outlook deteriorated significantly last month amid a renewed currency crisis. progress have made with argentine leaders. and his allies attacked this into to be published book by legendary investigative journalist, bob woodward. the book portrays the president as a mercurial and active buyer -- inept buyer. trump tweeted it has already been accredited and contained fraudulent quotes. in japan, regions around osaka are struggling to recover from damage the typhoon, which left nine people dead, hundreds of thousands of buildings without power.

the airport remains is shut today. it was the strongest tropical cyclone to come ashore in 25 years. global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. matt: thanks very much. we are looking at some u.k. data coming across that is expected to show a continuation of a very dire set of figures. we're looking at the pmi numbers coming out right now with services at 54.3%. 53.9%.vey was for the composite pmi just came out

54.2%, also better than the survey of 54.0%. like the members were expected to be better than they were previously, and are actually better than they were expected, although still pretty dismal pmi situation in the u.k. speaking of, bank of england governor matt carney says he is open to extending his tenure for a second time to help the u.k. transition out of the eu next year. he is due to step down in june, which would just be three months after the planned exit of britain from the european union. i can't make the announcement on behalf of the government, but i'm willing to do whatever i can to support this process. i think we all know there is a lot on at the moment. the government has a lot on its plate at the moment.

i would expect this to be resolved relatively soon, but as i say, it is not for me to resolve. matt: let's get back to danae and viraj. carney you make of matt sticking around even longer, and why have only seen this affect sterling too much? reality is that personal changes of the bank of england won't necessarily change the dynamics for either u.k. assets or the pound. it is not a bad thing, but equally, it's no reason for the u.k. market to rally. you take thatn back and actually look at the key driver for u.k. assets. it is going to be brexit. i think that is by default as well as central bank policies. i think these small headline noise won't filter in two sterling, but equally -- to

sterling, legally it is not a bad thing. matt: ali concerned of, we have gotten so much more of a hard brexit. even angela merkel has signaled that is a possibility. wire we still at 128. 17? viraj: the theory is that the stream of news will be negative sterling, but a lot of bad news has already pressed into the currency. i think my advice to investors is to stay nimble here. there is great opportunity to the upside, especially if one still believes that at the end of the day, this idea of a hard brexit will ultimately be avoided. we still have a 140 handle in cable at some point at the end of the year. that is all predicated on things being ok for the u.k. economy and brexit. equally, that is too early to strategically be answering.

danae, we just have the economic data out. it was better than expected, but it has been pretty weak of late. how do you evaluate the u.k. economy heading into the end of the year here? danae: it's positive that we had the data with the appeal pmi, but it is still in a weak position. i think the outlook is generally week to the u.k. economy. i think it is important that there is a voice that is stable, that has leadership. i think it is good news if he stays on. we have heard that theresa may is also perhaps supporting this. we will hear in terms of whether that actually happens. thinkms of the timing, i three months after brexit would have been a very turbulent. period, but

equally, if he stays on for another year, that will still be within a transition window. there will never be a good time to have that transition. i think right now, you don't have a successor announced, which would make carney a lame-duck and would weaken his influence and power. the treasury does need an ally in favor of a soft brexit. a hard brexit or no deal is really the risk for the u.k. economy. that is to be avoided, i think having carney there is a strong void can count on that is good. matt: in my reading it right when i see the possibility of a hard brexit has increased over the past weeks and months? danae: definitely. as we are getting closer to the deadline and we see no progress in the negotiations, the risk of a hard brexit is getting higher and higher. i think it is also the fact that europe is quite insular at the moment.

brexit is not its main priority. it is something that does take time, and we haven't seen enough progress at this stage given how close the deadline is. businesses and banks are making contingency plans as well. they can't wait much longer to have a definite answer of what form brexit will take. i think the conference coming up will be important in us getting more clarity, but there's also a lot of distraction for u.k. politicians in terms of the internal politics. there is a lot of distraction, other factors, and we are getting close to the deadline. matt: thanks so much for your time. danae and viraj, appreciate your time. saudi arabia stock exchange is introducing derivative plans next year. that is coming as an opportunity

to diversify. manus spoke to a ceo. on launchingcused the directives market. futures being traded on the first half of 2019, comp lamented with the traded index. manus: saudi arabia is in a hurry. how much will this bolster business? khalid: we believe we have lost in the previous years. we want to make sure we are competing regionally and internationally. we are the largest exchange in the middle east. we're the largest economy as well. we think we have the infrastructure for investors.

we anticipate for the volume to become -- manus: the big news is around this aramco. what is the impact on sentiment in the market if the aramco ipo is delayed? khalid: as an exchange, we continue to proceed as planned. today's announcement is just a reflection of that. aramco would be an addition. believe, as one of the largest emerging markets in the world, one of the top 25 exchanges in the world, we have the right environment for success. we will continue to develop markets. aramco will be in addition to a we have. manus: you hope the aramco will come to market? khalid: we are certain aramco

will join the market. that was the ceo of tadawul. theext, amazon joins trillion dollar club. we will talk about that historic milestone next. this is bloomberg. ♪

matt: you are watching "bloomberg surveillance." i'm matt miller in berlin for francine lacqua. let's take a look at what is

going on in markets with the dmn screen on the bloomberg. just showing us the big moves in asia. the indonesia index: moving down. the black box means it is a more than 3% deviation away. there he severe move. also showingg seng a drop of 2% in may men china was also pretty rough. let's take a look at sovereign bonds. there is a shocking site i don't think i have ever seen on the gmm screen. we have everything on the first page of this column on sovereign bonds down three standard deviations are more. you see it across emerging markets from malaysia to peru. down at the bottom of the screen, we also see brazil and indonesia.

a lot of big movement in markets due to this spread of an emerging market turmoil in markets.let's also roundup some of the big tech stories because we have hit a milestone there. amazon has joined apple in the trillion dollar club. the company's share gain enough yesterday to briefly push its market value passed the $1 trillion mark. meanwhile, google is heading into a showdown with the u.s. congress as executives are set to testify. joining us now is alex webb, bloomberg opinion tech columnist. what are we expecting, and how much of a problem is is going to be for the big internet cap -- platforms? with google, we are not really expecting anything because they are probably not going to show up. the senate intelligence committee demanded that they turn up. they offered ken walker, the chief legal counsel, and the

committee wasn't happy with that. we are going to see sheryl sandberg, the facebook chief operating officer and the twitter ceo will be there. they key is not to offer a soundbite which will come back to hot them. them.e seen -- haunt we have seen to hearings on capitol hill so far. they did not perform very well and that was in the headlines the next day. in april, we had mark zuckerberg. he managed to perform quite well, but equally, the questions he was posed or not quite good. the headlines that they were that lawmakers were not very smart. this time, it is sort of one all and we will see ultimately who is better prepared going into the session. matt: let's talk on amazon as well briefly because this is a company, at least with a ceo and wapo has been in a fight with

president donald trump for over a year. it doesn't seem to have stopped it from growing. alex: no. ultimately, investors are looking at the business. equally, it is growing and it's profitable areas, such as web services. this thing is kind of astonishing, because apple when they reached one toy in dollars, they paid $274 billion over the past it six years in terms of dividends and buybacks. amazon reinvests all the money it has, apart from a very narrow net profit margin into the business. it is that which is giving investors confidence, trading at about 200 times the 12 month earnings. there are huge amounts of optimism surrounding amazon.far more so than other big tech giants . matt: alex, thanks for joining

us. alex talking about google and amazon. by the way, with amazon up bust, younce the.com can also see the ceo becoming the richest man in the world. jeff bezos now worth $167.7 billion. up next, nike's big bet on colin kaepernick. the sportswear giant maker and activist join forces. the former 49ers quarterback, who now doesn't have a contract in the nfl, does it still have the backing of nike and its ad protests,drawing praise and a comment from president trump. this is bloomberg. ♪ this is bloomberg. ♪

matt: economics, finance, politics. this is "bloomberg surveillance."

i'm matt miller in berlin for francine lacqua. the latest episode of leaders with locke was, speaking of lacqua -- leaders with airs tonight. howstarted by asking him running a sports team is different than other types of business. play a big role in football. you have to take account of it because the fans want your team to win always and don't care very much about results, your economic results. this creates a discrepancy between expectation of fans and shareholders. francine: does it mean that italian football is back? so.o: i really think italian football has been losing ground in the last 10 years. the best example of this losing ground has been that italy

didn't play the world cup, which has been the first time since 50 years or more. have a prestigious hedge fund buying milan would make a difference. francine: what would it be for elliott's strategy going forward. are they looking to find an owner and sell it? since it guess is that is a hedge fund, one day they would dispose of milan, sending milan to dubai, probably. they looking to make a profit at the end of the day. needine: does ac milan someone like that to be back in business? we now have a player who -like.aldo'

francine: but he is not run although. do -- rinaldo. do you think you will have more acquisitions? aulo: there is no doubt the team a stronger and younger than last year. on top of that, we have with us a legend for milan. set to bring milan back to where it it should have been in the last few years. matt: you can watch the full interview on "leadesrers with lacqua" tonight. nike shares ended yesterday's session down by more than 3%. that is as critics of its decision to hire colin kaepernick for a just do it add

to the social media to call for a boycott of the company. nike received more than $40 million media exposure in the ad's first 24 hours for free. for more, we are joined by jackie simmons. thanks for joining us. first of all, tell us how this decision was calculated by nike. is a look like something they did because they just thought it was the right thing to do, or do they want this free advertising and realize this kind of drama can sort of boosted the image of the company? it is fair tok say they know who their customers are. they know that two thirds of their customers, for example, are under 35. they know that they are very ethnically diverse. i think it was a very calculated decision. i think it was strategic,

thought out. it's bold. i think he gets them back on the map and away. we have not seen them on the map the decades it is creating a huge amount of buzz. ist: as you point out, this their customer base. this is the right move for them to make for the people buying their products. i'm guessing the people buying rival sportswear company's products as well. what are the implications for nike's rivals? jackie: we have seen rival companies tend to shirk away from taking a stand on politics, which this is largely seen as doing. wadingiting into -- into uncomfortable territory. companies have sort of danced around the edges of taking a

stand on very volatile and politically charged messaging right now. it is quite unusual and bold for nike to sort of wade into that territory with this kind of bad. matt:. a, thanks very much for joining us. -- jackie, thanks very much for joining us on a story i think has touched a lot of people around the world. you have seen a flurry of activity on social media as a result of this. a lot of people don't even know that this campaign started with serena williams a week ago. colin kaepernick really making it into global news. "bloomberg surveillance." continues after this. ♪

tom: this morning, the route in

emerging markets continues. argentinain china and and triage in the global outcomes of trump policy. the indian rupee weakens across nine at the last 18 days. pandemonium, mob rule, a charade and mockery. street, storage in a time of scale. good morning, everyone. i'm "bloomberg surveillance." moving her son off to school. i'm off tomorrow to move offspring off to school. nobody in emerging markets is doing that. they are focused on another day of weaker data. guy: absolutely.

the dollar is up again. that is the theme that is rolling around the markets at the moment. the dollar continues to be the dominant force it has been. it is trading up again. it is farmer again this morning. bad news for emerging markets. you have a week euro. the dollar is where it is at. tom: i agree. the distinction is mexico was weaker as well. it rolls over into the equity markets as well. we will do a complete data check here and we are thrilled to bring you alberto in a number of minutes. first word news, here is taylor riggs. taylor: south africa's government is coming out with a stimulus and reform package to revive an economy that has gone into recession. details will come out next week. this caught south african officials by surprise.

>> it is different than we expected. we think we will slide into another -- warning itada is will dig in on key issues when nafta talks resume in washington today. prime minister justin trudeau says he would rather see the current deal killed them except that agreement. he said it must include anti-dumping kills currently in the treaty. president trump and his allies are annou -- denouncing a new book by bob woodward. his book portrays the president as mercurial, untruthful. his staff is seen as disdainful of the president. pompeo says pakistan must

do more to fight terrorism if it wants u.s. security assistance to resume. he spoke to reporters on his plane. he will speak with top leaders. economists are predicting that argentina is likely to go deeper into recession. they told the central bank that south america's second largest economy will shrink almost 2% this year while inflation will rise more than 40%. back in january, economists were protect -- projecting 3% growth for argentina. global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: thanks so much. equities, bonds, currencies, currencies, currencies. euro turning. oil up a bit over the past few days.

weaker yen. we have seen that the past couple of days. i threw in indian rupee. that is one place i am focused on. guy, i may be right or wrong on that, but i am looking at india this morning. guy: i think india is significant. data there is not as bad as maybe the ecbs project. iran down 1.5% against the u.s. dollar. you mentioned the turkish lira. . -- that is down again. we talk, you talked about euro-dollar. the euro is down versus the dollar but up versus the british pound. we had data earlier on that wasn't too bad.

at the moment, the eurozone economy is picking along nicely. let's go to this chart here. chart.n emerging markets i have shown a 14 times in the last 13 days. this is a pretty elegant chart. a new leg down, and we continue today. more than anything, i say this chart is more inflammatory than other charts. some other charts show maybe a little less carnage in em. guy: you have to wonder as well, in reality what the cross is. very few people have a mandate to trade argentina. increasingly, it is hard to trade south africa and certainly turkey. you have to wonder exactly what the kind of freedom across in all of this is. this is my bloomberg. what it is is a comparison

between the u.s. manufacturing still.credibly strong the data out of the u.s. economy remains better than good. it is really strong. normally, if the u.s. catches a cold, the rest of the world gets a flu. the u.s. economy is thundering along at the moment. yet you have the cm crisis emerging. crisis emerging. i think that is an interesting point to make. that data is not the entire story, but it is part of the story. we spoke to south africa's finance minister a short while ago. he says the rand will help protect the country from economic surprises. the rand is one of the most traded currencies in the emerging markets.

our hope is that our exports will be able to -- african finance minister spoke to matt miller a short while ago. for now, on the contagion risk, we are joined by a macro strategist. how important is what we are seeing in emerging markets right now? peso,e the argentinian nobody trades the argentinian peso. tom's point the indian the rand hard to trade.

how important is what we are seeing in emerging markets for the global economy? >> and investors have put money into emerging markets over the last few years because of very easy environment for my mental predictions -- environmental predictions. we are now starting to have conditions with the fed hiking. the debt and balances which caused the crisis 10 years ago is still there. the third most important difference is you have leaders that are convincing their electorates that growth can continue, that infrastructure spending it can continue. that they can reallocate land. you have polarization. think about president erdogan with infrastructure as 10% of gdp. the relocation of land in south africa. the brazil election where you have a right-wing and left-wing

potentially going into the second round. is whatlist trend provides an next a catalyst for these markets to reprice. --uations are still obviously in turkey and argentina, the weakest countries from a current account point of view, valuations elsewhere in the em world are still around long-term averages. we don't think this is over, especially on the bond side. neil is concerned. he thinks turkey or something like turkey could be a spark that feeds back into the u.s. economy, which is roaring ahead at the moment. does what goes on in em stay in em, or does it start to bleed into other economies? >> it tends to have been every now and then and tend to emerge every time there seems to be

turmoil in emerging markets. we have to look into the linkage. on the one hand, we have the contagion channel, which probably takes more to be disturbed. then, you have direct linkages either for the banking system or through central exposure. that doesn't seem to be particularly large at the moment. on the other hand, this remark from alberto earlier, the third for yield in the past has actually generated significant influence into the emerging markets. as this unwinds, it is normal to see the tension and emerging markets extend. even the discernible direct linkages are not particularly large. tom: alberto, i want to go into what you just mentioned. over into bonds. let me bring up where you go

when you have a weaker currency. in this case, it happens to be turkish lira. a chart we have shown many times, which is the bonds within turkey. appeared twentysomething percent. you can see this huge move in their dollar-based yield, up to 9.60%, breaking out to new highs. is this all acting in a normal way, or is there something distinctive and different this time, the linkage between fx, yield and inflation expectations? alberto: turkey is a case of private debt overhang. government debt in turkey is not very high. private debt, especially foreign currency is very high at the corporate level, including sme's, which in turn spills over to the banks. president'ser, the

strategy over the last year has been to boost infrastructure and construction investment with bank lending and also a lower interest rate for domestic firms. what the central bank and turkey has not been doing is they have not been hiking rates. forward inflation is above 20% now. it is being let go much higher. normally, you would say that currency depreciation environment, experts would help you. the reality is that in most of these crisis, eventually, you need to hike rates. you also will have to reduce the current account deficit i counting imports -- by counting imports by large amounts between one quarter and three quarters. you have to go through a lot of political pain as you count imports and reduce the current

account deficit. that is what a lot of regimes, political regimes in emerging markets don't want to do. which is why things could get worse before they get better. guy: alberto is going to stick around. lefteris is also going to stick around. coming up, and his goose of interview with frank. this is a conversation you don't want to mess a little after 6:30 a.m. in new york. this is a company that makes an awful lot of cars in mexico. looking forward to talking to him, coming up to run bloomberg. here onon bloomberg -- bloomberg. ♪

taylor: this is "bloomberg surveillance." buyer once a said earnings would be lower than projected. company's first forecast since the acquisition fell short of investment. bayer says profits will come up short. president is criticizing nike for sending what he calls a terrible message. the company has released an ad featuring colin kaepernick who is suing the nfl for allegedly blacklisting him after he began blacklisting him for any lingering the national anthem. the company did say that americans have the freedom to do certain things others think you shouldn't do. tom: another day of em

festivities. we're thrilled to have lefteris and alberta with us. -- alberto with us. where in em can i find safety? where does ubs believe there is equity opportunity given the turmoil? lefteris: you would have to look into places where fundamentals are slow and linkages are not particularly extreme with those countries under stress or with where we have seen typically the exposure and the correlation with a spike in u.s. rates, for example, is extreme. whenever moves tend to be very correlated, there seems to be no easy place to go there.

the focus should be on fundamentals. tom: what is your to do list, alberto. i know your claim to fame is the albertowhat is prescription to take advantage of this idiosyncrasies over the contagion moment? alberto: i think the initial reaction from investors has been, let's go out of turkey in argentina.let's go into safer emerging markets . the reality is there is still a lot of weak countries with flow in balances. current accounts, fiscal deficits, and stock and balances of debt.for example , turkey and argentina have already shown a lot of weakness. we think brazil into elections and also south africa are the next two vulnerable countries within emerging markets, both from currency but also a credit spread point of view. among the countries that we still like is mexico, which in our view will reach a solution on nafta and is more closely

link to the u.s. economy and where valuations have already lot.ened a generally speaking, the larger question here is china and trade wars, and were asia will join the weakness, and what will be the chinese response to the weakness in em and the trade wars as we go into midterm elections. we don't think we're going to see a sharp rebound across p.m. risk. -- em risk until that happens. tom: alberto with us as well as lefteris. we are going to come back in touch on italy where alberto spends a fair amount of time. coming up, this is usually the e kickoff to the business season. john.l talk with this is bloomberg. ♪

guy: welcome back. 23 minutes past the hour. tom keene in new york, guy johnson in london in for francine. let's talk about what is happening and this speaks to the concerned that the world has about what is happening with the italian budget. he says the budget low will keep italy's finances in order. this is a sort of downgrading of fears and the anti-and story.

still with us, alberto and lefteris. white only comment on those? do you agree with him, is he going to get this budget to stick? curiously, italy is one country where you have a right-wing populist and a left wing populist in-line together. with they have done is absolutely nothing. they have proposed and promised people less tax and a universal income. they realize that they can't do anything. with think the budget fears are a bit overdone. the market expectation moved deficit, we think the budget will be more contained below 3%. there is a lot of shorts in europe.weshorts in

think there could be a squeeze of these shorts. we have been wary of btp's in the past, but into the budget, we think the shorts are a bit overdone. obviously, there are other issues that europe will face. there is a to em across european economies, but the data you are seeing is not bad. it has actually improved over the last few months. europe is doing better while the u.s. is showing a small slow down. there is a gap in valuations. europe looks cheap, not in equities, but in credit. you have yields of high single digits across all european credit. tom: let us continue. lefteris and alberto. i really want to emphasis, guy johnson as a look at e.m. moving forward, that it is beginning to filter over. we see it within mexico and canadian dollar as well. mexico has moved remarkably over

the last two days. guy: i'm going to be curious to see exactly what the cfo of volkswagen have to say about this deal being done potentially with of the white house. we restart the canada talks. looks makes an awful lot of cars down in mexico. we are going to talk to the cfo a little bit later on. tom: exactly said. it is not only a german interview, but an american interview as well. interestingthe most petro companies in america.the chief executive officer and conversation with alix steel in a 6:00 hour. please is with us on the emerging markets. this is bloomberg. ♪

tom: "bloomberg surveillance." guy johnson in london and i'm tom keene in new york. fairly calm markets is set for

em. it is for digits because it is "bloomberg surveillance." the important conversation mr. miller had with the finance minister. this is three days in a row. the indian rupee out to a near 72 print. that is remarkable. tell me what you see in mexican peso. pick it up here on these equity markets. today is is happened from a have seen a shift big foreign-exchange story into much more of an equity story. it's interesting because you have migration that's going to continue. that seems to be the narrative that we have watched over the last 24 hours. you saw a real weakness overnight out of asia that set into the european story this morning. this is again all driven by what is happening with the buck.

at exactly the same time yesterday, i saw the same sort of news. the dollar got a bid. the weakness is coming into that. it's a dollar story, but it's becoming an equity story as well. tom: dow futures at -123. with first word news, here's taylor riggs. taylor: members of the senate judiciary committee get a chance to question brett kavanaugh today feared the opening t the high said tha n institution.be a there was a stunning upset and the massachusetts democratic national primary. boston city council beat 10 term congressman michael.

there's no republican on the republican ballot, assuring that she will be the first black woman to represent congress. they could sit a compass iran's president. iran could response if they want to. president trump told bloomberg that iran's rad regime may collapse because of policy. msci will launch a joint tradable index. there is concern that the saudi market has lost some appeal with the delay of the aramco ipo. manus cranny spoke with the exchanges ceo. >> we have the right environment for success and what to do with global markets.

aramco will be in addition to what we have. >> aramco will come to market? >> aramco will join the market. taylor: global news 24 hours a day on air and on twitter powered by 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: guy johnson in london and i'm tom keene in new york. our conversation with stephanie baker, bloomberg senior writer. we could go to hours on what's going on in washington with the back-and-forth. has nothington post" one but two columns on bob woodward on the front page with his new book. woodward ony of bob presidential gossip and conversation and the timeline. at the same time, we've got may mueller here and

there. your expertise is on the process that gets the special counsel/ do you as. do you expect something from mueller soon? we had reports overnight that mueller is looking to get in written answers to questions on the whole issue of russian collusion , but he has not ruled out pushing ahead for a sit down interview with trump on the whole issue of obstruction of justice. i think this is his attempt to keep front talking and move the investigation on and avoid a lengthy battle that could drag on well into next year. for the moment come i doubt we will see anything huge until the midterms. tom: i thought of you as well. would you explain why a special investigator and special counsel

is worried about the calendar of the midterm? his job is to do his job, right? stephanie: yes, but i think there is a long-standing justice to not comeradition out with major investigations or actions on major investigations that could influence a political campaign. i think what we are expecting is that perhaps there will be calmly out of the special counsel's office, but nothing major on collusion ahead of the midterm. tom: you're globally known as someone who follows the money. on your beliefte that what all of washington is talking about is just following millions of dollars from here to there, from point a to point b. belief an update on the

that this is just about following millions of dollars. following obviously the money has led them to various indictments. for instance, michael: and his plea deal -- that was all about following the money. trumpst that they have chief financial officer, the one running his trust and the trump organization with his two sons, is significant. we do not know the scope of his cooperation and how much he might disclose. robert mueller has run a very there's been very few leaks. we don't know to what extent he's looking at perhaps trump's previous dealings with russia, russian investors, and all those properties, or how much he is

focusing on of structure. the challenge we face as journalists is that he is not leaking. we do know he is following the money. whether there will be indictments on that remains unclear. guy: good morning. is it possible that the caught offhite house was guard by the woodward book? stephanie: it looks like they are scrambling and they have pushed out various statements. responding to the allegations of this book, trying to discredit bob woodward. they are facing an uphill battle. unlike other books that have come out on trump from michael ,olff or oh marissa newman terry hard to discredit bob woodward given his long history covering washington politics and white houses under different political parties, breaking the watergate investigation. he's a polluted for a's winter

and has written books on democratic presidents as well as republicans that were hard-hitting, . unlike other books, if there were certain scenes from his book that were challenging denied, the overall message rings true. remember -- there's one particular anecdote in that book where chief of staff john kelly is said to call trump an idiot. that was previously reported by nbc. overall, i think the book rings true and is quite accurate, as frightening as it might be. guy: the narrative seems to be of one of a president that is incredibly isolated and frustrated. in a world where financial markets are driven by trump tweets, how should financial market participants interpret the book and so much we spent

time thinking about and responding to those tweets? stephanie: it doesn't hit the picture of a white house that is chaotic with trump operating on his own. the tweets -- maybe we should be discounting those tweets knowing that he is surrounded by people in the white house who are trying to rein him in on various issues. he has painted a picture of a lighthouse at war with itself and that trump is surrounded by a circle of advisers who are trying to protect the country from trump himself. tom: stephanie, thank you so much. it struggled to get through 18 themes today, but she always provides wisdom. stephanie baker is our bloomberg senior writer. is ubs and the global macro strategist. economics, give us

a trade update. can you link decisively trump trade policy into a new form of global slowdown? interesting and what our analysis has shown is that the first order effect from trade measures as announced so far are not massive or even significant by any measure. what is uncertain and what can bite a lot more is the confidence affects, which can be more systemic or widespread. from that standpoint, and the announcement that points not to an escalation of trade support aan therefore number of views that we have had. we have been long on the dollar for a while. it has suffered through the european slowdown so easing tensions through e.m. for example or less acute trade

tensions should help that position. it should also help currencies that have suffered the most from trade tensions. this is cutie and less of the canadian dollar because of the other commodities. clearly trade is behind this -- wholeerability vulnerability. there can be some relief there. guy: i want to talk about the dax. the economy is highly exposed to global trade. we certainly love that in 2007. the dax continues to underperform. it is down 6.5% so far this year. you look at the german data at the moment. this is not -- there's a bit of a divergence there. , the em the trade story story work its way to develop markets?

thehis the channel or conduit by which some of the stuff gets priced in and starts to ripple out? lefteris: equity markets reflect basically two things -- sentiment and economic linkage. economic linkage is significant through the asian economies. that said, the european data has been generally ok. but it has come off from very high levels of the beginning of the year. this is what has hurt the most. it has taken a step back and offered some sort of traditional recommendation, but it has not been particularly -- it has not managed to inflate equity markets in particular since a number of other confounding factors have entered the fray. clearly you need some sort of relief there in order for german equities and particular to rebound more strongly. there's the important issue have been tallying rates.

-- italian rates because it does introduce a rate in europe. it should be more encouraging over the last few days. guy: you have risk on the sidelines as well. thank you for seeing us this morning. he's going to be sticking around. plenty more still to come. this is bloomberg. ♪

guy: welcome. guy johnson in london and tom keene in new york. francine lacqua has the day off. alberta, i think today is the day where the confrontation on of $200 billion additional tariffs comes to an end in washington. are also a day where we really engaging the canada story in china get a deal done there. canada, china. withu can't do a deal canada, what hope have you got a deal with china? as an investor, do i need to realistically price in those $200 billion that is something that is going to become a reality? alberto: i think you have to and

we need to think about the playbook of populism here. populists create an enemy. they portray an enemy to their electric. -- their electo rate. it could be china or the you. eu. in the case of the u.s., you have factors that can produce the same goods, which are today imported by china. you increased demand for u.s. goods in round one. the problem of round two is that you have a confidence effect. round three could be a global trade war. before you get there, you get more votes. of perpetuate the dream rebuilding america's industrial past of re-creating jobs in the u.s.. china so far has had a muted response to the u.s. and weaponization of the dollar and to all the sanctions that the u.s. has been activating around

the world -- on trade and on banks. this is a negative for the u.s., both because you can have a stronger retaliation and more depreciation in remnibi. unfortunately the incentive for the u.s. administration is to continue down the trade war path. guy: that will come after the midterms in the midterms are coming. i'm wondering when they pull the trigger on the $200 billion because that's an escalation of significant magnitude. you can obviously increase the tariffs, but post tariffs are most everything you can.

the next steps are harsher. steps are effectively sanctions, but i don't think we are going to get there. the key question is the chinese response. china is on a slowdown. they are doing a bit of fiscal wheneverary stimulus the economy slows down a little bit more. we are not too worried about china itself. the issue is the economies that have provided china with metals and resources and commodities australia.africa our exampl those will be in a much weaker position. the idea ofbout currency with fixed income and with inflation as well. does that same framework work theirina or do they have own rulebook given their economy and their politics? their ownhey have because in china, if you think about the balance sheet, you definitely have an overhang of private debt.

banks could be between 10% to 50% of loans, which translates to something between $1 trillion to $1.5 trillion. normally in a free market economy, this is a problem. let's remember that china has $23 trillion of private savings. these private savings including government pension funds can be used to prop up domestic markets and domestic lending. the readjustment process is not as violent as the emerging market where you have hard currency liabilities and you depend on funding like in turkey or argentina or other emerging markets that need funding. china has a very large stock of private savings, even using just 5% of that can help them to kick the can for another three years. tom: that's right where i wanted to go. we will talk about that here in a bit on the delay that could be

had by some of these nations given emerging markets. alberto, thanks for joining us. briefingr your morning -- g tv for your morning briefing. og e.m.ut law th fx? they are all there for you. this is bloomberg could . ♪

guy: welcome. groundedres are more premarket after closing at their lowest level in three months. her sadie's unveiling its first battery-powered really vehicles. they will start production in the first half of next year. alex webb joins us on set. we finally have reached potential he peaked tesla. alex: i'm always scared about calling the peak. the stock is at the lowest since may and it probably still has upside. the the fact is that with production problems it is putting up 5000 cars a week now, but the hammer starting to drop.

you have dimer coming out with a mercedes e qc. not $150,000. it will start arriving next year. it's going to come from existing production lines. suggesting they will have the same problems as tesla has had in the past. guy: tesla is not just about making cars. there's a self driving stuff and everything i goes with it. this pours water on that. alex: if you look at general motors, they have sold the stake in the acquisition that they made years ago that highlighted the value of the business. we have seen estimates that suggesting that the alphabet car business is worth $170 billion. morgan stanley yesterday coming out saying that tesla will be lucky if it's a 10th of that value. it's a reflection of how poorly

the technology is advancing when it comes to the cars and the majority of the value is still not electric peace. tom: thank you so much on tesla this morning. coming up in the next hour, we will look at emerging-market currencies. mexico really moving as well. an important conversation with the american auto manufacturer frank witter. he's chief financial officer of volkswagen of the carolinas. stay with us for that in the 6:00 hour. we will leadoff with indian rupee today. the turkish lira up to a 6.70 as well. stay with us. this is bloomberg. ♪

tom: this morning, the route in the emerging markets continues.

of august could become the weakness of september. argentina in triage. the outcome of trump trade policy. the indian rupee weakens over nine of the last 15 days. in-laws, pandemonium, mob rules, i say. kavanaughaits of the festivities. good morning everyone. this is bloomberg surveillance. i am tom keene in london. guy johnson with me. what are you looking at on the bloomberg terminal? by mark cudmore. the move in the rand is

excessive. it does not fit with the fundamentals. is questioning my traders are selling it as aggressively as they are. erdogan hasresident udi.eared -- has declared do the fundamental stack up? an interesting comment on bloomberg. tom: i'm looking at mexican peso decidedly weaker in the last 24 hours. right now with first word news, taylor riggs. it will dig inng on key issues when nafta talks resumed today. justin trudeau said he would see the deal killed than be forced to accept a bad agreement. mustsists a new nafta include antidumping panels and a that accepts canadian

industries. president trump on the new book by bob woodward says it is a con on the public. his staff is seen as consumed by infighting. the japanese prime minister is promising the budget law will keep the country's finances in order. the tax and the guaranteed citizens income promised by the populist government. officials are looking for money to pay for it. officials have said they want to keep the deficit below the european union limit. government out with the stimulus and reform package to revive an economy in recession. details will come out next week. it caught south african officials i surprised. bloomberg spoke with the finance minister. loweracknowledge it was

than we expected. slide not think it would into another contraction, because the improvements were in sectors that did not deliver adequate growth. >> global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. thank you very much indeed. to some comments out of the u.k. which will affect the u.k. /european relationships with russia. the uk's counterterrorism police chief making the comments, the u.k. charging two men in connection with the poisoning case in salisbury. are charged with conspiracy to murder and the use of the nerve agent.

will only make relations between the u.k. and russia, europe and russia, the u.s. and russia, more difficult. to we are getting down individuals, and how russia responds will be an important test of relations between east and west. tom: i look at the headlines about sells very. explain for our global audience the fear the people of salisbury have this could happen again. is that tangible? guy: it did happen again. there were two subsequent cases of poisoning, two people found what they think was a bottle that may have contained the nerve agent in the first place. they were poison. one of them died as a result of this. the other survived. still very ill, and i think he contracted pneumonia in the last 24 hours. the fear is real.

hopefully it is being contained and they can get back to business in salisbury. no, it was a real and ongoing concern. remember, this is close to the biochemical weapons testing facility. it is a part of the world that is very aware of the risks. headlinestant through the day. let me get back to the data check. i will make this quick. futures -11. dow futures -120. weaker. yen 111.56. a 72 print. with guy, what do you have quickly? guy: some other numbers. concernrican rand, some

that this is an overdone position. significantlyning 1.6%. a thawing in the budget story in italy. dax is interesting. one bank may be objected later on. there is euro-sterling. the u.k. had some better data. tom: finishing strong and august. an essay on contagion, and all of a sudden here we are with some form of linkages between em currencies. how much linkage is there between south africa and argentina? havell, i don't think we rocking -- broken the spell. emerging markets are overdone.

you have to feel sorry or the south african and argentinian governments. argentina will get worse before it gets better, trying to get their fiscal deficit under control. we have seen south african gdp fall. -- agriculture was strong last year. i don't think argentina will stay in recession. the economy is not growing compared to the most important economy at the moment, the u.s., which had a strong isn number yesterday. it makes the search the of the federal reserve hiking in december, meaning king dollar. everything against it looks weak. tom: within king dollar is a policy. do you see a policy prescription that leads to stronger dollar? >> we know president trump

doesn't want the stronger dollar. the economy he will take credit on friday,e numbers again, the lead up to the midterms and the economy stoked by tax reforms. , the strength of the u.s. economy is outshining everything else, and that is why the areages in emerging markets uncontrollable. they have to get out. scenario,he atm whereby the good countries are getting out of emerging-market positions because they are gettingpositions because they ae getting redemptions and having to sell the things they have to sell. guy: neel kashkari minneapolis talking yesterday. he is by no means and the er of the distribution curve. he talked about the risk of the

emerging-market story derailing what has happened there. could be a spark in emerging markets like in turkey where the dollar and can certainty could trigger a crisis that could spillover globally into the u.s." is that a real risk? atit does not feel like it the moment. he is the first senior fed person to make these comments. the strengthening overrides all. that is why there is no risk bite for emerging markets and argentinapresence in has had such little impact, which is what scares me the most. the global savior is not able to correct an overreaction. so much.k you congratulations. we look forward to your next essay on contagion. mr. ashworth is with bloomberg opinion. those who do nafta,

talk nafta, and live canada. one has been one family, the distance from washington to a small village on the st. lawrence spillway. john taft has walked every mile. did you go to murray bay as a kid? of mypent every summer life starting with my first isthday in québec, which where president taft built a summer home. tom: a simple one. >> and talked about the morning air like champagne, fresh, crisp. he loved it there. tom: you have lived of this. you have been to niagara falls. with in been living minnesota. i want you to explain to our audience what happens if canada walks away from nafta.

nott is a major issue, just canada, the united states. canada is the single largest trading partner for businesses in the state of minnesota. there is a business lobby back home that is extremely concerned. tom: you and i have something in there is something about , iing on the northern border think so much of this debate over nafta is sanitized with people in texas who live on the mexican border, or people like you have lived on the canadian border. it has become sanitized. >> it has. what we are experiencing in the southwestern united states, the

canadians are experiencing in the northeastern part of the country, québec. of immigrantses and refugees coming across the border trying to get out of the u.s. restrictive immigration policy. if youicy in canada is, are there, you are their problem. guy: good morning. guy in london. i want to bring this from a u.k. perspective. , nore talking about brexit deal is better than a bad deal. you hear that line thrown around. do you think this is how the canadians are seeing this? >> you heard the prime minister say that. that is the case. we have a macro strategy group which believes that a lot of the posturing around trade, not just tariffs come but the nafta posturing is a commercial real estate developer from new york, his way of negotiating on trade,

and actually it had some success recently. i would think that cooler heads and rational minds will prevail and we will get an agreement that includes mexico and canada. let's talk about the worst case scenario. say a deal does not get done. what damage with that do to the canadian economy? how would that change the relationship with the u.s. economy?walk me through the tail risks . level ofe beyond my expertise. it is hard to predict and scenario play, but there would be dislocation that would be extremely damaging, not just to canada, but the u.s. if we are unable to renew an agreement on reasonable terms. guy:guy: broadening this out moe generally, when struggling to

get a deal between the u.s. and forda, u.s. and canada heavens sake. what are the chance for getting deals done elsewhere if that is the case? >> i think this is a major risk to the goldilocks moments we are it spirit sing -- are experiencing in the united ,tates, and it is a real risk but let's keep it in perspective. we have modeled out with the worst-case scenario on tariffs is going to be, which is one part of the trade negotiations billion dollars in negative drag on growth. billion ines to $800 positive stimulus from the stuff that the trump administration policy,through, fiscal repatriation of u.s. corporate profits, so a 10 to one stimulus-trade drag.

you can overstate the impact of trade on what is going on in the u.s. and our strong economic growth. tom: we will switch gears with john taft. books the most important of the financial crisis. stewardship. here is the stewardship, run like a brick wall into scale. abby johnson threw in the towel en banc management, fidelity for the free etf index funds. how does stewardship and responsibility and governance buttress against the new realities for need of scale? >> i have a contrarian view. we are seeing a lot of articles on the 10th anniversary of the lehman bank breakup, ground zero

for a lot of people, me included. at: a money market fund 1.00. >> there was the contagion risk. people were worried about the functioning of money markets. here is what i think. over the last 10 decades, and ironically as someone who wrote about stewardship failures contribute into the financial crisis, i think what we have done to reboot the u.s. economy since that time, what we have done to put the financial system on solid footing, safer, sound or, more secure than it has been in my lifetime, is a stewardship success story that we ought to be celebrating, not integrating. executives need to do to send that message. is aevery other year there debate with banking ceos, fancy guys like you, about the good they have done. >> there is a narrative in the

media that we cannot seem to -- tom: are you here to say it is fake news? >> i will not say fake news, but you talk about not able to imagine canada without nafta, imagine our system without the nafta sectors. it is integral to the united states. the media writes about it as if we are in evil, not a necessary good. i feel you have had three threeents, congress, treasury secretaries, fed chairman, market participants all act collectively as a societal entity to take us from where we were 10 years ago to today, overlay that over what happened in the great depression. it is night and day. we orchestrated an amazing recovery. guy: you sitting over there,

that is i'm sure how it feels like. it does not feel like that in europe. european banks have never recovered. some back of the envelope calculations, j.p. morgan is $387 billion. deutsche bank, ubs, credit suisse, socgen, unicredit, you don't get to half of what j.p. morgan is worth. europe has never recovered. how does europe to take the next step if we don't have a havecial that you cannot the advantages the u.s. did? >> you are right. the fact is europe has struggled coming out of the financial crisis makes this stewardship story in the u.s. even more remarkable. it sets it off in a more successful light.

one of the things we have been able to do is overlay extremely stimulative fiscal policy on top thate monetary policies the u.s. and europe both pursued. that is to say low interest rates and buying various fixed income securities over the last decade. more.s. came in dramatically than i ever thought would be the case and through hundreds of billions of dollars in stimulus at this problem of slow, lagging growth. near-term, that has been the difference between the recovery in the united states and what we have seen in europe. guy: great stuff. stick around. coming up, a conversation with frank witter, the volkswagen ceo

after 6:30 a.m. in new york, a 30 a.m. in london. this is bloomberg. ♪

in new york. keene an extraordinary event in american politics in the commonwealth of massachusetts last night. kevin cirilli joins us.

congressional district of massachusetts is the ultimate gerrymandered district south of salem, wraps around boston. the representative went down in flames. >> yes. the african-american city councilwoman defeating the services financial committee member in a remarkable defeat. seat once occupied by tip o'neill. it is a very historic seat. it is illustrative of something we have been talking about for months now, this tension a cancer the democratic establishment and designer for a , newoice, new generation type of democrat elected into the house. the land of in massachusetts come up to eight republicans within the state.

can that kind of upset, what we saw in new york, and now massachusetts, does that carry over to moderate states like the taft families ohio? unknown. the base of the democratic party if you talk to republican strategists, they will say the numbers would suggest the democratic base is motivated to get to the polls ahead of the election. in a hearingenergy room yesterday for judge kavanaugh's confirmation hearing. question on the hearings later on. is this going to be an empty chair where google was meant to be? >> there could be. there is a piece in the new york times about how these tech companies have refused to testify before the various analysts in congress. for sheryl sandberg, jack dorsey

, facebook and twitter, this is a big day. they will face more tough questions than what we saw in the house. tom: thank you so much. we look forward to the festivities in washington today. kevin cirilli, our chief washington correspondent. coming up, the chief executive officer of devon energy, the new geophysics of petroleum in america and our independence across the globe. please stay with us. guy johnson in bloom london. this is bloomberg. ♪ this isn't just any moving day.

this is moving day with the best in-home wifi experience and millions of wifi hotspots to help you stay connected. and this is moving day with reliable service appointments in a two-hour window so you're up and running in no time. show me decorating shows.

this is staying connected with xfinity to make moving... simple. easy. awesome. stay connected while you move with the best wifi experience and two-hour appointment windows. click, call or visit a store today. designed to save you money. wireless network whether you use your phone to get fit. to find meaningful, thoughtful, slightly-weird gifts. or just to know which way you're facing right now. however you use it, your wireless bill is about to cost a whole lot less. ask how you get xfinity mobile included with your xfinity internet. so you just pay for data -- by the gig or unlimited. saving you hundreds of dollars a year. plus, get $300 back when you buy a new smartphone. xfinity mobile. it's simple. easy. awesome. click, call or visit a store today. tom: good morning everyone. it is september. in less conferences. commodities at

barclays energy power conference. an early september must attend. darkening the door is alix steel with an interview. good morning. .> think you could. i'm here with dave hager, the ceo of devon energy. the best place when it comes to shale like oklahoma and the delaware basin in taxes, good to see you. i want to start macro. is about the emerging markets selloff. hot view it see that affecting global oil demand? >> we think there's going to be growth in the demand. years, slight issue today, absolutely. overall, we see growth being strong. feel toensitive do you

prices and the price sensitivity of emerging markets? >> you have to understand fundamentally we a star budget on $50 oil and three dollar natural gas. we run a disciplined is miss from that standpoint. , due too up, down issues like this quite frequently. we work on long-term projects, so we can constantly adjust on issues like this. if we see a trend that could impact our program, we will adjust to, but smaller changes like this don't have any change in what we are trying to do. >> bigger changes from trade and trade agreements: mexico, maybe not canada, maybe not china. how does that affect where you send your oil and gas? a strong economy in

the u.s. and north america. that will impact demand. we would like to see some agreement mutually beneficial to everyone to keep the economy strong in these countries. impact, but some where we send or receive oil from is riven by is the demand there for that individual product and do we have agreements we can sell a product at a good price. >> you lose mexico and china, is there enough demand in other countries? >> that would have an impact. if china falls off, that would have an impact on global demand. mexico, from a natural gas standpoint. we are counting on growth. it is slow going, but beneficial. gases in the three dollar environment for a long time. >> mapping this to shale players

and risk. a few years ago, it was about i believe in shale, happy to give you money and wait for the free cash flow. macro, emerging markets, it feels risk-risk and now. what do you say to that? taking someon are of that risk out. we are developing a consistent program. we know the resources are there. are spending consistent amounts of capital in the ays int quality shale pl north america. it is growing cash flow, production, taking our cost structure down at the same time. we have paid deep inventory of projects we can execute. trend will be consistent for a longer time. we think that is what investors are looking for.

companies that can take the risk off as to going up or down so much and deliver consistent results over time. that is the company we have. >> an op-ed in the new york times yesterday comparing shale to the tech bubble, the era of free credit, low rates fueled this boom, and it will reverse and there could be this blowout. how do you respond to that? >> i disagree with that. >> no surprise. >> fundamentally the resource is there and we have figured out a way to get that resource out in an economic fashion. rates and thest search for yield has caused a lot of additional capital to come into private equity, this influence in the industry for them, and causing some inflated

prices frankly, that has taken place. that does not take away from the fundamental economics and that we can make a reasonable return at these prices by drilling horizontal wells, fracking, and producing oil and gas. that will continue. >> if you're living within cash flow and get extra money, what do you do with it? what is your priority? >> we developed a budget on $50 oil, three dollar natural gas. we are throwing off free cash. we will not adjust our plans. we are staying consistent plans. free cash flow is available to go to the shareholder. >> one for one. >> pretty much one for one. the priority is returning the cash to shareholders. >> some companies like

diamondback have used money to buy assets in the basin. i know you are divesting now. at what point would you be looking for more assets? >> we have a deep inventory. we don't have a need to replenish inventory. we are looking for something -- >> everyone wants the longest lateral. 10,000-footn drill rather than 5000-foot laterals, that makes sense. as far as large-scale acquisitions, we have a deep inventory. op-ed,oes fold into the in that there are so many players in the program -- the permian basin who have used low interest rates to be in business.

how many players will be in the permian basin now versus 5-10 years from now? say there are too many companies. consolidation would be helpful. we don't need all these management teams running around to develop the resource. a handful of companies have the technology that is needed to develop these resources efficiently. devon is one of those. we will be disciplined on the acquisition side. we will not overpay for an acquisition just because some company has acres and don't have the ability to develop it. consolidation should take place in a theoretical standpoint, but it is important to stay disciplined about how that consolidation takes rise. >> the jobs report on friday, the conversation is how much you

have to pay for labor and can you find workers. >> we absolutely can. >> do you pay more than before? >> not significantly. at the services we use, drilling rigs, frack cruise , it is more difficult for them to pay to acquire workers, but when you look at the cost of structure we have, without the additional efficiencies we have had, our cost structure for belling, completion, may percent or so this year, but we have been able to offset that with the efficiencies of how we drill our wells and complete our wells. wells with a more less amount of money this year than we did last year. >> for next year, or what is your biggest cost threat next year? >> drilling rigs going up somewhat.

pressure pumping stowing relatively flat. tubular is flat. devon has locked in our cost structure through 2019. we saw this coming, so we locked it in on the sand side. we are going to regional sand. we will be 75% regional sand this year. you cut out the transportation cost from transporting sand from wisconsin previously. to lower theg ways cost structure overall. >> the other big issue in the permian basin is the bottleneck and the differential from midland prices, blowing out as much as $20. schlumberger said they see significant auto next is hurting the flow in the permian basin. do you see that? >> we see that as an industry.

we have 90% of our oil locked into wti-type pricing. the overall price in the delaware basin for our oil, 98% of the vti in the previous quarter. we have it locked in through the whole year because we have transportation on the longhorn pipeline to the gulf coast, and wti.-basin swaps off we anticipated this coming. , soeceived the 98% of wti absolutely. is it an issue for the industry? it is. not for devon. >> thank you for joining me. the interview will be in my commodities show tomorrow. tom: we thank you so much. we turn to technology. david kirk actor joins us quickly on the phone. inre is a festivity

washington with technology today. are these the arrogant guys of silicon valley showing up on capitol hill? >> by that measure, it is a sober time. the biggest single message that jack dorsey and sheryl sandberg will be aiming to convey today will be contrition. in my opinion, humility is a word that ought to be used, but i don't think that is a word sheryl sandberg has much experience with. jack dorsey will probably show a little bit of fat, but they have to say, my gosh, we know we did not to a good job. we would do so much better now. tom: i have never heard it. what will change in these people that have class a, class b, class c shares.

they are running public offerings as a bolt on to private ownership. where is the humility? >> there is no humility, at least not at facebook. i think jack dorsey is a more humble person. i know them both. i like sheryl sandberg am a but she does not have the capacity to address the question why did this all happened. that is the question i hope the senators will ask. are hiring 20,000 people to do this and that. they have a i and it will be ai, and it019 -- will be sold by 2019. it is a crock. they are not solving it. the bad people are way ahead of them. it is because of the way they designed their systems and failed to implement controls.

they don't want to talk about that. the new york times article about libya about how facebook is being used by arms merchants and warlords to target other warlords. facebook has become weaponize. it has become a global weapon. the problem is they tried way too late because they did not see the up-and-coming. for what is different now the last zuckerberg appearance is the stock had been tumbling. it is a different scenario now. much more stability. does that change the way the company approaches this? >> yes, that is all they care about. i hate to say it. that is a sad thing to say. it has fastding is related as the stock price has vacillated. losttock is stable having

$120 billion. sitas 200 $17 before they growth and profitability were declining. they prepared for that. during the cambridge analytic a thing when the stock tumbled and they were taken by surprise, they got worried, contrite, and humble. meetingse all kinds of , but as soon as the stock went back up, those meetings ended. kirkpatrick, author of the facebook effect. john taft on the desk here. this goes to the heart and soul of your wonderful book, stewardship. these guys played by a different rule. that,a, class the, this, are these guys migrating towards traditional corporate responsibility? graphic is a great

developed by a guy called william brendel. is an iceberg from a classic above the water, below the water. above the water is conscious behavior, where we observed the behavior of corporations. below the line, the water, is dna, thethe unseen culture, the values. tom: what is the dna out of the left coast on america? >> it varies from organization to organization. tom: fair, fair. ethicalhen you look at lapses and corporate america, it is because of the culture, the dna, the eco-of the company below the waterline. -- the ethos of the company below the waterline. that's what you heard our previous guest talk about. guy: is europe right to

--ulate, put tight privacy protect privacy come at that companies need closer supervision? >> absolutely. there is an appropriate role for regulation in the -- in every sector of the economy. there is no script for what kind of regulation makes sense under what circumstances. we have seen that change and morph in the financial sector. we are in uncharted waters thinking through the issues caused by these technology companies, and a regulatory response is appropriate. it has to be thoughtful and what kind of response makes sense. guy: should these companies be broken up? >> i don't think it has gone that far. i think the end of the technology sector to has driven a lot of the economic growth we

have enjoyed over the last decade, certainly, and i would hate to see facebook, google, apple, any company treated like a utility. that would be a major policy mistake, not that we haven't seen that before. guy: what is the nearest comparison in history? you look at the telco companies and the power they had. is there anything from history that rhymes with what we are seeing now? is the historian here. -- when myo win mike great-grandfather and teddy roosevelt were running the country there was a huge movement that had to do with regulating some of the major monopolies or oligopolies in that time. i think we can draw some lessons from that time. the i want to go back to

one question on avenue b johnson and the no fees for bond management. where is the profitability of wall street going to be? we all going to roll up in one firm? >> i hope not. what you are seeing their you are seeing across the entire wealth management is news. it investment advice. the picking of stocks. allocation. all those investment services that clients use to pay for are being driven to zero. they are being commoditized to zero. what is replacing that? more holistic types of advice. helping clients think not about the performance of their portfolios versus a benchmark him about what goals to they have and what kind of outcomes do they want, where do they want to be in their lives, and helping them to achieve their goals. that holistic advice is

something deeper willing to pay for and the businesses going away from investment management. tom: thank you very much. guy: thank you. volkswagen gearing up for a titanic effort. the german car manufacturer warned last month its 2018 plans are at risk from higher import tariffs from around the globe, on top of stricter emission rules. joining us is the cfo of volkswagen good morning. tonk you for taking the time come see us. let me start off with trade. in make a lot of cars mexico. what you think of the trade deal between the u.s. and mexico? >> having an agreement is important. we need reliable conditions.

we don't know all the details of that agreement. we know canada is supposedly coming to terms. progress, butn stability is what our industry needs. we appreciate any move towards an agreement which is the basis and foundation for our business in the region. guy: do you think it will affect supply chains? give us a sense of what you are planning. >> we need to make adjustments, but we have a footprint. we just recently opened a factory for audi in mexico. we have some flexibility with chattanooga, but we cannot change overnight the foot rent. we understand the necessary changes can be done in a reasonable time to comply with the agreement. i want to caution. we don't know all details. nothing is finalized, but the direction seems to be within scope. thatlet's switch gear, now

-- there was a report you were the tesla or heart of go private plan. is there any truth to that? were you approached or involved? >> i heard the rumors too. we were not part of the discussions. guy: have we reached, tesla has been an amazing story. it has quite literally electrify the car sector. i remember elon musk telling me his emphasis was getting german engineers to get their act together when it comes to electrification. half we now achieved that? have we reached peak tesla? is peak tesla now behind us? >> i don't know.

we have a lot of respect for elon musk. they changed the thinking in the industry. they have been the benchmark. they will overcome the problems they have in terms of ramping up production. we take them as a serious competitor. we are very excited about the launch of vehicles next year, and the next big issue is with variousvolume products. this is the wave of electrification. --have something to alter all for that will be very convincing. we look at every competitor. we do look at tesla, but we focus on our strengths, and abilities, and locally most engineers stay with us. tom: you are the evil person , the president of the united

states think you are a bad person, stealing american jobs, and on and on. you have decades of work and financial management as well. what does mr. trump get most wrong about international manufacturing processes? >> i think he is asking for fairness. freenk we all rely on trade being the foundation for the progress we have made. i think we employ thousands of people in the united states. we have a huge dealer and supplier network. we ask for fair and reliable terms and conditions and hope we will overcome this uncertainty related to the dispute about the u.s. and europe, as well as china. im: a delicate question here, don't want to get you in trouble, why aren't american

cars sold in europe? fearis the big debate, the of well-made european ,utomobiles coming into america and the president wants american cars sold in europe. why aren't more american cars sold in europe? >> that is a delicate question. tom: agreed. >> at the end of the day, the customer decides. thinkt rank their -- there is discrimination there. some elements are being met, but at the end of the day we all have to convince the customer. if you look at the volkswagen performance, we agreed that volkswagen should do way better than a 2% market share in north america, so we have our own homework to be done, and that is what we are focusing on. at the end of the day, if you have a compelling brand and

soldct, that can also be in europe, and this is the homework the americans have to do, as much as volkswagen has to do the job right in the united states. soulsow many bodies and of do have in the united states? how many people are employed in the united states come all in, dealerships, on and on? number fromave that the top of my mind. these of thousands, but i don't have the exact number. if we take the indirect depending people, thousands of people are depending on the success of the volkswagen brands. , but not only volkswagen porsche, algae, and financial services. tom: would you say to those people in this nascent trade war? they have to go to work in america and pay american taxes,

and yet they are working at a company that is an evil company to the president of the united states? what do you say to your employees? we will convince the president of the united states that we are not evil. we pay our taxes. we employ american citizens. i have two family members with an american passport. i have a lot of appreciation for american society and americans. we are not evil. diesel dearly for the issue. we will overcome it, and we hope for a second chance for the volkswagen brand in the united states. we are working hard to have the right offer. employees know that volkswagen is a great car company and that we have a lot to offer. is vw undervalued?

the reason why i ask this question is i look at the ipo coming up, then i look at four re:re: -- ferrari, porsche. they traded on similar multiples to volkswagen. it would be worth, i've seen calculations put it, porsche being worth $100 billion, which is more than the whole of volkswagen now. if you buy volkswagen, and you're buying porsche, and getting the rest for free, what you tot take for crystallize the value that could essentially lie in porsche if it was put on four re: -- ferrari multiples? that is an exception.

this is a niche. those multiples can't be replicated by anybody. value, to unleash the educate the world better. cha transparent regarding challenges and risks. audi and porsche are developing the luxury electric platform, so we have a lot of potential. there are a lot of questions regarding the industry. guy: do you have to wait until you have electrified porsche? is that what needs to happen from an engineering point of view? within the world will look at porsche and said that is what it should trade on. needthink the people will

to get the concept that the transition of the industry will be managed to successfully. the very product we get -- moment we get the product out will managendustry successfully the transition. volkswagen has been up right and honest about the transition, but we have a strong strategy. we believe we will convince investors. guy: thank you for coming to see us at bloomberg. frank with her, the volkswagen cfo. this is bloomberg. ♪ bloomberg surveillance radio next. bloomberg daybreak: europe. xt. bloomberg daybreak: europe.

♪ >> emerging-market weakness spreads. part of the solution or part of the problem. the dollar strengthens and equities remain strong, a spotlight on problems in the rest of the world. executives from facebook and twitter appear before congress to explain russian election interference. google goes missing. daybreak. iloomberg am david westin here with alix steel. there is a lot of turmoil at the white house. >> what are you going to read? the question, one is, if it is bad, what does that mean? isn't that what we t