♪ >> 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 thought was going on? aidesthe question are his

and people behind the scenes. disregard him and not do what he says. alix: we will discuss this. in the markets, risk off field. -- field. s&p off by six. pmi datatively solid for services out of europe. the peripherals weaker. -dollar flat, now a mixed the story. the rand, another low. the lowest level in a few years, %.wn 1% t jack dorsey and sheryl sandberg testify on russian and election interference, google a possible no-show.

9:30, hearings on the nomination of judge brett kavanaugh. goes back into negotiations with washington to reach an agreement on its staying in nafta. now we are joined by gina martin adams and marty schenker. the big story is em. we talked to the south african finance minister. the rand is the lowest in two years. he says it is one of the most traded currencies in emerging markets. gina, no big problem. i'm not sure about that. there is contraction in the economy. this is an economy that has a large external talents and is

dependent on external funding for operating. as the dollar appreciates and the rand comes under pressure, it is more expensive to operate. you have an economy that is recessing. it is not just south africa. this is the same story in emerging markets around the globe. alix: i was interested also in indonesia. they have to delay $25 billion worth of our projects. this is just not an idiosyncratic story. forou can find reasons every one of these countries having difficulty. it is when you can't explain those moves that you have contagion, then a threat to market generally, globally. futures are down, david: but not that much in the u.s.. we just saw the currency and how currencies are down into equities.

the equity numbers for emerging markets are getting hit. >> emerging markets at large down 20%. most indices are down close to 20% as well. the one outlier is india. people the one economy are piling into for safety. all emerging-market assets are highly correlated. if you see selling become contagious, you will see it across the entire emerging-market spectrum. india will not go unscathed. the u.s. holding up relatively well. pmi, aart shows the ism big diversion's as the u.s. -- diversion's as the u.s. holds strong. much of the corporate results in the last few weeks are

relatively positive. all the economic numbers are relatively positive. as donald trump points outcome of the u.s. economy has never been stronger. 3% growth is not bad for this country. david: is that good news or bad news? if the u.s. charges ahead, it makes p.m.s -- emerging markets worse. 1998 and 2015, it is not just that emerging markets are declining, dollar and oil prices are not suggesting this is a contagious event for the rest of the world here it in 1998 the dollar soared 25%. gain in to get a 25% the dollar before it becomes a problem. but if you get a 50% to 75% loss

in oil prices come you have a problem. we are not seeing that. if you see the slowdown and shifts in the dollar, then you will see this on the u.s.. we are not there yet. >> the whole trade situation. alix: that pesky thing. happening inat was this two previous instances gina was talking about. we are in a brave new world. david: it is against president trump's desires to have a stronger dollar. testimony on the hill today. sheryl sandberg from facebook, jack dorsey. a question about google because , andput up their lawyer mark warner said, no, thank you very much. what are we going to get out of these hearings? i'm not toooogle, upset making facebook and twitter take the heat.

,hey are getting some criticism but congress made it clear they would not subpoena anybody. sherylit is clear that sandberg will fall on the facebook sword. this is part of what she wrote about her written testimony. that is unabashed. >> it is. evident in the stock price. the amount of money facebook will have to spend in order to repair the damages is phenomenal. that showed up in second-quarter earnings and is showing up in a relatively depressed stock price. facebook is not doing well on the year. alix: what other companies have to do relatively the same thing? >> twitter is on the edge of this as well. they will be in congress.

how much this extends to google and broader depends the next 6-12 months. david: thank you both for being with us. stay with bloomberg for live coverage of the testimony on capitol hill. the hearing begins at nine: 30 this morning eastern time. you can find the charts we used by running gtv on your terminal, all by running gtv . coming up, no relief for emerging markets. contagion concerns with lizzie young coming out. this is bloomberg. ♪

>> this is your bloomberg

business flash. hiring blackstone's outgoing chairman. the times says he will be vice-chairman and will report directly. he is a longtime international dealmaker and said last month he would be leaving. earnings will be lower than projected after that 63 billion dollars takeover of monsanto. r's first forecast fell short of estimates. bater says profit will come up short. represented be today when congressional committee question social media companies to stop election meddling. the senate intelligence committee rejected google's chief officer and said he was not high enough to testify. jack dorsey and sheryl sandberg

will be among those appearing. that is the bloomberg business flash. alix: thank you. prime minister's questions. i'm sure theresa may loves them. she says the u.k. is continuing to work for a good deal with the eu. she is challenging jeremy corbyn on a second eu referendum, saying she will not have a second referendum on brexit and challenges her nemesis in the u.k. off the lows of the session. david: the governor of her central bank is saying we are getting ready for a hard >> it, thank you very much. we are going to tighten. we are not sure at the end of the day. lack of clarity from emerging markets as pressure mounts on the asset class. and currencies weakening stocks heading towards a bear market. concerns that contagion risks are too big to ignore.

in the bloomberg, you can see that the verge and risks. pmi.hite line is the u.s. usually they track each other. usually they diverge, so how long can the u.s. hold up without china and emerging markets? .oining us now is liz young how long can the u.s. hold up? upi think the u.s. can hold for a while. the entire story about emerging markets has been isolation versus contagion, but when you define contagion, it is important to know what we are looking for. contagion from a currency perspective is what other countries are exposed and are dropping. what are those knock on effects as things get more heightened? the other type of contagion is that countries become guilty by association has it spreads.

other countries have similar fundamental issues, and that becomes contagious. there iswonder if withdrawal of liquidity globally? , the white line is the increasing balance sheet of central banks. now it is coming down. what effect can that have fun em? -- have on e.m.? >> it puts pressure on them because of the dollar. we had a stronger dollar than expected. so many em countries are exposed to dollar-denominated debt and putting pressure on them from a liquidity perspective. alix: if you think the u.s. can hold up, specifically with earnings come up but does there need to be a sector rotation to protect yourself against contagion in the u.s.? what will out perform, does that

change? >> so far the u.s. market has been resilient. season, strong earnings first quarter, third quarter expected to be strong as well. the u.s. market has more fundamentals to stand on and has been able to absorb this fall until a day. and.m. becomes contagious investors get worried and currency becomes a real problem, there is a race to devalue. a lot of countries will race each other to devalue their currencies. capital flows out of the region in general, and you have this capital flight which will go back to safe assets. the u.s. continues to be the safest asset. whether trade tensions, human currency tensions, technology

tensions, the money has not moved out of the u.s.. it has moved around inside the u.s., so we saw a rotation from cyclical to defensive stocks. we might see that again if contagion continues, oh rotation into bonds. so far there has not been a reason to get out of u.s. equities. david: liz young is staying with us. now we want to welcome the u.s.-china business council senior vice president. welcome back to the program. itna and the extent to which is growing, and also the trade disputes and how they are affecting global growth because it is affecting china. we are looking at the potential for contagion on the

trade front at the end of the week. all signs indicate the administration will move quickly on an additional $200 billion worth of goods subject to new tariffs of arranging from 5% to 25%. it might be done in tranches. that would cover half of all imports from china. david: this chart shows that. the blue is what we import, the horizontal yellow is the $50 billion already in effect. i'm hearing more about this tranche idea. where is that coming from? is that likely? >> there are considerations the administration will do this in phases. mean everything would be covered or different products with a different rates. we are looking for more information him up at don't know enough details. david: u.s. companies working in

china, what do the ceos want out of the united states and donald trump? the issues behind tariffs are chinese rights and protection policies. are ones companies want to see addressed. the main question is whether that tariffs policy is getting us closer to having those issues addressed. our view is it isn't and it is time to get progress on issues of the core of companies interest. david: ceos hate uncertainty. on chinaad uncertainty trade for some time now. our companies changing the way they do business in ways that may not go away even if this is resolved? seeing a not significant move away from sourcing in china for supply chains, but companies are

considering their options. tpp go into effect for the remaining 11 countries and create a strong incentive for companies to look at alternatives in the region. david: it is always great to have you with us. thank you very much. alix: coming up, no regrets. yer said ont the ba the decision to buy monsanto. this is bloomberg. ♪ is bloomberg. ♪

alix: bayer warned of lower earnings after the purchase of monsanto. the first forecast since the acquisition has disappointed markets. the bayer ceo spoke to guy johnson. our communication has not

then fully understood. it is important to note we have seen another quarter of growth in the second quarter with our our communication hasstandalon. we are up in core earnings per share. we have confirmed the full-year guidance for the bayer business. to,fact you are alluding the earnings per share are lower than so far guided, is a technicality, because we are closing the monsanto business later than did. the earnings of monsanto generated this year come to us as cash flow rather than reported earnings, but also the monsanto business is healthy and performing in line with expect haitians. the underlying earnings power is where we thought it was going to be. positive for the

combination of businesses or the remainder of year, and we are looking at the great prospects we are having as the company with the best technology, reach,s, and and our people are pumped up and ready to go. alix: there are 19 -- on yourhere are 19 buys stock right now. the analyst community either not getting it, or convince the numbers you are talking about and what you mentioned is what they should be focusing on. do you have no regrets about the monsanto acquisition? the roundup story caught a lot of people by surprise in terms of the size and scale. didn't catch you by surprise? did you have a little bit of buyers remorse? >> as i mentioned, if you look

competitive strength now in place with a combination of the best chemicals company in the world and the best seed technology in the world, and the best digital platform, the high of the business, we are excited as we have ever been about the combination. there are no regrets. to the contrary, we are excited to now finally get going. ceo: that was the bayer with guy johnson. the stock is approaching a five year low. gehave seen companies like by something, and then a year later spin it off. look at baker hughes. david: they did not expect a huge judgment against them.

typically what you do is say settle that litigation before we close the deal. they did not do that here. they underestimated the risk. alix: how do you manage risk of going forward? the quarter wasn't just monsanto. it was the pharma and consumer health care areas below expectations. there were other issues that disappointed investors. david: in london, prime minister's questions going on. some headlines. she is saying she wants a commitment that will not be a second referendum. theis working within timetable set out within the eu. she says they will not have a second referendum and are continuing to work for a good deal with the eu. nothing about mr. carney and here. eu seemedyet, but the to soften the edges around the

irish border question. that is something that happened overnight. david: it is critically important for theresa may. she needs those votes out of northern ireland. alix: last week, the eu seemed to draw a lot of red lines, but nevertheless, the pound off the lows. big tech heads to capitol hill. with theave a preview former white house director of global engagement. what that means. last seasonseen the of homeland this is bloomberg. ♪ , that is what that means.

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how much can the spread to the developed market with bottom up earnings continue to hold. this now is a mixed story. coming in pretty solid. weakness in italy and the periphery of what it was a solid number. i want to highlight the south african rand. the dollar did gain over 1% over the currency. and divided at 21 basis points. a little bit of a safe haven. down by one basis point. crude getting hit by 1%. thing. it may be a trade it could be a tropical storm gordon thing. now, catching up after the trade feature there. david w.: good news for new orleans. alix: and this is just the

beginning. david w.: now for a look at what is making headlines outside the business world. two russians have been poisoning a spy and his daughter on british soil. they flew two days before they were poisoned with a british -- with a nerve agent. in the u.s., a stunning upset in the massachusetts them a credit primary. beat thecounselor republican. blackll become the first woman to represent the state in congress. trump is flirting with the idea of a government shutdown ahead of the midterm elections. bloomberg has learned that it a shutdown tooke provoke money for his border wall.

it could backfire. global news, 24 hours a day. powered by our more than 2700 journalists and analysts, in more than 120 countries. david w.: later this morning, the ceo of twitter and the seat 00 up his book will appear -- over expectations that they are working really hard as part of the prepared testimony -- sheryl sandberg said "we were too slow to spot this and too slow to act. this violated the activities of our company. we welcome now an official who dealt with the russian election hacking. he is now the global situation room. you heard what sheryl sandberg is likely to say.

we are working hard. she should just they are spending a lot of money to fix this. is it enough? >> it isn't. they are currently working on a first-generation weighing system and we have a next-generation computer that russians are operating your attacks on. we need to quickly get up to speed in terms of our tracking of the issue and defensive capabilities. thewhat i have seen from testimony prepared is that they are stuck in the past. is taking us so long in the country? you worked back in the days where russians were interfering with the ukrainian elections. why is it taking our government so long to get into gear? it is a problem of imagination.

can't necessarily see troops walking across our border, we don't even have these spies necessarily that are operating on our shores and it seems like less of a serious threat. and yet if you go back to look at the damage done to our institutions and public discourse, i think the effect of these kinds of operations is clear. something thatis the market can fix in this sense? facebook knows this can hurt its stock. does there need to be a government component to it? brett: ideally you would. but i would insist on the notion that the private sector can take the first steps. unfortunately, the steps taken by facebook and microsoft are too much in isolation. coordinatedbe a effort and there needs to be lessons learned and the capacity

development from some of the past attacks and efforts to platforms. alix: how vulnerable is the u.s. into the midterm elections? brett: more vulnerable than we were last time. --sia learned selections learned lessons about what worked and what didn't work. unfortunately what i have seen so far are effort to track the kinds of attacks we saw in 2000 teen instead of looking forward to where russia and iran are operating. alix: great to get your perspective. that was brett bruen, former white house director of global engagement. .lso with us is liz young i want to show what has happened to facebook and twitter over the last year. the analytic scandal took place. something factor in

where they don't have the imagination to understand? i want to back up on this issue. good things and bad things and what are the biggest risks? the good thing about this new era of social media is that we have so much more information available. consumers have information at their fingertips that they didn't have before. market participants have information they didn't have before. the bad thing is that there is a risk to personal privacy. and there is no rule breaking -- no will making body. they have been focused on growth and product development. so the risk is when funds are used for information sharing, the interpretation of it gets skewed. and we are trying to decide now on capitol hill and the industry

as a whole who is responsible for the interpretation. and what the market wants to see is companies take a little bit of responsibility for the information but what is posted on their platform but the issue is that they cannot take all the responsibility and everybody's interpretation of "appropriate" is different. there needs to be a better definition of what is going to be policed and what is the police officer. isid w.: on the spectrum it the post office or a television network, where should facebook responsibility fall? that is tough. they both have a backing from a regulatory body and they are established. we know what a armor to do in a free market body. but this is less established.

i think that companies really take responsibility for it is the fake account. alix: that brings in the performance of tech. here we see the s&p sector with the blue line not including apple did that. but i don't understand is how we value the same stock like a facebook or google? been difficult to evaluate and decide whether investors should be in or out. i think what has happened a lot this year is a market melts up. people not wanting to miss out on a rally. amongsttalked a lot analysts and teams like mine about whether it is time for some of these is to be reverted? are they going up based on animal spirits or things that are not proven?

do they have likes to stand on? there will be a lot more technological disruption that continues to upset the industry and market. and it is on the limitless when you think about market. david w.: do you care about what happens in washington today? a hit,mbridge analytic stocks went down. but after the testimony they went right back up. alix: even biotech. we got immune to tweet. doesn't matter at all? how the public perceives the issue? liz: a two-pronged issue. the first is that the market has been incredibly resilient and we have bounced back from the news we heard this year. i don't think this is something that will turn the entire market around. what does the market want to hear?

they want to hear that there will be effort for consumer privacy. some effort for consumer protection. and they want to hear that there is a responsibility taken for sycophants or news that is posted that is a true. but they can't take all the responsibility. alix: where are you guys on tech? do you want to buy tech? i wouldn't be selling. this could continue for a while. there has been a lot of momentum trade. was liz young, thank you so much for being here with us. please don't forget to turn into bloomberg tv for the live testimony on capitol hill. that begins at 9:30 today on eastern time. coming up later, susan lyne. coming up next, after leading blackstone, john studzinski has a new firm to call home.

this is bloomberg. ♪

emma: this is "bloomberg daybreak." coming up in the next hour is michael ashton. this is bloomberg. ♪ emma: now to the bloomberg business flash. trump is defending a terrible message -- the new campaign letters colin kaepernick. during theiling national and them at games. the president did say that americans have freedoms to do

things that other people think you should do. the silicon valley blood testing company is to dissolve. holmes,der, elizabeth and the former president, have been accused of lying about theranos'technology. and -- says it is trying to make it easier for companies to make it to gain international capital. to make the global market system work for everybody. and whether you like it or not, we really have to do that. there will be no way to offer yourself from 2 billion people living in africa who have aspirations that are every bit as high as european and americans.

we have no choice but to make this system work for everybody. emma: catch the full interview tonight on the david rubenstein show at 9:00 p.m. eastern time. alix: we turn to the wall street beat. first up, fidelity likes it free after offering zero free fun, they raise almost $1 billion in the first. studzinski joins pimco. and goldman's hunger game. preparing to take the helm and insiders await his choice for president. usid w.: here to take give itit all -- if you away free, people will take it? people like it. fidelity offer the first free and dekes fund. we saw prices go down, down. what they were the first to put

it out there. it looks like they got about $1 billion in the two free index funds they offered. it is especially surprising given the fact that the funds were only available to retail investors. syndergaard had a fund that pulled in for weight 8 billion -- pulled in $4.8 billion. but this looks like a good number. david w.: good news but the only -- but only half the story. so the real question is, and do these people stick with the product? >> a great point. if you can get younger investors in the door than they could upsell them into advice. we will see if that happens. alix: and do you want more people in the index funds? i keep coming back to, is the come backs going to

to the etf fund with so much money is there with that i don't know what to do with and you have a washout -- what happens? >> so many investors are exposed to these funds through the 401(k) plans. so as you are saying, we haven't seen index funds tested majorly in a crisis in a downturn. free.but now it is personnel changes at pimco. john studzinski, former at blackstone, joining pimco? john studzinski left blackstone in august. after 12 years there. new he was looking for a challenge. his new challenge will be on the stage at pimco. he will be joining the firm and doing similar things to what he did at blackstone. he was an incredible relationship older. he worked with some of the richest investors in the world at lax on. david w.: blackstone changed the

business over time. he will buy sovereign wealth funds? whereit is also pimco, they are at. and how they want to build the business? >> that's right. pimco has tried to expand beyond the fund manager. a big push in private equity. it will be interesting to see how they leverage his relationship around the world to will up -- to build up client base. david w.: no sooner did they get the basic ceo job filled, now, who is the number two? game of thrones? do we have -- note, going past you guys. i killed it right there. [laughter] i read the books.

by the way. someonethinking about going out into the bow and arrow in the wilderness? this is a fun read. talking about whether or not the next president will also come from investment banking like david solomon did. and will be interesting to see if it makes the trading side of the business nervous, that there is power within all of the investment banking world at goldman. alix: who has the call? is it a board? david w.: there is a management committee getting together to decide? alix: and david solomon has great impact on the board. isn't clear if it will be a single president or a copresident. it will be interesting to see. david w.: the good news is that we will have a lot more to talk about on the wall street.

alix: thank you for coming. peggyw.: thank you to collins for being here. coming up, trump takes to twitter again this morning, suggesting washington should take a look at libel laws. checkout tv and watch us online at check out the charts and graphics. this is bloomberg. ♪ phics. this is bloomberg. ♪

david w.: this is what i'm reading. a new book coming out called "fear." marty schenker is here to talk about this. one of the things that struck me about reading about excerpt was

gary cohn taking a document off the president's desk in the office to keep him from signing schenker: an extraordinary way to govern. he was going to sign to advocate the trade agreement and gary cohn said no, you're not. and he took the document off the desk. trump disputes all the facts in the book. and we haven't heard from harry cohen. david w.: but we did hear from the president. he did tweak this -- he did tweet this. david w.: this is the first time trump has raised this possibility. schenker: trump is familiar with the courts. i think it is just rhetoric. one thing he has to be careful about is that there is a report

this morning in axioms about woodward having hundreds of hours of tapes of everything from everybody he talks to for the book. so there may be perfect evidence of support of the facts in this book. of,: and speaking washington post has the conversation between woodward and kellyanne conway, talking about why didn't you come to me? and here is what played out. >> sorry we missed the opportunity to talk to the book. never got a call or message. who did you ask about speaking to me? >> six people. >> kellyanne conway went to to me.y that didn't come she does have access to me. direct access. ok, i just end up with

another bad book. what can i tell you? suggests -- how does this play out? schenker: it's a just that the people around trump don't talk to him or give him needs inmation he order to govern. so we were talking about the chain of command. if you talk about the people around the president are counter manning his desires, it is a dysfunctional white house. david w.: trump has nikki haley coming out to say, this didn't happen. jim that has wrote a detailed denial. so cap directing that is woodward as a reporter and a journalist. david w.: we know him and we know how he records sources. and he takes a lot of time to talk to a lot of people.

alix: if any of this is true. if any of this some hurts the chain of command, what does this mean about getting anything done? cehic ise other nejra that trump has gotten some things done. some important things done. so even if this is a dysfunctional backbiting white house, they are come pushing politics that trump is proud of. alix: marty schenker, thank you for joining us. coming up, the emerging markets selloff. this is bloomberg. ♪ this is bloomberg. ♪ xfinity mobile is a new wireless network

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rand hits a two-year low as emerging-market weakness spreads. solution or problem? the u.s. dollar continues to strengthen. shines.ng divergence -- appearing before twitter and appearing before congress to explain what they are doing -- but google goes missing. i'm david westin with alix steel. theresa may is talking in the house of commons. alix: the interesting part is that now they are talking about russia and the nerve agent attack. the attackers are men from russian military intelligence. saying that they are russian military intelligence. the attack was sickening and despicable and still believe the russian state is behind that. david w.: and specifically that

they had approval from the russian state. which people tend to think of as putin himself. saying, we have to step up the defense. throwing it back to other countries in the west. david w.: and this is the basis for increased sanctions. see that there's not a lot of reaction here this morning on geopolitical risk. saying that we are still working towards a deal. market, still risk off here. futures down by seven. this was a stronger dollar but now it is a mixed dollar. flatter.urb is you do seely enough, selling everywhere in europe in the bond market with the exception of italy.

see buying onlso the margins. i don't know what you make of that. .y safe havens in the u.s. crude off by 1%. tropical storm gordon wasn't as bad as some may have thought so that came out of the oil price. david w.: time for the morning brief. at 9:30, jack dorsey and sheryl sandberg will testify before the senate intelligence committee on electionan interference with google as a possible no-show. plus, the confirmation of brett kavanaugh. today's the day when kavanaugh goes back to try to reach an agreement with the united states on staying with nafta. alix: pressure continues to mount on the emerging markets. we have concerns that contagion risks are becoming too big to ignore.

line as thea blue -- year on year and the white .ine is u.s. pmi they track one another. let not right now. we do see divergence coming out. boston -- can in the divergence continue? it is an amazing thing we are seeing. it isn't unusual for the em to lag behind or lead. but it does tend to happen when everything goes in the same direction. consistent with another. but what we see today is something that i have never seen before. so earnings growth has detailed from 20% to 8%. still decent that a very significant deceleration.

one actually go up -- it is the same with prices. theff the january highs -- s&p is up 1%. a 20 percentage point differential happening in opposite directions. so that is really a first. alix: we have a chart that you brought that shows just that. it is hard to get a read on this otherwise. and everything. does this mean you have small caps and make tech lead the issue? or do we drift lower? the u.s. cycle is strong and it got a shot in the arm from the corporate tax cuts.

the u.s. economy is basically booming. we saw that yesterday with the pmi's at a new highs since 2004. and the economy is growing strongly which puts the fed into play. time whenappens at a the e.m. and europe are ok but much softer. and china is going through a weakening cycle here. the u.s. tightening policies monetarily and the rest of the world easing, you get a stronger dollar with tightening liquidity conditions. in the. is always crosshairs of either tightening liquidity or easing liquidity because e.m. tends to borrow in dollars. so as the dollar goes off, quiddity conditions tightening. so it is the tale of two cycles. eventually, this gap oversold when markets start to see the light at the end of the tunnel

in terms of when the fed will be tightening cycle and went the ecb and other central banks get closer and closer to the end of the easing cycle. but we are not there yet and i don't suspect we will be there over the next 3-6 months at the earliest. chart thate put up a illustrated the fact that now the balance sheet has started to come off. so that is global liquidity tightening up at the same time. that --sperated ecb that exasperated's what we see with e.m.. jurrien: not yet. in 2000 15 into early 2016, we had a similar divergence between the u.s. and e.m. centered around china. because again it was importing a stronger dollar from the u.s. and china's currency is linked to the u.s. dollar.

and at that point we had the shanghai accord. nobody knows if this actually ever happened but in early 2016, the fed began to back off by slowing down the hawkish guidance. the irony is that the fed eased by tightening less quickly then it said it was going to. so that is always a reminder that slow is what drives the market. at this point we are 2.5 years later further into the cycle. closer to late cycle. i don't think the fed has the luxury of saying they will hold off for six months. i think we're close enough that the fed doesn't feel it has the luxury it had 2.5 years ago to pause. and if it doesn't have a luxury it means it will continue raising rates another three or four over the next 12-18 months. and with the ecb still not starting the taper, let alone

shrinking the balance sheet, that does create a policy divergence. and to the point about the central bank balance sheets, we look at the big for balance sheets, assets relative to the debt of the country is peaking at 36%. three years from now is likely to be 31%. so we are going towards the global tightening regime. -- it is at does to question everywhere. alix: where is the value in e.m.? what is being taken out that shouldn't be? well, even within china there are a lot of different sectors here. but it is great story very expensive. more expensive than the u.s. are values but i think it is more on the sector basis.

if you could buy the staples in china, there is a market for that. but those stocks have been expensive so you have to go into the cyclical side and playoffs energy metals. and then you get into searches producetries that commodities for china. but china is the key. chinese policymakers are starting to ease. china goes through a two-year cycle and we are getting to the bottom of it. at some point we will get a policy response out of china that will start lifting the growth rate which is maybe when the break between the e.m. and u.s. market starts to close. david w.: jurrien timmer will stay with us. coming up, ubs sees the twitter percent chance of a blue wave in november. is here to discuss

what this means for investors. this is bloomberg. ♪ bloomberg. ♪

emma: this is "bloomberg daybreak." bloomberg has learned that pimco is hiring john studzinski. he is an international dealmaker who is a human rights and good and a fixture at the vatican. he told bloomberg last month he was looking for new challenges. buyer warns that earnings will be lower than projected after the $63 billion takeover of monsanto. the first forecast and the

acquisition fell short of estimates. will come upits short because of the seasonality of monsanto's business. amazon begins the day with an amazon market value under $1 trillion after becoming the second u.s. company to surpass that mark. last month, apple was the first company with a $1 trillion valuation. that is the bloomberg business flash. david w.: midterm elections are over 60 days away with towardsrs pointing democrats retake in the house. but here to take us through the possible outcomes is jason draho. timmer is still with us. welcome. out that gives analysis and we will give a short summary of what the probability is here.

you divide it into four possibilities. , where republicans gain seats in the house -- 2% probability. status quo, they stay where they are. 18%. historical norm, democrats gaining house back by 60% and lou tied. 20%. jason: you have the house and senate. these scenarios correspond to whether the republicans have one or the other or both. right now, robert the tebow the house and senate. intorical norm is that midterm elections, the party in opposition to the senate -- opposition to the present -- opposition to the president picks up seats. if you look at the latest polling numbers in terms of generic ballots, it looks like

they will get there. they will getst the house. david w.: and there has been analysis done that i've seen that compare the number of seats with thevulnerable number of seats you need to pick up. historically low margins. quite a few foldable seats. jason: only one third of the seats will turnover. the democrats do have to pick up . so it will be a tough call to get democrats in the senate. which is the blue wave scenario. that is unlikely. a possibility. alix: the question about the midterms for me is, will the

policy rhetoric continue after the midterms? stay the same or trail off? case, theyhe base will be in the house. bey may or may not preoccupied within investigations. so where can the administration focus? a lot of it can be done through executive orders. the international side. so what we saw recently, it is likely to continue. we have the tax cut stent they don't seem to be going away. what difference does this make to an ordinary investor about whether democrats take the house? makesn: i don't think it a big difference. we have tax cuts with deregulation and lesser enforcement of existing regulation happening. it is likely to continue to happen. and trade is likely to continue to be an issue to the next

presidential election cycle. i do think it is a political issue. so i don't really see anything changing from the market perspective, because those are the things the market cares about. things that affect the economy. so in that sense, a lot has been is a lame duckre situation over the next two years, i don't think it hurts market. it won't happen in terms of the economy. alix: the question for me is the sector rotation within it. you can make a assumption that may be has heavier regulation. is this something you have to think about? you have to look at what can actually be accomplished. there may be areas of bipartisanship. drug prices, things of that sort. there could be an area of that sort of alignment. individual pockets within sectors.

but making broad sector calls is challenging. the day after the midterms, you kind of move on because nothing is likely to change significantly. david w.: what about trade and significantly, canada. a lot of republicans say they are not happy with the notion of leaving canada out and there are good arguments that the president can do that by himself? jurrien: it is hard to know what is real and what is his and -- and what isn't anymore. the u.s. is certainly playing for a position of strength right now. and the white house is taking full of the advantage of that. ultimately, there will be bilateral deals. maybe not a nafta deal but there will be a country to country deal. i don't think these issues

continue. i think the issues with canada will linger on for some time because it is a bigger stage in terms of the whole trade chess game. ultimately, what is really going to drive the markets over the next 12-18 months is the fed and how far they go and at what point they declare victory and say, we have tightened enough. that is something that nobody knows. ultimately it will be driven by inflation as to whether it starts to accelerate or not. david w.: jurrien timmer, thank you so much. jason draho will stay with us. is any publicity good publicity for nike? generating media exposure for signing colin kaepernick for the media campaign but stock was punished. this is bloomberg.

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alix: time now three companies stories on our radar. earlier -- i asked specifically what a trade war with china could mean for their business. >> if china falls off significantly then it would have an impact on global demand. no question. mexico, from a natural gas standpoint, it is slowly occurring and we think it will be beneficial. but overall we think natural gas is at the three dollar ncf environment for a long time. this question is precarious because a lot of countries have her moved subsidies they have for oil and gasoline. shift tod be a huge looking at oil and natural gas. david w.: but it sounds like

overall, demand would grow? alix: he is an oil ceo. everything is amazing. everyone will buy my product. david w.: tesla is back in the conversation because they are new -- anduld have a shares did not respond well. new competition. alix: it is also fundamentals. there is no actual competition and demand at a country that has production. david w.: mercedes-benz has a repetition. are joined now by simeon siegel. a buy rating on nike. good to see you. i want to bring you in on a chart here in the terminal. take a look at the social media sentiment for nike.

you can see the real-time twitter, the blue line. spiking up yesterday as the price share dropped. what did you make of the nike to colin kaepernick. a good or bad thing? simeon: a great question. thank you for having me. i think the idea of the chart is probably pretty telling in so far as to who rules the conversation. main street or wall street? we catch up. it is a shoe company. not only are they a fantastic product company, they are a market company. but they are selling to main street. so what nike has done historically is that they have never told the line which has allowed them to grow their base. it is a hard thing to ignore. and to your point, we are talking about them right now. ultimately it means the machine

is working. david w.: how important is it that they be authentic? it is interesting how the nfl reacted yesterday, defending colin kaepernick? shows the power of size and scale. isn't it ironic that the most authentic companies use the most marketing? at the end of the day, it is part of who they are. somewhatoing to sound awed. but i draw a lot of parallels between nike and amazon. it is interesting that if you think about on the day -- two big headlines. the first was that it was the second company in the world to reach $1 trillion and the second is an instagram post. and it goes to show you how powerful it can be. that contrast is interesting. that is one of the parallels we have seen in the past, both of these companies can do little work and have us and main street

do the marketing jobs for them. people view how those brands. you don't boycott something you don't have a strong attachment to in the first place. alix: simeon siegel, thank you for joining us. the apex marketing group said that nike received more than $43 million of marketing yesterday. the majority was neutral positive. and we are still talking about it. coming up, trade tension continues to simmer. this is bloomberg. ♪ . this is bloomberg. ♪

alix: this is "bloomberg daybreak." latest onay from the trade in the u.s.. emerging markets continue to at 1.5 percent.

in the markets in terms of other asset classes, the dollar is mixed. a little bit stronger than the new zealand dollar. if you look at the south african rand, up by 1% but off the highs of the session. the curve has flattened a little bit here in the u.s. the trade balances out. july trade balance. negative $51.1 billion. not as bad as we thought. but on the margin. revised trade data was to be tighter. so nothing really to change the narrative that we are dealing in terms of the u.s. battling china and trade deficit. david w.: trump didn't like this before and he won't like this any better. it isn't going in the right direction. alix: the gap with china hit a record. as the administration imposed

records on chinese goods. what doeson becomes, this mean for stockpiling? soybeans toa lot of different countries before the terrorist took place, now that they are taking place, does it change the conversation? people think he may impose more sanctions as soon as tomorrow which could bring it forward and make the trade balance worse. alix: the deficit with the european union also jumped to a record. ok. let's put the european union back on the trade battle now. andave michael mckee jurrien timmer. michael: we did think that the trade balance would get wider is the realistic reason soybeans.

let's go back to a graphic we this is theften soybean exports. they jumped going into the tariffs that the president was going to impose and you can see what has happened since. the big drop. they have gone back down again and people have stocked up on soybeans. the impact that the tariffs are starting to have on trade. david w.: i will put up a chart here that shows the u.s. monthly trade balance over time. this was as of last month. $50 million over to the far right. does this illustrate something fundamental with the economy? we talked about how it is going to investors. but aren't we doing by borrowing money? doesn't it almost inshore a trade balance deficit? trade balances are not necessarily bad. the u.s. has a stronger economy which is a consumption driven

economy. 70% of gdp. and it kind of makes sense that if goods are produced cheaper elsewhere then we would buy them from their. and that would create a trade deficit and then dollars get recycled and you wind up with china holding treasury bonds as far as their reserves. we have seen historically a strong correlation when foreign-exchange reserves rise, which happens when there is more em so it tends to boost right now, reserves are falling. still growing but at a decelerating pace. that is how i would describe the global economy. in the rest ofut the world it is growing and decelerating. so when you have the cycles in place, you see these numbers accelerate. said, ultimately, how this cycle converges again is

the big question. does the rest of the world catch up by going? alix: to that point, we talk about the divergence for the u.s. and when you make a fact that the european deficit hit a record as well, will be that -- the we be back into conversation? michael: i just did a graphic here and i didn't put the european union into it. but i have china and canada and mexico -- the people we have been tracking recently. the bottom line is the trade deficit when it hits a record. starting to go up at the beginning of this year. falling off completely with tariffs in place. the president will be happy with that. the deadline was friday, the first-day he could impose $200 billion worth of tariffs. keep that in mind. the blue line as the top, canada was getting better and now it is getting worse.

mexico is getting better. there are still deficits. what a very narrow. fair point. jurrien timmer and michael mckee. david w.: let's get to headlines outside the business world. chandra is here. oh, i apologize. she is not. police in the u.k. have accused russian officials to be on british soil. they flew from moscow to london two days before the victims were poisoned. law forbids extradition of citizens. alix: trump flirting with the idea of a government shutdown. he is asking advisers or whether it would be good politics to invoke a shutdown to promote money for his border wall. it could backfire.

david w.: in the u.s. there was a stunning upset in a massachusetts primary. -- beat a 10 term congressman. there now is no republican on ballot which virtually ensures that she will become the first black woman to represent the state in congress. global news, 24 hours a day at tictoc on twitter. powered by our more than 2700 journalists and analysts, in more than 120 countries. alix: we did it. david w.: coming up, drowning in student that. what student that means for the economy. this is bloomberg. ♪

emma: this is "bloomberg daybreak." coming up in the next hour, joyce che, jpmorgan's global head of research. this is bloomberg. ♪ emma: now to the bloomberg business flash. trump is criticizing nike for sending a terrible message with his new ad. there he ad features colin kaepernick. after the nfl allegedly lack listed him after he began kneeling during the anthem in

games. the trump did say that he has the freedom to do things other people think you shouldn't do. a blood testing company will dissolve. the wall street journal reports that theranos will try to pay creditors cash in the coming months. the company's former president have been charged with lying about technology about how to raise more than $700 million. the world inc. president says -- trying to make it easier for companies to gain access to private come -- private capital. he talked about the new role in an interview. >> to make a system work for everybody on the planet. whether you like this or not, we have to do that. there will be no way to buffer yourself from 2 billion people areng in africa i 2050 who going to have aspirations that are every bit as high as americans. so we have no choice but to make

this system work for everybody. emma: you can catch the full interview tonight on the david rubenstein show. that is the bloomberg business flash. david w.: it is that time of year when students head back to the classroom and this week we do ourting the books to own homework on different aspects of education and what can be done to improve it. yesterday, our focus was on charter schools. friday, we talk about education technology with the ceo of pearson and. alix: today we look at u.s. student debt and college tuition. 1.5 trillion dollars. the second largest category of household debt in north america. here to walk us through this johnr is john engler -- anglim.

what has caused it to get where it is right now? origination's on the federal side actually gone down over the last five years. typically, loan origination growth dies -- drives the portfolio in this case, it has fallen five straight years to 20%. whichtstanding dan things leads to the idea that things are not being paid down as quickly. how much is because tuition is going up that fast and how much is because people can get access to money at that rate? john: tuition is growing faster than pay. but the government is allowing payment rates to come down significantly so people are not paying down their student debt

as quickly as they used to be. 25 yearoans are now loans. it seems to not be a problem until you cannot pay them anymore. these loans are 90 days plus the link with. hugh hefner credit card loans in and the yellow line student loans. what is your forecast for this? john: the difference here is that student loans normally don't have underwriting. so this is determined and then you are offered alone. with the government, it is not underwritten. putting them all in the same chart, it isn't fair. but delinquencies on student loans have flattened out but that is due to the modified payments. creating if that is modified to liquidity than that is good that ultimately if we do not pay down the debt, that is the issue.

david w.: how much of this is ever going to get repaid? it he restructured? john: there are different forecast. but people put a 40% default rate. and the cost for that ends up being the taxpayers. again, defaults in student loans are interesting. you cannot run away from a student loan that the federal government gave you. to defaultsces, begin to be a debt that is written off and in federal student loan debt, you can't get away from it. you can't put it into bankruptcy. they will find you and you will pay it somehow. alix: john anglim, thank you. in --s michael asked michael ashton.

michael, you are the installation guide. if you come inside the bloomberg, this is what freaked me out. the white line is college then cpi.d how bad is divergence going to get? michael: the interesting about that divergence is what drives college tuition inflation is very different than what drives regular inflation. two sources of revenues. one of them is tuition. ad the other is you are private institution, the endowment. so you notice the white line is flattening out. college tuition inflation has been coming down and that is because endowments have been doing so well. the problem is that if you were lastg for college over the

10 years and you invested in stocks, god bless you. over the next 10 years, god help you. because if equities don't have the same kind of run that they have had then not only are 529's going to suffer but also, college tuitions are going to accelerate. because endowments are not going to do as well. alix: what is the solution? john: student loan debt should be the last resort and not the first option. and the government could do two things. they are currently allowing student to package loans. so students say, look, i get the money from the government. a two thirds of all the defaults are $10,000 or less. it is a completion problem so we have to help you through college quicker without the debt. david w.: we have a chart we could put up that shows that a

lot of the debt is fairly small amounts. it isn't the larger amounts which you would think is a good answer but it turns out that is not true. but actually, these are people who never finished college so they can't pay back. going for a semester or two and this isn't for them so they need to make the choices up front. maybe try community college first. lots of options. alix: you will help me before that becomes a problem. so if i can't make a good return on equities, how can i help myself pay for my daughter's college? michael: the first thing we have to do is help people save so they don't have to take out so much debt. and one of the things we have done -- people tend to invest in equities and a 60-40 kind of

approach. and that is it really the right kind of approach for saving for college. what we want to do and what we did with s&p is designing an index towards inflation which replicates the behavior of tuition and the underlying drivers of college tuition inflation. ,o that the saver, over time invested in things like this, it doesn't go through the. bless you-god help you problem. you always do something where your performances similar to the endowment. michael: saving dollars today is better than borrowing tomorrow. whatever you can put away is better. we will go through market cycle. we want to have options down the road. david w.: let's say i didn't invest properly. and now my child has the debt. but the$5,000 kind

$50,000 kind. what are my options? >> there is a market developing the government loans benefits, extended repayments that are not repayable to private market. there are a few things that they can do. part of it is with the future borrowers to make debt less available for students to get in trouble. david w.: i have a friend who went in to buy up student loans. because it is without regard to credit -- splitting the difference with the person who borrowed. the student does not pay as much money back. alix: that is a win-win. when you look at the general

factors of inflation, cpi. will there ever be a point where he will be ok? climbinflation will enough and may be tuition rolls over a little bit and endowments will be ok we don't have to take on this much debt russian mark michael: the problem is that colleges are not necessarily run as proper profit maximizing institutions. the way you could get that outcome with tuition going slowly is that colleges get more efficient at providing the product. there are some signs of that. you could attend college online for example. ending the cost curve down a little bit. but at the end of the day, if -- you basically have expenses at the university that are mostly you paying for labor for professors. is only so much

productivity enhancement you can provide in the classroom without ruining the product. alix: i will tell my husband, i told you so. thank you to michael ashton and john hupalo. coming up, sheryl sandberg and jack dorsey will testify who will burn for sending an executive who is not high-ranking and off. and bloomberg users, you can check out the charts we have used and save them for the future. this is bloomberg. ♪ e. this is bloomberg. ♪

alix: what i am watching is tech and washington. big check for the first time.

russian election hacking the first time. a tech discuss this is reporter from washington. the data i'm watching comes from washington, d.c.. you know this will be a big deal. >> this isn't the first time that these companies have had to defend themselves on the hill at this time around, lawmakers should be better prepared to ask hard questions and they are escalating pressure on these companies to deal with foreign manipulation and issues of use or privacy and conservative eyes. based on written testimony, the andctation is that facebook twitter will take an apologetic and conciliatory approach. saying they didn't do enough to elections and that it took too long to understand there were foreign actors sowing discord on the platform. they also will discuss the litany of changes they have made. to better combat with bad and malicious actors on their platform.

it is worth noting that this comes at a critical time months the midterm elections so lawmakers will press them on whether they are able to deal with threats. for instance, a week ago, they dealt with the deletion of efforts of a new campaign out of russia and iran. david w.: so there is one big difference. this time it is about elections. it is one thing when it is someone else's privacy. but these have more skin in the game. >> the stakes are higher and jack dorsey and sheryl sandberg cap and preparing hard for this for several months. it is worth noting that the first thing i will watch for is the empty chair next to these top two ranking officials. there have been calls from lawmakers to get the output that ceo to testify alongside faced and twitter that they declined

to send a representative and offered to send the chief legal officer. the committee deferred that. alix: we really appreciate that. don't forget to tune in for live coverage. at 9:30 a.m. begin and we will have an exclusive interview and that does it for "bloomberg daybreak." coming is jonathan ferro. fixed income with em up front and center. and center.

jonathan: from new york city, i'm jonathan ferro. 30 minutes until the start of trading. ♪

jonathan: coming up, emerging-market pain continuing. countries struggling to stop the route. nafta talks resuming. canadian negotiators arriving in dcs the president threatens to walk away. twitter and facebook executives separate grilling on capitol hill. markets are 30 minutes away from the opening bell. futures negative nine on the s&p 500. treasuries stable at 2.89%, and the dollar treading water. the pain continuing in em, with your teens -- currencies continuing to weaken. >> the main risk is shifted from rates in the currency. >> it's had such little