drama. ole andersen.rom china to the world, we won't weaponize a currency. ruled out.an companies fear retaliation. we talk to the economic council of advisors. j.p. morgan says cut u.s. stocks and by emerging markets. the latest analysis saying the sugar high from tax cuts will fade. david: welcome to "bloomberg daybreak." story to say that danske captures your imagination. they put six times the gross national product of estonia through the bank. alix: i understand you want to resign as ceo. he can't be the only human responsible. where is the board? david: and are there other banks

with an estonian problem? alix: good point. an interesting dynamic playing out. higher global yields, yet global equities seen resilient, and the dollar goes nowhere. equity futures are basically flat. -dollar higher. i weaker dollar story despite 10 year yields at the highest level since may. crude pretty much flat. of the be the dynamic currency market and yield dynamic and how that filters through the equities for me. david: yields went up, but the u.s. currency did it. alix: are we back to global synchronize growth? is that now the narrative? david: be still my heart. let's get an update from taylor riggs with first word news. >> china won't devalue its currency to make exports cheaper in the midst of a trade fight with the u.s.. the chinese premier said it

would do more harm than good. he spoke hours after china retaliated against the latest tariffs by the trump administration. president trump has praised kim jong-un for agreeing to further steps for giving up nuclear weapons. --kim and lou jm -- fujian -- moon jae-in met. moon will meet with president trump on monday. a potential blockbuster showdown over brett kavanaugh could be in jeopardy. lawyers for the woman who has accused brett kavanaugh of sexually assaulting her set a public senate hearing should be put on hold until the fbi investigates the matter. chuck grassley says there is no need for fbi involvement. day onnews 24 hours a air and on tictoc on twitter our

by 2700 journalists and analysts in more than 120 countries. david: thank you so much. let's listen to it. china overnight saying we will not weaponize are currency. thehina will never go down path of stimulating exports by evaluating its currency. david: they were not devalue the currency, but what might they do? our guests. they were not weaponize it. that includesrts china and belgium, because belgium is a custodian for buyers of u.s. treasuries. >> what this looks like is china holds a lot of treasuries and some will mature, so if they do nothing, it is like the fed balance sheet runoff.

isre are signs china reinvesting in mortgage backed securities. that chinais meme may weaponize is treasury holdings. weaponize inge currency would probably do more harm than good. alix: fair enough. what is the next lever to be pulled. the conversation is u.s. companies operating in china and subsidiaries in china could be in for severe retaliation. >> absolutely. we don't know whether because the market has priced it in or people are bored of it. this has been going on for quite a while. i guess we have yet to see that. >> the better story, the convergence in terms of china

pulling the lever of stimulating its own economy, the response yesterday would suggest china has never been an export driven economy for long. they have been a credit-driven economy. they can pull their own levers and make up the tray cap that way. -- is hedging what he is saying there. david: when they commented on those tariffs, it was almost unanimous that it was a bad idea. alix: how does the filter through other asset classes? global yields pushing higher. luke, my question is why? >> the best story i can put on

this is it is very interconnected all over the world, so japanese investors, when italy was having massive issues. they started buying more u.s. treasuries. italy improves, dollar weakening, so they go back into european bonds. even though we have had we'veion disappointments, had a selloff and a rise above the 3% threshold. alix: cash is becoming more competitive, especially compared to equities. jpmorgan had an interesting note u.s. fiscalarge boost and the delayed impact of weak dollar and low rates from last year create a sugar high for u.s. asset and we expect convergence of macro fundamentals between the u.s. in the coming quarters. the narrative had been u.s. earnings are so awesome that

they will outperform. the note suggests they will converge and we are in a world of global synchronization. >> that is what i like about the report, the sugar high we just talked about. , the lastabout this set of gdp numbers. we don't know what affects the tariffs will take on the tariffs trump will impose. it will be interesting to see what happens when the market opens today. david: what is not positive is danske bank.ank -- ole andersen earlier today said he will step down after the transition. for ais not ideal

chairman of the board and the ceo to leave at the same time. since the full board has asked me to stay and handle the important assignment in the nearest future, then i have chosen not to resign. on the other hand, i do find when those tasks have been completed, i will be allowed to leave. david: we will hear from him in an interview in a few minutes. the big question is how can this happen? >> exactly. that cycles back to where is the board. how come this guy was the custodian of everything going on. billion euros go through and he got to keep his job? alix: it is the diversions between the u.s. and there. about ie lots of rumors

ng and standard chartered. will feeldic banks it. are then you're starting to worry about the big losses and ireland. i think the bad environment as well as the good environment sows the seed for this behavior to go undetected. alix: estonia, estonia? thank you both very much. you can find all the charts we just used and more on gtv . you can browse through and save our charts. gtv . coming up, more on escalating trade tensions between the u.s. and china. this is bloomberg. ♪

alix: president trump ratchet set up the trade war with china. china punches back. investors consider how bad things could get. trumpuggest president gets with president xi and they exchange we chat and figure that one out. i think it will have to come from the top. >> this dispute could go on for some time. you never know. maybe it is an olive branch. run into the first of , iuary and the midterms think you will see the u.s. talking about phase three

because of the chinese retaliation. >> the common suggest fiscal policy is an obvious lever in the short run. that is where the market is taking its comfort from, that china will offset the impact with the fiscal side rather than the monetary side. >> it is a seminal shift in global power. we have a new dominant global power. that is china. alix: joining us now is our guest. good to see you. the narrative is this is a short-term affect and we are ok. the longer term as jack ma and this will go on for 20 years. where do you stand? >> the conflict will last a long time. the u.s. and japan had a couple of decades of competitiveness during the 1980's and 1990's. that one took a long time. china should take a much longer time.

china is certainly a rising not in the u.s. orbit of influence. david: small cap versus large cap, it often shows up there. >> small caps do better in situations like this. small caps have benefited from the tax cuts more than the big companies because they are more efficient in how they avoid taxes. alix: when we wind up seeing something like this, do you need to take into account sector rotation? the longer term you see damage. how do you allocate? welike we are doing in asia, are avoiding exporters and asia to a large degree, so you will have to be careful in the u.s. about companies hurt by decreasing exports to china. will certainly happen to some

degree that u.s. exports to china will suffer. the question is how much and will that affect the overall u.s. economy. the outlook from most people i talked to is it won't affect the u.s. economy very much. it might increase inflation a bit, but otherwise the economy is doing so well he can handle any decrease in exports. david: are you surprised we are not seeing more of a reaction in equity markets, bonds as well? >> yes, especially yesterday. that was quite a rally. some people are comforted it is only 10%. responded at 5% at the lower band come up but those are just temporary factors. increases to 25% in january, the market will have to digest that. .or now, the markets are ok

corporate earnings are strong. that is what the market looks at more than anything else, corporate profits. david: what struck me is the bond market. bonds are selling off. we saw yields go up for the treasury and the bund. is this a risk on orientation despite the trade noise? >> it is. correct. it is nobody wants bond yields to rise to quickly. it is a good sign that bond market investors, usually the most hawkish, are actually quite happy with the economy going forward. alix: do you think markets can hire global bond yields and 3% on the 10 year? there has to be some market leadership change? will see financials doing well. they weren't particularly strong yesterday. some surprised to see exporters like boeing do well.

maybe there is something going on we don't know. .here might be negotiations trade leadership is supposed to come here from china. david: at the same time, what do you make of diversions between the united states and the rest of the world? j.p. morgan warned about this. this is something of a different take. we have heard by u.s. equities, by u.s. equities. they suggest that maybe this will turn around. >> it certainly is unprecedented. you had markets go quiten u.s. dollar terms significantly while u.s. turns

-- the u.s. was positive. alix: what about cash? yesterday, killer, killer demand. hashes getting competitive. how do you handle that? >> it is a challenge for the market. 3% are competitive returns, so the flows into the market might be less than one expects. buybacks are so strong in the we don't see that as a major headwind for the market. is this the time to think about caution or go all out? things keep going up despite geopolitical and various roadblocks. >> we are still positive on a three-month view. have a positive

long-term view. we are towards the end of the cycle, and you don't want to get to enthusiastic and put all your money in equities at this point. that 18uppose we knew months we think we could be in trouble. what does that do? how do you position yourself so you don't get burned and leave too much opportunity on the table? >> even having 50% or 60% of your money and equities can provide rate returns in the intermediate term, but can provide protection on the down side, because fixed income will rally in any downturn. that is the whole idea behind portfolio theory, to protect your risk on the downside. alix: do you want to take on credit risk or duration risk? how has the conversation changed in the last of two hours -- last

72 hours? >> you want to avoid credit risk outlook.to 24 month you have the european central bank tapering purchases in corporate bonds. that could increase spreads in europe, which might affect the u.s. market to some degree. in no way do we expect spreads to widen dramatically. alix: thank you very much. good to have you with us. david: we turn now to the on danske bank. with the danske chairman. billion euros in

transactions were characterized as suspicious. >> first of all, i have to correct you. flow of 200en a net billion euros. there has been no conclusion which part has been deemed suspicious. investigation has investigated 6200 customers of a portfolio of 10,000 customers come extended to 15,000 customers to make sure we have everyone under the investigation. the customers have not taken a transaction-by-transaction approach. are talking about tens of millions of transactions. they are taking a customer-by-customer approach.

customers most of the may have some suspicious activity and all will be reported as suspicious. >> estonian regulators are s.timating 100 billion euro does this mean there could be 100 billion dollars worth of suspicious transactions? investigator has informed that he believes there is reason to believe that a large part of the 200 billion euros potentially can be classified as suspicious. >> many reports are saying the exact amount of the illicit funds was $9 billion. is that a fair ballpark? guessesnot make any

about numbers. >> what about the time frame? when can we see you put out a number? >> we have reported on the investigation so far. there has been investigation into portfolio since we acquired the bank since 2007. that goes to the end of 2015 come when the portfolio was completely closed down. to make conclusions as to the extent of suspicious activity. that will be reported to authorities. when it comes to accountability, who, what, when, that investigation has been completed , so we are not planning to put out any further reports, but we will report any findings for the remaining customers to the relevant authorities.

that will take time. >> you cut your outlook for 2018. are you anticipating fines? >> 2015, the portfolio was completely terminated. >> are you anticipating fines? >> i will not speak about potential fines or the amount of potential fines at this time. >> are you making any provisions to do so? >> we have not made any provisions in our accounts. we have made provisions for the donation we have decided to make since we decided we don't want to make profit out of suspicious activity, so therefore we have taken the gross income for the entire period and will donate that to an external come independent foundation. >> why not set aside provisions? we saw ing find earlier this month. ed, but we haven

not. i don't have anything to say about the fines or who they could come from. >> have you been in contact with u.s. authorities? upon whichot comment authorities we are in contact with. dialogue constructive with all the relevant authorities. if authorities want to bank, we willnske quad-play fully. -- cooperate fully. we will fully cooperate with these investigations. >> are u.s. authorities asking for any information from you? arehe two investigations ongoing, but i will not comment on the case is for other regulators. today,ceo resigned stepping down. what you be looking outside the

bank for the new executive given this report highlighted the weakness of the banks culture? are in aof all, we completely different place today than we were in 2007-2015. the ceo resigned this morning and now we need time to find the right leader for the bank. i would not comment on external or internal candidates. we need time to think here. one of the most important decisions of board has to make is the appointment of a ceo. we will start a process to find the successor. >> do you have a time frame? >> has fast as possible. >> the investigation so far has caused 200 million kroner. how much will this cost the bank? >> in expenses?

i have no idea. as i said, the investigation about customers and transactions will continue probably the next six to 12 months. there will be additional cost, but i don't have an estimate. it is not a matter of the costs involved. we have do what we have to do. is to try is actually to underscore the seriousness and magnitude of these investigations. >> is there a risk the dividend could be reduced or eliminated? >> we have no plans in that direction. >> our customers, retail or commercial, pulling out at the moment? >> obviously it would be wrong to say this is a positive for danske bank's image and how customers look upon us.

we have not seen any significant customer flight, and all our employees are trying to demonstrate we are not -- so this is fark away from the way we would like to run danske bank and the bank we believe we are. we have to remember that this 2007.bank we acquired in along with it came this estonian operation. , which iss portfolio for special for our operation to have that portfolio in estonia. unfortunately we have not been really get our hands around what was going on there. it was there already in 2007 when we acquired the bank.

.here were some alarms unfortunately they were not acted upon. alarms,ve been some some more serious than others. completely, difficult to toerstand this has been able be ongoing for such a long time without anyone bringing it to the attention of senior management. .> that was ole andersen thank you for your time. bankin copenhagen, danske release their internal report regarding this money laundering scandal. alix: thank you so much on what the future of the company will be. here is the future of the market, global bond yields on the rise, off the highs we have seen. the equities take it in stride. s&p futures flat.

you are up .3% despite seeing sterling climbed higher. you had inflation beating estimates for august. in that asset class, let's take a look. take a look at the gilt market. yields up by two basis points in the u.k., unchanged in the u.s. nonetheless the highest level since may. the dollar decides not to participate in that rally. the safe haven currency is getting shaken how the little bit. crude flat as well. now let's get an update on what is making headlines outside the business world. the leaders of north and south korea have announced the next app store getting rid of the north's nuclear weapons. kim jong-un agree to shut down a nuclear facility depending on u.s. actions. that falls short of what the u.s. has been demanding. praisedesident trump

came in a late-night tweet. has not completely close the door to new trade talks with the u.s. despite president trump decision to impose more tariffs on chinese goods. one chinese official tells bloomberg it may be better to hold talks informally come out of the public eye. the u.s. and canada will be waiting for each other to blank when nafta talks resume in washington today. trade representative robert lighthizer and the canadian minister will hold their first impression session in eight days -- in person session in eight days. global news 24 hours a day, on-air, and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. alix: breaking news for you.

sky drama, the push and pull between 21st century fox and comcast could be coming to an end. it will likely be settled in an abbreviated auction. typically the takeover panel in the u.k., the procedure is a five-day process, but that may be abbreviated this weekend. nonetheless, as this is worked , the numbers can get really big, so we will see how that auction plays out, and any kind of bidding more that the companies may get into. u.s. economy continues to grow and increasing trade tensions between the u.s. and china do not seem to be slowing it down. concernedompanies are it is only a matter of time. joining us now is kevin hassett, the chairman of the council of economic advisers.

we have this new round of tariff s that will go into effect monday. you had a lot of comments coming into the trade representative's office and almost uniformly u.s. companies said this will not help our business, this will not help employment. why do they all have it wrong? >> the objective is to open up u.s. markets to china. if we are successful in doing that, that will be great for u.s. companies. right now, we are in a situation where china is of using the trade policies that exist, abusing the wto. we have to step in and have them correct that. we have a long list of demands, we are eager to talk to them, but if they don't come around, we will have to impose tariffs, which is just retaliation for what they've been doing for a long time. we have estimated between 1% and 3% of gdp is being stolen by

china from us every year. david: $450 billion worth of chinese imports, questions of another $260 billion in tariffs. at some point, that must affect gdp. what have you advise the president about the possible effects on gdp if this continues? >> the way to think about it is if we can buy the stuff from somebody else, it has little effect on us and a big effect on china. in the early tranches of tariff s, the ustr has looked at things that are close substitutes for china. in the early stages. one of the issues is timing. in the short-term, consumers don't see it because it takes a while to work its way through the supply chain. says this could last 20 years. what are the fx if the chinese

don't that down, we stick to our position, and this goes on for years? >> of course that is what we hope does not happen but the bottom line is long-run effects of this are much smaller than the short run. in the short run you have disruptions of supply chains and so on, but ultimately they will move around. i think we will work at our differences, we are grateful they are willing to talk, we are as well. we have the will to find a list of asks for china. lots of room to regenerate agreement. we are starting from a situation where they are misbehaving. david: pretty much everyone agrees with that, our european friends and colleagues would agree with that, but the question is how much pain are we willing to suffer to get there? as i understand what you are saying, the u.s. companies are

wrong, they don't understand their business is properly, because they think this will hurt them. >> we have a long-run objective that they share. previous presidents have gotten china -- have attempted to try to get china to behave, and you have to admit that. we have made progress with mexico. we are hoping to close a deal soon with canada. we are opening up markets of that u.s. workers can make stuff here and sell it around the world. our trade deals were incredibly asymmetric. we open up our markets to other countries but they did not open up their markets to us. president trump insisted that we make progress on that. nota will be the toughest to crack but we are happy that there was to have more talks. david: use a well-defined objectives. could you give us a sense of the top three?

when will you know you have e succeeded? many companies say they are not exactly sure what the government wants. >> that is by construction. you go into negotiations with the but you don't publicize them. wehave clear ideas of what want to do, it's been worked on by secretary mnuchin, the whole trade team. whether we get all of that or not is something that we work out in negotiations, but you cannot go in broadcasting when you are looking for. i understand that, and i understand why you don't want to say what you told the president, let's your objections, assume we stay at $250 billion. this continues into 2019. this will not have a material effect on gdp growth? >> you know, i think it would have some effect. a precise estimate would depend

on whether we go all the way or not. the idea that gdp growth is north of paris, maybe even four in the fourth quarter, that would definitely still be true, no matter what happens. said you are hopeful this does not go into 2019, 2020. can you hear me? >> i have you back now. we have a tough time going all the way down to washington from new york. is notpe, plan is what to go into 2019, 2020. new you have reason to believe that the two parties can come together, any information from inside -- not asking specifics that thee indication chinese might accommodate what we want to be done?

>> i have no inside information about the talks, might begin, have been ongoing. it is done difficult to envision a world where china agrees to abide by the rules that the rest of the wto member countries abide by. if they do that and open up their market to u.s. products, make their trade fair and reciprocal as the president has asked, i'm sure the tariffs would go away. isen what is asked of china already a policy adopted by most civilized countries, it seems they should eventually get there. david: appreciate your time. always good to talk to you. that is kevin hassett, council of economic advisers. more on the impact of u.s. companies operating in china, joining us now on the macrois the alpine

cofounder and strategist. .e heard from you earlier kevin hassett says everything will work out ok. will that be the reality for american businesses operating in china? >> what i heard from your previous interview, i cannot but think there is a massive misunderstanding on both sides. i think there is massive this calculation on both sides. i understand from the white needspoint of view, trump a victory before the november election, which is why he is asking mnuchin to initiate talks with the chinese. at the same time, it is waving a big stick at the head of president xi saying if you don't cooperate, i will slap on more tariffs. this is a strange negotiating

tactic that the chinese are not used to. the white house calculation is because trade is such an important part of the economy, you have to cave. i have to be a clear victory to my political base. calculation.'s calculation is different. when you started, it was quantifiable, trade imbalance. today you are after my economic model, which is completely intractable and hard to define. --to them the negotiation basically the trump administration is trying to stop their economic agenda. are saying my economy is not dependent on trade. can you look at that number, it is true. account for 3.5%

of chinese gdp. the impact on the chinese economy is about 0.3%, they can deal with that. obviously, they cannot deal with that of domesticating -- adjusting domestic policy. alix: what should chinese officials do, what should president xi do? what should be the appropriate response? >> personally, i would like them to sit down and talk. you have to understand president xi jinping is also facing huge political pressure from the domestic audience. they are saying this is an administration that is really bullying us and they want him to stand up to it. this is really tying up x presidenti's hands.

in the end i think he will sit down and try to work up a deal, but it will be hard. , after thelation november election, if there is a blue wave, that will check trump's protectionism. that is also a miscalculation because anti-china trade, that has bipartisan support in the u.s. i am pessimistic on this. i think this trade attention will be psychological, a long time. in the end, it is two giant economies who are in profound competition. trade is partin the end, it is t of it, it is not only commerce and business, but on politics and

geopolitics. david: thank you for being with us, chen. coming up, a tweet that opened a pandora's box. politics and geopolitics. david:the justice department's investigation of tesla is next. this is bloomberg. ♪ ♪

taylor: his is bloomberg daybreak. coming up in the next hour, carla hills, former u.s. trade representative. david: sorry, that was unfair of me. things at wall street is buzzing about this morning. tesla opens up pandora's box.

investigators have opened up a fraud investigation after elon tweets last month. the fees that hedge funds charge are unlikely to get cheaper. amazon is not a stock. the ceo says he does not think about thinking about the stock price of his company. good thing, he is a billionaire. david: joining us now is jason kelly. this big story broke yesterday. there is a criminal inquiry, asking for documents from tesla. there is a lot to unpack with this story. we knew there was this civil investigation from the sec. this does not surprise anybody. this feels a little more serious and we are getting into your territory here in the legal aspect. this is never good news. it doesn't feel good. david: it is terrible. it is not unusual if the fcc

looks into it. news,ason it is terrible once they start digging around your emails, internal communications, you don't know what they may find. jason: that was the case with reportersably, as our pointed out. one of the things we know about tesla, we can safely say, it is not exactly the most abundant company. elon musk is not the most buttoned up ceo. what is interesting, with the sec, it was about potentially overstating action. had nothing to do with the tweets about going private. is what thee that doj is talking about. if it goes broader, totally different conversation. we are talking about a

company where government says come into question, what the board knew, when they knew it, essentially in cahoots. david: they did not have a chief accountant for a month. normally you have the bad documents, you can discover it. tweetedrgotten that he before this, that he was going to have a short burn of the century. he tweeted that in may. alix: 11 days. that conference call will be awesome. our next story has a deal with hedge funds. we have reached a floor in how low fees can go. theyteresting study saying will no longer lower the fees because it cost too much to keep the fund running. jason: this is an interesting maneuver, a sign of the times. these have consistently gone down. are over.f 2/20

3% arehat are paying thinking, so we are the suckers? but it does cost more to perform. i have to tell you, no institutional investor out there is saying hedge funds are a bargain. david: this is a survey of asset managers. jason: institutional investors, i think, have a different view. isid: this next one fascinating. david rubenstein sat down with jeff bezos. this is a part of the conversation, what he said about his company and stock. >> your stock is up 70% this year. is there one thing that you think is responsible for that? 70% is pretty good. [laughter] been lecturing -- we have all hands meetings at amazon. now, 1997rs, 21 years

, at almost every all hands meeting i say, look, when the stock is up 30% in a month, don't feel 30% smarter. because when the stock is down 30% in a month, in one of feels so good to be 30% dumber. that is what happens. never spend any time thinking about the stock price. i don't. can watch that interview tonight at 9:00 new york time on bloomberg. when youittle easier have that much of a cushion to say i don't care about the stock price. jason: billionaire on billionaire questions. alix: inside billionaire baseball. david: you can tune into jason kelly on bloomberg businessweek on the radio this week. coming up, brexit's ticking clock. if you have a bloomberg

terminal, you can check out tv and watch as online. interact with us directly. question.so ask us a this is bloomberg. ♪

david: that is what i'm launching, london. it is brexit and they say they are getting closer to a deal. we are going to put up a chart. i love this chart that shows how stacked up they are. look at what they have to get done before october 3 and the middle of november. they have to get an agreement with the conservative party, the eu, summit with the european council. they have six weeks to get it done. on the individual members

and then have to ratify it and approve it before that can take effect. to take it back to the parliaments. we have gotten all the way to this point and ireland is one of the biggest sticking points they have to figure out. the reason they saying that you cannot have ireland separate from the u.k. there will be a headline at some point with the u.k. and ireland agreeing to a deal. you and i believe it is quite possible they will have an agreement but it will be vague in a lot of important regards which means there will be a series of negotiations to say what does that mean. they have to settle certain things before they can tackle what their treaty looks like after brexit is gone. they are not trying to agree on a brexit trade deal, just on how to leave. is a dealse there does that mean there is free trade or tariffs on this.

the meantime, banks and corporations are making real life decisions right now. we hear it every day. alix: at the same time, inflation picking up. now you are getting rate hikes priced in a little more, and it has that effect. david: we will be discussing china and korea with kevin r udd. alix: that will be a fun conversation. coming up, art hogan from the raleigh fbr coming up to talk about higher bond yields. this is bloomberg. ♪

alix: china to the world. we won't weaponize our currency.

the chinese premier rules out a weaker yuan. we speak to the u.s. china business council on ceo's biggest fears. jpmorgan -- america first will last. -- not last. the u.s. yield effect. the sale in u.s. bonds are pulling out. to "bloomberg daybreak: americas." i'm david westin. is wednesday, in the middle of the week, and we are in a transition period. nowas been all trade and there is the economy. alix: right, there is the fed next week. -- is now more attractive. we had that option bill yesterday that showed 2% borrowing costs. the markets digesting that. the loan bond selloff coming to

a bit of a stall, the dollar gaining a bit of steam against currencies like the frank, british pound, but it is still a higher yield story, weaker dollar story. how does that make sense? 3.05 is where we sit on the 10-year. crude flat as well. david: at 8:30 this morning, you was housing starts and permit numbers for august. 3:40 this afternoon, jeff bezos will address the error space and cyber conference. and sometime today, and the canadian official will resume negotiations with u.s. trade representative robert lighthizer. to talk about those talks, we .elcome carla hills ambassador hills served as u.s. trade representative to george aw. bush and was also

secretary with president ford. thank you for being with us. on the back, we will have negotiations today we are told. you really negotiated nafta, if i recall. is it possible we will end up with an agreement that will be improved? >> well, we have to get it done. we have an agreement that has created 14 million jobs, has made north america extremely competitive in the world. so we don't want to break it apart. thoset to add to it and things which have changed our economy since negotiations were completed 25 years ago. you know a lot of people negotiating in this, not necessarily president trump, but robert lighthizer and his staff, a lot of people that work for you. are you confident they are working towards something that will be workable and will include something like

intellectual property and cyber issues, that did not exist when you negotiated it? >> we negotiated upgrades in the transpacific partnership, so there is a lot of exercise going on to show a green light going forward. the sticking points that are preventing the parties from all in the newds are not economic issues, e-commerce, new technologies, but old issues like agriculture. and dispute resolution. there is an issue with canada, as i understand, about whether we would continue the arbitration provisions. >> canada had questions about chapter 19. let's hope that we can find a resolution there. they worry about our trade remedies and of course our tariff actions on them on grounds of national security only enhance that worry.

recently i spoke with kevin hassett at the white house about the fact that u.s. companies are almost uniform in their objections to the new tariffs on imports from china. this is what he had to say on why he thought it was a good idea in the long term. >> the objective is to open up u.s. markets to china. if we are successful in opening up markets, that will be great for u.s. companies. right now, we are in a situation where china is abusing the trade policies that exist, abusing the wto. we have to step in and get them to correct that. david: madam ambassador, i don't think many people can object to the objective of opening a markets or improving chinese performance. lots of issues on how it was being handled. but if you were the trade negotiator, do you see a path for that would get to a place that makes sense for the united

states? >> i would be joining with my allies who are also suffering from china not observing the rules of national treatment, nondiscrimination, forced transfer of technologies, percentage cap's on that because invest in their country that violates basic norms. on mexico, european union, all standing in front of china saying this has to change. are a goodnk tariffs mechanism to get that change. it is not that i differ in terms of objectives, it is in terms of strategy and plan. david: the president has been pretty clear he likes better all, not multilateral. assuming they don't follow your advice in that regard, do you think jack ma is exaggerating when he said this could last 20 years? we could have a trade dispute that goes past the trump administration. i think the more people

sitting around a table, where you put something on the table and your friend next door put something on the table, i want both of those things. i don't have to pay for them. you get a better deal with more people around the table. i am not against getting a good bilateral agreement. i just think it is not as effective when you have more at the table. david: that is ambassador carla hills. alix: when i have a lot of cooks in my kitchen, get out. david: but you are not negotiating trade deals, you are making pastry. the barclays chief economist will be with us next. this is bloomberg. ♪

taylor: this is "bloomberg daybreak: americas." the canadian marijuana company is soaring in premarket trading. the ceo title of the company's prospects in an interview after the bell. yesterday, the company rose 29% after announcing u.s. regulators have approved plans to import medical marijuana for a clinical trial in california. 800%s have risen more than as their debut in july. bloomberg has learned the long battle of the uk's skies bloomberg has learned the long battle of the uk's skies cadillac from castor may be settled in an abbreviated auction starting saturday. the two bidders would be comcast and 21st century fox. disney has been out comcast for most of fox's entertainment access. if fox is the winning bidder,

disney would get control of sky. the european union has let mcdonald's off the head. ended a tax investigation by ruling the fast food giant did not get unlawful state aid. it's a rare reprieve the mcdonald's escaped the fate of other corporations forced to pay eu nations back taxes considered to be unfair assistance. that is your bloomberg business flash. alix: president trump wrapping up the trade more china, and china punches back, and the markets take it in stride. >> i suggest president trump dos with president xi and like most businesses in china and figure it out. it has to come from the top. >> this dispute could go on for some time. jack ma said it may last 20 years. you never know. maybe it is an all of french too only implement a 10% tariff for

now. 25%.e pickup is importantly as you run into the midterms, you'll see the u.s. talking about the next phase, talking about phase three because of chinese retaliation, and i'm aware in the markets. the comments suggest this policy is a shortly were in the long run. that is where the market is taking its comfort from. china will try to offset some of the impact with the fiscal side rather than the monetary side. i think it is a shift in global power. we now have a new, global, dominant power, and that is china. alix: joining us now is art hogan. i want to start with you on the market. is the market reaction of taking this in stride the right one? >> probably not but it is

logical if you use linear logic and say let's figure out what a drag on the economy is now with what we have done already in china. drag,t $35 billion in juxtapose that with the $17 trillion economy. i think that is the wrong logic and we get to that entirety. i think the market starts to pay attention but that does not happen until after the midyear election cycle. i think this is a longer gain. alix: michael, you agree. you read your base case on things not working out well. you look at global trade volumes in the impact. of the impact on gdp in the tv, the key point is this is just a bilateral fight. u.s. andbetween the china, trade volumes between the u.s. and china may diminish over

time but we were just reallocate to other places. they may be the second-best alternative, it may cost more, but the effect on gdp is modest. if it is a more broad-based anti-trade, it is harder to hide in that world. you cannot reallocate trade flows to second-best alternatives. just said,h what was something that will gradually build over time, probably find now given the fiscal stimulus we are receiving but i think this is a shift in the relationship between the u.s. and china, and i don't think it is going away anytime soon. david: that seems to be the case. we spoke to kevin hassett and we had to press him. he said there would be some affect on gdp growth. >> i think it would have some affect, precisely, it would depend on whether we go all the way or not. the idea that gdp growth is north of three, maybe even four

in the third quarter, that would still definitely be true. that all the way, another of the 250 on top billion. have they built and a cushion because of the tax cuts and other fiscal stimulus? >> if you are thinking about 20% tariffs on all the imports from china, you are fully offsetting the effects of the tax cuts, but then you have the federal spending on top of that, the corporate tax cuts on top of that. tax on thea consumer, will slow growth over time. the actual effect will depend on a variety of factors. it will slow activity. alix: how do you as an investor have to deal with that? what do you think? bethe one thing i would careful of, we have heard a lot of that, we need to be defensive.

trade wars are going to slow the economy. i think the defensive group has gotten very expensive. anding out of technology getting into staples, thinking that is a safe trade. reits, come utility, valuations are still too high. if you feel you need to get defensive, it is better to raise cash. i don't think the small caps have played out. i think the russell 2000, which has outperformed, has more room ahead of it for a lot of reasons, not the least of which, they are not as impacted by trade and tariffs. alix: the big question is how will this play out in the consumer landscape? crate ando the ceo of barrel about passing on the price to consumers. >> we have looked at it carefully, we have had a month or two to do research. at this state i don't anticipate

that we will. thates depend on the 25% is threatening to come into effect in january, how that plays out in the marketplace. at this stage, i expect us to be able to work with our vendors or consider alternative sources. alix: what is the impact to consumers? >> when we, with an estimate where the net costs are miller -- relatively minor, it does the line on the costs are borne exclusively by the consumer. when we say a couple of tenths on gdp, probably two or three times that on the consumer. it may take about to pass through, but ultimately, it is a tax on consumption. even small tariffs, what we consider modest, a lot of those goods end up in the consumer consumption bundle. consumers may lose up to more than half a percent of gdp. we will gain some of them back

elsewhere, we may expand the mystic reduction, get some revenue into the government. when you talk about why everybody gets so amped up about this, it is because there will be a burden at the consumers while there. , give us your perspective on investors consumers. we are putting up a chart showing cyclicals versus staples. although it comes down some, still well above the norm. where are you on that balance? what about cyclicals versus staples? >> one of the things i'm most concerned about is that exact point. when you think about staples, the difficulty they are having howady without tariffs, things are impacted by a stronger dollar, commodity prices, all the things that are wrapped into that, i don't think consumer staples is the way to go.

it is too easy a trade to say let's get out of fang, get into consumer staples. group that tends to trade at 14 or 15 times trading at 20 times, earnings into the single digits, i think it is an expansive trade. if you want to be defensive, much more safe to be in cash than some of the typical defensive groups. alix: michael gave in and art hogan are sticking with us. tesla's tweet troubles mount. tesla. investigating this is bloomberg. ♪

for threeis time company stores we are watching today. the first one is dansk a bank. the ceo resigned because of a laundering scandal.

the chairman says he will stay through the transition. earlier we spoke with that chairman, ole andersen. the bank, acquire there were some alarms, unfortunately not acted upon but there were alarms. there has been some alarms during the way, more serious completely and it is -- it is difficult to understand that this has been able to be ongoing for such a long printer of time without anyone bringing it to the attention of senior management or the board. always 2020ight is but you have a major bank reading alarms about money laundering and no action taken? how can that be? alix: and the chairman saying we had no idea. ofyou didn't have an idea this, what else don't you have an idea in your company? david: what reforms do you have

to make beyond replacing the ceo pay view think systems failures. au don't want to draw parallel, but wells fargo, they did not protect themselves or shareholders. ofx: they don't have a sense what the fines could be, or they are not telling us. david: it takes a lot of time and money just to find out the facts. like we could finally get a bidder for sky. they will have a truncated comcastprocess between and 21st century fox. how much will the ticket come down to? >> is it bob iger or brian roberts? maybe it is personal. our third story is tesla. joining us now is jeff osborne. he has an underperform rating on

tesla and a price target of $200. you were a pretty busy man. it seems like every single day tesla gives you something to cover. it keeps us on our toes, you are right. david: this new revelation came out through a bloomberg report, a justice department inquiry that could involve criminal conduct. how material is that to you as an analyst? very material in terms of getting incremental byron interested in the stock. it is one more variable to prevent people from pulling the trigger. a civil andlt from criminal perspective to quantify those types of things in terms of expenses, impact to the model. just perception to investors, it's a big blow. there are two angles, the

incremental buyer will not come in and shareholders will be dumping out for the long term. our colleague grown a great piece yesterday saying the inquiry could lead to all sorts of speculative outcomes. what cannot be in doubt is it is ,ooted in self-inflicted crisis from the company's own a ceo, but that is who you are buying if you buy tesla stock. >> exactly are you are buying into that vision. they are showing some incompetence in terms of management, especially with the delivery problems. it seems to be a whack-a-mole problems,erational staff turnover, and now these investigations. one problem after another keeps snowballing on the company. debt: not just stock but issues as well. some projections showing as much as $2.5 billion. how much will this impact their ability to go into the capital markets? >> with the debt terms they have in place right now, it difficult

to pile on more. $920 million due next march. you would have to take care of that as well as deal with your capital lines, asset back lending agreements, before you add more debt. it is looking like that will need to be equity. back tong said, it goes that incremental buyer statement i said before. it is unclear whether these inquiries will be done by the end of the fourth quarter. let's get to the more constructive you. cautious but had a note out, saying the company could generate positive cash flow and become profitable for the first time in 15 years. how much do you need to put out the noise to look at those kinds of numbers? it's possible in the fourth quarter they could get there. very unlikely in the third quarter they get to cash flow positive and profitability.

the model three was supposed to be a mass-produced car for the people around $35,000. today it is closer to 80. certainly a lot of options that may be able to drive a quarter or two of profitability but i don't see that working out in the long run. jeff osborne, thank you. latest housing data starts out of the u.s. after some mushy numbers. also taking a look at global bond yields continuing to climb. what does that mean for global markets? this is bloomberg. ♪

alix: this is "bloomberg daybreak: americas." i'm alix steel. are dealing with modestly higher global bond yields and a weaker dollar but the equity market not taking a hit.

dow jones futures down 18 points. other asset classes, let's look at what is happening with the 10-year. 3.04%. some buying coming in but you are still looking at a 10-year three handle. what will that mean as the data trickles out? a month to,mits on down over 5%, 5.7%. building permits off substantially. housing starts month on month at a nice job, 9.2%. i feel like as data has been pretty lumpy along the way. it would be nice to get some clarity. they also revised up last month housing starts. they brought that up a bit, a bit over surveyed for this month. alix: if you look at the current account deficit as well, negative 101.5. david: also a slight revision

downward. we don't have quite the trade deficit we thought we did but still pretty substantial. we still have to find a way to plug at fault. still with us are michael gave pen and art hogan. michael, at what point does that become a headwind for the economy? certainly for the global economy and emerging markets right now. that is a contributor factor to the volatility we are seeing. for the u.s. economy, probably 2019. second half of i think housing is reacting to some of this now, mortgages are 100 points above where they were two years ago and home prices are a lot higher. worse, housings described as mushy, that is about right. it works, for sure.

to get a restrictive on monetary policy in 2019. the further you go in 2019 see its effects beyond housing. rt, thus far, the fed has been on a hiking binge. yet the market has not reacted much. do you see that continuing through the rest of the year and into next? >> it is hard to know. everyone in the marketplace is pretty assured september and next week we will get a rate rise, december, still a 50/50 chance. what changes is the information transmission mechanism. this year we thought the fed would raise once a quarter, a gradual pace. that does not become restrictive. next year, they open up all their meetings. there will be a press conference at every meeting. this is something that they should have done a long time ago. that takes december off the table.

they can really lean against strong data and operate in a fashion that is not so protectable like once a quarter. meeting next week. this is my impression, correct me if i'm wrong. fed wasred may be the interested in running hot, going over the neutral rate. they want toaring get to neutral but not over. how does that read through to the market? >> i think that is true. couldwas a time where we let monetary policy run hot, but certainly a time where they would let inflation run hot, but it hasn't. in my mind, the target of 2% pce inflation on an annualized basis could get higher than that. it has been below that for so long. theyere is anything that will let run hot, it is the rate of inflation, especially if it

comes from a place that is not economic. spike and the the price of oil as being not s, wemic, looking at tariff would rather see wage price pressure. alix: agree? >> certainly on the response to tariffs. where i would disagree, i think the fed looks at this and says there is not a lot of tremendous inflation pressure coming through but we are still adding 185,000 jobs a month and we have to slow the stone at some point. two years ago in the absence of fiscal stimulus, hanging out there, that's the right move. with fiscal stimulus, their messages we need to get restrictive. i think they go in september, december, and more hikes next year. dependshat assessment on the assumption that the fed model still works, that there

have not been structural changes in the marketplace. whether it is technology, globalization, or concentration amongst employers. you could have a low unemployment rate and not drive which is up. we are not going to get a funds rate significantly above neutral. in past cycles, the fed would get several hundred basis points or more above neutral because inflation was stronger. you are not seeing that now. are i would say is they trying to get to modestly restrictive, whatever that means. some combination of a restrictive hedge fund rate with balance sheet runoff will get them there. we are not getting to several hundred basis point above neutral but maybe 100. gradual seems to mean different things to different central banks. are at this chart and you looking at the three-month t-bill money market.

it has not been this high since 2008. do you own cash versus stocks? we have tried to make that argument in the marketplace for a while. in february we are era in a similar place. the yield on the 10-year versus the s&p seems to have gapped out . when you think about investors that are long-term, i don't think the yield on the 10-year would attract what would otherwise be equity dollars, until we get a four handle. calls for a getting warning. jpmorgan had a note out talking about how the fiscal boost to the u.s. this year as well as the delayed positive impact to the dollar creates a sugar high. you want to buy emerging markets and get out of u.s. equities. when do you feel it is the right time to make that call?

t if theinly no dollar hangs out near where it is. it is very compelling to look at the gap between the s&p 500 and emerging markets. it has not been this wide in enemy of his memory. unfortunately, the structural problems with the dollar continues to plague emerging markets, especially those laden down with dollar-denominated debt. it looks attractive with a little bit of dollar weakness. i don't see that happening if we continue along this path of monetary policy. david: what about this sugar high idea? people say that we are good for the next three months. what about a year out and you have that fiscal stimulus coming out. >> i think you are probably solid through the middle of next year. 2.5or the rest of the year,

for the first art of next year. in terms of gdp growth. after that, we will see. quarters, wefour are probably in good shape. gapen,thank you, michael and art hogan. great to have both of you with us. now let's get an update on what is making headlines outside the business world with taylor riggs. the leaders of north and south korea have announced their next steps in getting rid of the north's nuclear weapons. kim jong-un has agreed to shut down a nuclear facility and military -- missile facility depending on u.s. actions. president trump praised him in a late night tweet. the president meets with south korea's president monday. china has not close the door with new trade talks with the u.s. despite president trump's decision to impose more tariffs on chinese goods.

one chinese official tells one chinese official tells bloomberg it may be better to hold talks informally, out of the public eye. there is a report to reason may is preparing to reject the eu's improved offer to solve the irish border issue. that negotiator, michel barnier has not dropped his assistants that northern ireland be treated as a separate customs jurisdiction from the rest of the u.k. the border is one of the key issues preventing an agreement on a brexit deal. global news 24 hours a day, on-air, and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. david: coming up, corporate leaders are concerned about the latest tariff announcement. we will talk about that with aaron ennis the u.s. china business council senior vice president. this is bloomberg. ♪

taylor: this is "bloomberg daybreak: americas." coming up later, balance of power. kevin run, former prime minister of australia. now let's get your bloomberg business flash. mastercard is investing in competitive you gaming. the company will become the

first global sponsor of the league of legends. the deal mary's mastercard with the videogame that's become the world's most talked about that popular e-sports. gamers will give rewards for in game purchases with a mastercard. amazon's advertising business is getting faster than expected and a market dominated by facebook and google. a research firm has raised its estimate of the company's ad sales from 2.9 billion dollars to $4.6 billion. google and facebook are the biggest players by far in digital advertising, still capturing 58% of the market this year. home goods company crate and barrel he is keeping a close watch on a trade war between the u.s. and china. bloomberg spoke to the ceo about the impact of tariffs. >> it's a shame and disappointment to us that china was included in the list, however, we will you do need to work with our vendors on how we

mitigate that to customers. we are also lucky in that we have a very diversified client base. taylor: that is your bloomberg business flash. david: it is not just crate and barrel word about those chinese tariffs. the u.s. business council did a survey of its members talking about the nature of its concerns. erin ennis joins us now with what they found. we have a pie chart that shows what you found, the percentage of companies that you cover who are concerned about this. majority,bstantial 73% of companies concerned. how big of a concern is this? is it a profound concern? >> the biggest thing we had to keep in mind is it is based on how long companies think this will go on. certainly a desire among american companies to see the issues that are at the core of

these cases on intellectual property rights and technology transfer addressed but significant disagreement on the tariff, not just because of the andeased cost, as the crate barrel ceo mentioned, but also making their products less competitive. david: do you have a sense from your members on how long they think it could go on? jack ma says 20 years. >> we think that is a little long. with sans the chinese are interested in talking about the specifics on what it would take to address these concerns, this is a matter that can be addressed sooner rather than later, ideally, before the end of the year. another important part is looking at companies not only here in the u.s., those that have subsidiaries in china. what are you hearing about the potential for loss of sales regionally in china, regulatory hurdles in china? >> the founding that we had on our survey showed the way

companies were feeling affects of the trade tensions were in terms of increased cost because of tariffs on both sides but increased scrutiny from regulators, loss of sales because of uncertainty as suppliers, and some concern from chinese customers about the optics of buying from american companies. hassette spoke to kevin a short time ago. we pushed him on why u.s. companies seem to be concerned about this. this is what he had to say to reassure them. is to open objective of u.s. markets to china. if we are successful in opening up the markets, that will be great for u.s. companies. right now, we're in a situation of using thes trade policies that exist, abusing the wto. we have to step in and get them to correct that. david: a short-term, long-term issue. is that the problem, are the

people you are talking about too shortsighted? >> no, i don't think that is the problem at all. we agree there are challenges with how china treats foreign companies in its market, how it fully implement its wto rules. the issue here is whether tariff s is a way to get china to address those things. it is a vast underestimation of the chinese economy if we think tariffs will bring them to the table to talk about issues like intellectual property rights and technology transfer. the chinese says there will to talk about those issues. if the goal is to address those, we should take advantage of that now. alix: there is another narrative playing out on how good this for domestic chinese companies, that they will win out through innovation and manufacturing in the region versus u.s. rivals, perhaps making better products him up because they will not be relying on price competition. what are you hearing about that

threat? >> one of the things to keep in mind is who american companies compete with in china. the vast majority of our members tell us they can be with privately owned the chinese companies. but right after that is other foreign companies in the market. american companies will not lose market share just to domestic chinese companies but losing marketshare to their foreign competitors in china. david: we have been talking about the risk to companies. what about the upside? we have another chart that shows an overwhelming number of your members that has an optimistic view on what may be in store in china. is where the conundrum is about what the data says. companies have been operating in china profitably for as many years as we have been pulling on it. the majority of them see china is still delivering, growing at around 6%, so that makes sense. what we have seen over the year is companies remain generally

optimistic about the market, as opposed to being pessimistic about the market. but we have seen some movement away from them being fully optimistic to moderately optimistic. they are looking on the horizon and wondering not only whether the tariff issues between the u.s. and china can be addressed, but also whether china will continue to be as open to foreign companies and american companies as it has been in the past. david: to add to the conundrum, when you asked your numbers about what may affect their five-your outlook, only 5% referred to the trade conflict. it was things like cost and domestic market growth. trade was not number one. policy andne was regulatory environment, that openness to foreign companies. china's government has stated repeatedly it has every intention of treating domestic and foreign companies on an equal basis. what's been missing is a

limitation of policies that would achieve that. that is what is leading to companies concerns about what that outlook looks like for them in china. david: and that wraps it up. you have a low concern about trader fax but the very big concern about regulatory innovations, and that takes us back to kevin hassett and what he and president trump are saying, we need to make progress. >> right, but that does not mean way to dofs is the that. our argument is you have identified issues, now we have to figure out how we address that. american companies are not alone in the concern that they have in china. foreign companies across the board have similar challenges. this is a time to be working with those countries and with china's government to help them understand what it looks like to generally treat domestic and foreign companies on an equal basis. a company operating in

china, what do you tell them right now? >> make sure you can mitigate the cost increases as you can and be aware of the fact that the data has shown it's a difficult regulatory environment. the problems you are dealing with may have to deal with the current trade tension, but the problems may have also been there a long time and we have to figure out a better way to address. alix: erin ennis, thank you. coming up, a smoking hot stock. 1100% sinceng over july. more on what we are watching in the markets. you can interact with us on tv . this is bloomberg. ♪

canadian pot company tilray source to a market cap of $14 billion, become the biggest marijuana stock on the market.

and that is all on $10 million in sales last quarter. our bloomberg analyst joins us. the recent jump as of yesterday because the usda improved -- approved plans to import medical marijuana for a clinical trial. one is the fundamental potential for a stock like this? >> good morning. tilray is already generating revenues, forecasted to earn itselfin 2019, and that separates itself from many other cannabis related stocks. is an institutional favorite here because not only that, but because of its clinical trials that separate it from others. that's important to get into the european market. alix: also what we have seen is beverage companies interested in pot company. however, will it be biotech, health care that is really going

to be the next push for these stocks? >> it could be. people are wondering when pharmaceutical will get in here. tilray is encroaching on their territory. their full-court press toward clinical trials is to take trials is to takehing cannabis to everything medical, is only going to draw the attention of pharmaceuticals in the very near future. that could be giving valuation a lift here as well. david: is there a technical issue, how much of their stock is available to purchase? >> exactly. very small float. 70% are owned by insiders here. i'm guessing a lot of institutional money coming in in the etf space for my very few companies that are liquid that are nearly profitable to buy to get representation. this is one of them. alix: thank you very much. appreciate that. had to rain on the parade.

it is technical, not because we are doing some cool m&a. aso i'm just not to make it canada-u.s. thing, also diversifying in europe and other parts of the world. that could be where the bigger ship comes in. david: potentially a huge market. alix: that does it for "bloomberg daybreak: americas." coming up, the open. colin rush and his take on the tesla investigation and what it can mean days ahead of earnings. this is bloomberg. ♪

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jonathan: from new york city, and jonathan ferro. this is the countdown to the open.

♪ china promising in what weaponize its currency but data showing its trimming treasury holdings instead of another brexit summit on the horizon. austriars gathering in to discuss the u.k. exit from the union. elon musk struggling to put that sleep behind him. -- that tweet item. he could be facing a similar criminal probe. the bit of weakness creeping through futures, down three points on the s&p 500 off by .1%. on the fx market, the euro-dollar at 11675, up by .1%. china once again promising and what weaponize its currency even as the trade war with the u.s. escalates. the white house together with wall street weighing in. brexit has very little effect on us with a big effect on china.