laying out america first and targeting iran's nuclear programs. andu.s. is being blamed president trump thinks a new deal with south korea. what he meant to say was mario draghi has been downplayed. to raise ratest is it convergence or diverges? david: welcome to "bloomberg daybreak." tweeted that has he will not meet with the president of iran. you can see the rhetoric in a run. at least in the commodity market, the u.s. is taking a harder stance.

it will be curious to see whether the theme continues today or if he is more approachable. alix: what? that is crazy talk. today.ures higher s&p up i-17 euro-dollar up 1/10 of 1%. to esther drive yesterday. the dollar going nowhere -- mr. draghi yesterday. the dollar going nowhere. whether you're in france, u.k., yields up to basis points. we will talk with the ceo of bp later. what does he think? will he see 100? david: is that what you are predicting? alix: no, what i be here now? confidence data

coming out here president trump will address the yuan general assembly. the united states treasury will auction $38 billion on 5-year note speared it is time for the bloomberg first take third we're are joined by rachel evans and marty schenker. marty, the president has quite a schedule today. he has bilaterals with colombia and the secretary-general and security council. what do we really expect out of them at the yuan general assembly address? marty: we expect him to target iran and the nuclear program. last year he targeted north korea. he is now good friends with kim. now iran will take his full fury and you will go right after the nuclear program. fundamentally, do the markets care?

rachel: the markets have been immune to most of the conversation on politics and trade. there was a pullback yesterday but on the whole have been robust. i will be interested to see whether the talk about iran spills over into europe and whether europe will continue trading with iran. that could be more interesting as it comes to reaction the market. european ministers came out so they were working on setting up and working with iran and find deals. it'll be interesting to see whether the u.s. reaction to that if trump adds it to the speech or goes off script. alix: that is key, especially in china and india where the buyers of last resort. if europe state -- stays in come that is a huge change. marty: the sanctions against iran are being much more effective in terms of oil

shipments. the iranian economy is in real difficulty and donald trump will double down on sanctions. it gets to be interesting. david: stay with bloomberg for coverage of president trump's address. we will cover it live. alix: speaking of trade and china, what with the first take be without it. the vice commerce minister talked about how he sees the u.s.-china trade debate. >> our door is open to resumption of trade negotiations, but to make talks to live, as to be based on mutual respect. treating each other as equals. the u.s. has conducted large trade restrictive measures. it is like putting a knife to our neck. how can we negotiate like that? alix: i was talking to someone higher up at a bank yesterday. the conversation was, if it is a bilateral trade issue, that is ok. it weighs -- it was when it was

the whole world when it was back and forth that it doesn't matter. rachel: you have seen that relatively restrictive. markets so far have been pretty immune. industrials her, no major into defense. some he said she said or back-and-forth, that could be an issue. is it going to be a long ?aul for trade? marty kohle vast trade it is not a big deal and markets reflect that. david: it was 200 billion, and that it was 25%.

marty: it is how the world is adapting to these changes. noble conductivity is finding new supply chains. they'll be unintended consequences that will be playing out. the catastrophe that everybody predicted from donald trump's trade policy has just not happened. alix: it is always a top story for us. there is always a big headline and markets don't react. how do you keep having the same conversation. david: it is a top story we have to justify. alix: they are headlines. david: let's talk about mr. draghi. and testified in five european parliament. he referred to inflation as being relatively vigorous. this was yesterday. the markets reacted. the euro shot up although he came back down. people pointed out, less than about it for, talked being stronger. rachel, explain that.

rachel: it is always a question of passing the tea leaves. there is a whole question about how do you interpret what they say? we will look to the fed to see for a policy. there are games that can be played on which way it goes. comments walked back today and clarify them are marks -- the remarks. we have had guidance on the ecb on that. they said they will keep rates accommodative until 2019. we're not seeing a shift. the underlying rate is 1.1%. shifts, it really does not seem like a huge region -- reason to bring that forward. alix: the euro do not hold onto

gains but bund yields did. i wonder there is an ecb in the under market and all mario draghi has to do is open his mouth and we will see a significant shift. thing toe important remember is that mr. draghi had prepared remarks. he knew what he was saying. communication is the number one responsibility of central bankers. i think he just got a little off message and they had to trace it back today. alix: we will see if the fed has any at the end of the day. thank you so much. we will have complete coverage of jerome powell's conference tomorrow at 2:00 p.m. in new york. breaking news, michael corset is now official -- cour david: it is going to be

renamed. kors i wonder what michael thinks about that. he does say it will be diluted in fiscal 2020. long-term implications feel there may not be in a luxury brands left. david: i don't know this industry, but it feels like a brand play. versailles g- versailles t is big. alix: more in central -- versachi is big. you can find all of the charts we just used on your terminal. you can scroll through and save it. this is bloomberg. ♪

>> this is "bloomberg daybreak ago buying versachi. it will rename it sell capri holdings. it is a 40-year-old italian fashion house and has relevance. instagram leaving facebook. there have been growing tensions between the ceo over the direction of the photo sharing app. zuckerberg is now more reliant on instagram for facebook's future growth. job cuts on the way at top levels of starbucks, and organize no shakeup that will

have significant changes to its structure. the goal is to reverse.net sales and rekindle investor interest. your "bloomberg business flash." >> mario draghi sees a vigorous pickup in inflation. market looks for guidance from the boj ahead of the rate decision tomorrow. ,oining us is alicia levine head of global investment yorkegy at the bank of new mellon. did you make of market reaction? alicia: it was interesting. what mario draghi is trying to credibility onk what his plans for the unwind and raising rates. there is skepticism in the market whether they will move forward on raising rates in the

middle of 2019. as the federal reserve diverges from the ecb, that creates a problem for europe. david: if you listen to the ,tatement, that was embedded don't pay too much attention to the overall headline number because it is suppressed by oil prices. if you look at the underlying, it is better than you thought. alicia: the numbers do not show much inflation, but it has ticked higher in the last two months. vigorous sounds stronger than stronger. earss what definitely -- were listening. it is mostly about divergence in policy. alix: if you come inside the is the rate of change in 10 year in japan, and it germany, and the u.s.. the eldest japan and that is suppressed by the boj. you have seen 17 basis points increase in the u.s. and 13 in

germany. story,loff is it a u.s. it shows a convergent story. think there is divergence and i think europe has more risk than the u.s. does. despite the fact that yields are higher in europe, you still have an issue of divergence. we see divergence in markets and greater risk in europe than the u.s.. david: there is divergence versus con virgins. -- convergence. i will put a chart of. it banks gradually coming out of liquidity and is that the larger phenomenon that we have more of affect? alicia: markets were sanguine about it. we saw a real problem in emerging markets.

as liquidity tightens globally, you will see it in argentina and turkey and we are seeing it in south africa and brazil. alix: what is the right way to play that? do you need to short u.s. treasury and by bunds? that rates arek moving higher in the u.s. we are not so sure about europe. there will be a time in a move higher, but there is so much noise tween now and then, we have to deal with the italian budget and the european banks being exposed, not just to the sovereign debt of italy, but corporate debt of emerging markets priced in euros. there is more risk there. i'd not see yields moving higher in europe. isid: how much of the risk that it is chasing fixed income, cyber or corporate?

alicia: it is coming to the u.s. because this is the only game in town. hand, you have fed raising rates and a very strong economy. it looks like the economy has legs. alix: looking at the fed meeting, wendy you expect them to take out the word -- when it do you expect them to take out the word accommodative? alicia: we keep accommodative on this round. look for it in december or march of next year where it is taken out. powell has communicated it will be taken out. that shouldn't be a surprise to the market. in the next round i think. value whenthat go by it is taken out? debate about is a where the rates are right now. it seems that the rates are actually higher than originally

projected by the fed. i think it shows that capital will be tighter. there is more constrained in the economy. to that extent, perhaps value will start outperforming. david: tighter, but still loose as a practical matter. alicia levine will be staying with us. today and tomorrow for our coverage of the fed. draghi seesario inflation figure. our businesses in the u.s. stealing it? this is bloomberg. ♪

david: breaking news out of bmw. they cut their margin forecast to 7% on the news the shares are

falling. it is down almost 5%. their margin will be less than what had been projected. alix: is that was supplied? david: i don't know. the auto industry globally is softening. ofts are going up because transformation in leadership and electric vehicles. more investment. >> they are projected to reach

-- between now and 2020. this is from the non-core components of the general index and underlying inflation. he is the ceo, welcome. what are you seeing in your business in terms of inflation in europe? the europeanout companies, that is a company that has made the u.s. market. it is 20% of sales. we are also 50% of our business in emerging countries. currency and about and curren y

inflation, there is a revolution in the way consumers want to eat and drink and how they are made. essentialcal is it because of what you are saying which is inflation is bad. -- back. commoditiesll be in . we need to take a completely different look at how we supply in a sustainable manner the consumers for what they want. david: how do you accommodate those? currency evaluations and there are some specifics to the food transformation globally. how do you balance and accommodate those interests? it was recognized 10 years ago that things were going to radically change in the food space. there would be a revolution.

people going for organic and plant-based and new ways of changing their diets. they are shopping in different manners going for smaller brands. we were in eight of the 10 fastest growing markets in the world with what consumers want for the future. we made a big acquisition in the u.s. a year and a half ago, which is on spot with those trends. , a company to grow prepare for the future of the food industry. alix: you have a big exposure to u.s. and emerging markets. our trade wars and battles inflationary or disinflationary? emmanuel: they will be inflationary. at the same time, we have made sure our business model was as local as possible. fresh dairy, which we are the largest lobo player -- global

player is a very local business. in the u.s., everything we produce in the u.s.. , we sell in the u.s. exceptions,few including baby food. we are the leading player in baby food around the world. are one ofrition, we the largest players in that field, which requires significant recession development and central organizations and exports. the balance is local. ,hen i look at this market horizon, organic, happy family, all our local. pricing powerave

to pass in the inflationary market? emmanuel: we have been radically going for innovation and what consumers want. probiotics, all are growing. yogurt in which we lead is growing more than 10%. our plant-based of a creamers than doublemore digits. you have hypergrowth pockets driven by the millennial generation and the way they consume. ,o the internet connections they change the way people and drink and change the way families are eating and drinking. we address that with our brands. we bring value through innovation. that is how we are driving this is a reald this challenge and we need to be disciplined in the way we do that in the current world. david: even as you speak, peter

navarro is coming out and saying we are going to keep going with china and not back down and keep imposing tariffs. we will have nafta problems. when you talk about local origination or production, how much is because of the nature of your business and how much do you take into account the trade conflicts with the u.s. and brexit? emmanuel: we have taken the view 10 years ago that the world would do globalize. david: 10 years ago? emmanuel: 10 years ago, because we see people want local and be sure they are as safe as possible. they do not trust the old model to deliver that anymore. there is a whole trend that goes for local. if we have to pay the price for a carbon footprint, we are balancing and cutting the footprint in two.

the more local you will be, the less you will be in your carbon. you see that digital giants have to operate at the very local neighborhood at level. there is a whole trend that is going to re-localize food from the start. that is the revolution we are trying to contribute to. of consumerse expectation and demand. can you do that without sacrificing efficiency and market? emmanuel: no, you can't. in the long-term, i think the global models, we see global going down in market share. the large brands and international and global brands are moving into the smaller ones. you take the national layers and they are -- players and they are against thet share

smaller guys year after year, and that is a trend. we need to prepare for a world that will be less mobile trade, more local, and this is what consumers and politicians are pushing for. we need to address that and we are prepared to do that. david: that is very interesting. alix: talk about the ahead of the curve. faber, good to get your perspective. we will speak with the ceo of a global company, bp of ceo, bob dudley. markets, s&p futures higher come up by about seven points. it is the other asset classes that are catching my eye. euro-dollar, modestly higher

although off the high we felt yesterday, a lot of the little of the after mario draghi talked about the vigorous inflation. the bond market seeing a selloff. sterling, david you explain this one to me. i don't get it. you tell me. david: prime minister may is doing a heckuva job despite what the press says. alix: are you being sarcastic? david: the markets are always right. let's get an update on what is making headlines outside the business world. emma chandra is here with the "first word news." mma: china says it is open to trade talks with the u.s. but beijing will not negotiate with what it calls a knife at its throat. that china will

not back down after the countries imposed new tarriffs on monday. brent kavanaugh says he never sexually assaulted anyone and is not going anywhere. he defended himself last night, appearing with his wife in an interview on fox news. the senate judiciary committee will hear from him and his principal accuser on thursday. in the u.k., the opposition labor party -- labor party is stepping up the pressure on premise or theresa may. the party is preparing to vote down any deal with the eu that makes it to parliament. global news, 24 hours a day, on air and at tick toc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. this is bloomberg. the federal reserve's open market committee meets today and tomorrow with markets expecting a rate hike. another one could possibly come december which looks likely to

ensure u.s. rates remain above the rate of inflation. you can see that in my terminal right now. we will come whose business is directly affected by interest rates, bill rudin, cochair of rudin management company. welcome. you look at these rates and what is going on. how does it affect your business? what we have tried to do is lock in while the rates were low and work on some refinancing. i think it is reflective of the rates,, the interest hopefully rent will start bumping up and our companies will continue to grow. david: an awful lot of you have had a good ride of it. is it starting constricting your business or other businesses

that you depend on? we have stayed ahead of the curve and we are investing our properties and whether the rates are up a little bit, or they are historically low, we are still taking advantage of it. it is important to look forward. alix: is there an area of the market in general that you see that you would be a little bit more worried about? bill: in certain markets, yes. we are focused on new york city and we are developing a unique building in brooklyn. it was interesting to hear -- talk about innovation. we are creating a building of the future. it is fully wired, amenities, a lot of open space. think it is creating infrastructure for the companies that want to grow and are trying to attract employees and they're looking for these amenities we have. medicala food hall, a

center, and outdoor space, basketball court, bike valet. alix: that is a new one. bill: everyone bikes in brooklyn. trying to provide that type of infrastructure that these companies want to have so they can attract their employees. ceo soyou are a smart you hedged against interest rate rises but some of those people who need to come to you and rent or buy your space may not have. are you concerned about these tech companies being overexposed? statistic,teresting about $12 billion of equity for entrepreneurial companies in new york city. that is a huge increase, almost double. there is plenty of cash out there and these investors are looking for the smart companies and if you are a smart company, you look at the capital and grow

your business. they need to hire people and the defined space to put the people in and hopefully they end up in our building. alix: shameless plug. david: the fed does not raise rates in a vacuum because they are seeing growth. are you seeing growth in your business and at what point do you become overbuilt? bill: certain markets are overbuilt. new york city is expanding all over. it is not just midtown manhattan. it is not just whets -- westside or downtown. it is now in brooklyn and in every neighborhood, there is tremendous growth. maybe we are a little oversupplied but i think growth is up over the last several years. that fills the demand that is out there.

-- : alix: it was like where are we? you are like in the middle of wall street. bill: when you go over the 59th street bridge in long island city, going on in brooklyn and williamsburg, it is fantastic for the city and it bodes well for the future. and a half million feet of space has been rented over the last couple of years by technology companies based in san francisco. seattle and then another city that i forget the name of. google, amazon, they are coming here because they want to be here because the brains are here. alix: when you do talk to your clients, what is the biggest risk they have? bill: it is just the general

economy but the economy is doing very well obviously. these young smart companies are sort of fearless. there is money out there. they have to have a good business plan, a good executive team. wework, thes fastest growing company in the world. they have taken over in terms of square footage in new york, they are the largest tenet in new york. they helped curate our building with us because they know what these companies are looking for in terms of the wellness center and the food hall and the conference. are probably concerned about all the other things that we are concerned about, about interest rates, the economy, trade. i think there seems to be a very positive direction and in terms of new york city, of companies growing here. david: you can build these big

complexes without infrastructure, without roads and tunnels. when president trump first came in, that was high on the list of his agenda. we have not seen much progress at all. how big is the risk that you will get out of the infrastructure and it will not be coming behind you? infrastructure is key and hopefully after the midterms, congress will get together and focus on infrastructure and work on affordable housing and roads. one of the things that was important in terms of our decision to move ahead was the stop on theirry system that has been an incredible positive for transportation in the city. we need those types of initiatives. our project is a public/private partnership. the city owns the land. we long-term leased it. we are putting up the capital. those of the types of projects where it is a public/private

partnership where congress will hopefully move forward to grow our economy. david: but do you need congress? you just described partnerships involving state and local and regional. do we still need the federal government? bill: the cities and the states have stepped in and done an incredible job. if washington unleashes and gets moving on the gateway project and other projects across the country, that will help us be competitive. we are in a global marketplace we need to remain competitive and local governments play their part but they can only go so far. we need the federal government to help. alix: you have to find a better way for me to get out of brooklyn with my car. there is no way to get out. i leave this to you. bill: you take the ferry. ferry.ur bike onto the bill: can you imagine -- alix:

can you imagine me on a bike? bill rudin of rudin management, it was great to stay you -- great to see you. still with us is -- when you take a look at alternative investments, is that a place you want to be in or do you want to be in yield sensitive sectors? >> we think all institution should have an allocation to alternative, particularly when you think the market is changing going forward. in particular, we like private debt in the u.s. and we really like private debt in europe. a just think that it is really interesting place to put .ome capital

alicia: companies that need to borrow and borrow big will he get -- will get hit first. on the other hand, this tax law is very pro cyclical, meaning that companies have more cash, they can generate more cash and extend the cycle of little bit, so you will not see the typical impact from higher rates just .et david: exacerbating the cycle is a good thing when you are on the way up but what comes up tends to come down. bill: when it -- alicia: when the economy does turn, the companies that are more constrained will get hit first and the weakest companies will get hit first. this is where research matters and fundamental analysis matters. alix: we have seen a little bit of that as tech has taken a backseat. health care, industrials in financials have come to the fore. is that the right strategy? alicia: the issue with tech is

not just the trade war with china but also the fact that there is a bit of a bipartisan consensus building in washington that there needs to be some sort of regulation and a matter who was going to control congress, there will be some greater scrutiny of the companies and there will be regulation in this cuts across both political parties but they end up at the same place. that is going to shape multiples and some of the euphoria we have seen in this sector. david: alicia levine of bny mellon investment management, thank you's much for being with us. instagram's pounders are about to leave facebook. we will discuss the internal shuffle. this is bloomberg. ♪

emma: this is bloomberg daybreak. coming up in the next hour, and expose of interview with bob dudley, bp's ceo. this is bloomberg. now to your bloomberg business flash. withe's ceo wants to deal -- from conservatives who say their views are being censored online. he will meet with lawmakers on capitol hill. google denies it makes content decisions based on politics. president another prominent republicans have accused google, facebook and twitter of silencing conservative voices. deutsche bank will consider a possible deal after an 18 month period to increase profit.

german government official support the idea of combining the country's two largest banks. job cuts are on the way at the top level of starbucks. they are planning and organizational shakeup that involves significant changes to its structure. the goal is to reversed i been sales that weekend investor -- that weakend investor interest weakened investor interest. they wall street realtor offers to retire or buyout its employees and has anyone seen -- the russian billionaire rignet -- memorizes his u.k. exposure as international tensions flare between russia and the u.k. a facebook mixed picture. the instagram founders leave the company and mark zuckerberg focuses his attention on growing the app.

david: joining us now is jason kelly, bloomberg's new york bureau chief. you flagged this earlier this morning. the sec has to cut back because they don't have enough money? jason: the story caught my attention because nobody has really hurt that much about the sec until the -- about the cftc until the financial crisis. the innerely in meaning -- intervening years, their mandate has become a lot more complicated and a lot more expensive in the budget has not kept up with that. they are strapped for cash. they cannot pay their employees. david: this is a problem. what does it say for the financial system overall? theoretically, we needed to be regulating these derivatives. alix: and it is harder with

cryptocurrencies. jason: this is not great news. at least there is a buyout being offered and there are mechanisms by which they can do that but the broader picture of we cannot afford to pay the regulators is not something -- maybe in a certain less ethical corner of wall street people are like let's regulators but where people actually care about transparency and integrity. david: and you have seen president trump cutting back on some of the apparatus. jason: we will see where this goes. don't regulate them until i want to. david: this is a fascinating

story. he bought the chelsea football club. basically -- came along. is a sports entree into this and that is how most people know who this guy is. he owns chelsea, arguably the englishwn of the big soccer chain -- soccer teams. a lot of fans here in the united states. money inent a lot of sanford bridge. the problem is that he is not showing up in london that much because there is a massive crackdown going on with what they call london grab. they were like why were

all these people coming in? mechanismy had this in place for the actually had to raise the amount because so many people were taking advantage of it and big neighborhoods, big swaths of london were largely populated not just by russians but ultra wealthy russians. if you wind up selling, what price would he sell at? it makes no money but he seems to not care about profit. who is going to pay out for something it makes no money? who just wants a sports team named with them? jason: oh, alex. alix: silly alix. david: thankfully we don't have anything like that going on in the nfl. it is called male ego. jason: can't -- alix: can you mansplain that to me?

[laughter] our third story, the founders of instagram, they are now leaving the company and instagram has been a driver for growth in facebook and the fact that they are leaving tells me about where mark zuckerberg is envisioning himself. jason: this is a huge story in silicon valley and beyond. instagram, if you go back to the earnings calls and you talk to analysts and investors, instagram is the bright light in thing peopleis the have been investing into and these guys were seen as leaders within the company. i was reading about this this morning. even in the parting statement, there was not even a cursory like thanks mark, this has been great, nothing. toething about getting back being creative and making a difference. news, whenve some

they bought you, they bought you and when they tell you they will leave you alone, they did not do that. i was with nbc when disney bought them. they said they were going to leave them alone and it did not happen for a minute. guys the success these have had, the point of leaving it alone is because they do well and. david: and they have not been subject to a lot of the same questions like twitter. jason: the other thing to keep a -- keep an eye on is they will make something else and it could compete with facebook. david: many thanks to bloomberg jason kelly. you can tune into jason on business week on bloomberg radio. coming up, sweden's political turmoil. the prime minister was ousted in a no-confidence vote in parliament but he refuses to resign. this is bloomberg.

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david: i am watching sweden today because they have this huge political turmoil. for the first time in history, a no-confidence vote for the prime minister. his voted him out because coalition would not back him even though he has technically a one-vote margin but he refuses to resign as a practical matter. look what has happened to the krona. it has not gone down and it turns out as far as we can tell, the markets care more about the likelihood of a rate rise in december than about the politics. alix: totally. up.ve that you brought that a lot of that political jockeying sounds like the u.k. and italy and that you have a government that cannot function

with each other and there turns out to be no good solution. david: even germany. alix: that's true. david: we have the chancellor of germany apologizing as they have about thendal securities chief. alix: coming up, an exclusive interview with bob dudley, bp's ceo as we dissect the rally we have seen in oil. this is bloomberg. ♪

alix: won't negotiate with a knife to its throat.

china digs in its heels and blames its trading stance on the u.s. follow the new leader. health care industrials steal the spotlight from tech. david kostin, goldman sachs chief u.s. equity strategist helps us break it down. the market turns bullish after opec ignores president trump's tweet for lower prices. david: welcome to bloomberg daybreak on this tuesday, september -- september 25. alix: you have the ron rosenstein yesterday -- ron rosenstein thing yesterday. david: mario draghi talking about robust inflation. s&p futures up by about seven points here. euro-dollar up 3/10 of 1%. david talking about the rigorous

inflation comment from mario draghi. part of that is the dollar hesitation. you still see a relative selloff in the bond market. it is going to be the safety one like bunds. crude up 5/10 of 1%. lots of conversation as to what that will mean. we will talk to the ceo of a major oil company. david: time now for the morning brief. consumer confidence data for the month of september. at 10:15, president trump going to be addressing the united nations and at 1:00 this afternoon, the u.s. treasury will auction off 30 year notes. alix: let's go to emma chandra with the "first word news." bob: president trump -- emma: president trump will target iran and its nuclear program at the general assembly today. he is expected to use a forceful tone. he tweeted this morning that he will not be meeting with the ukrainian president -- iranian

print -- president. says it is open to trade talks with the u.s. but beijing will not negotiate with what it calls a knife at its throat. the commerce minister says u.s. trade restrictions are responsible for stalled talks. countries imposed new tarriffs on each other on monday. the opposition labor party in u.k. a step -- in the u.k. is stepping up the pressure on prime minister theresa may. labor is planning to vote down any deal with the eu that may brings to parliament. she has a slim majority in parliament. global news, 24 hours a day, on air and at tick toc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. this is bloomberg. alix: an ongoing trade war with china. a fed that is tightening. how do you deal with that? here is what some of our guests had to say. >> you are basically starting to

see over the last 10 days and all of this -- is a reversal of this great defensive rotation and i would argue it has a long ways to go. >> trade wars are going to slow the economy, and i just think that the defensive group has gotten a lot -- gotten very expensive. >> right now i think there was a lot of upside to a lot of markets. i would not be getting defensive. >> we think this rotation has a bit more leg. part of the reason is if you look at it, the move through 3% on the 10 year yield seems more sustainable. the psychology is changing about what the long-term interest rate is going to be. technology, hire multiple space is likely to come under pressure. >> take a look at it in relative

terms and the cyclical rotation which has a long ways to go is just beginning. alix: joining us now is david kostin, goldman sachs' chief u.s. equity strategist. you just heard what they said. how defensive do you want to be in this market right now? david k: i do not want to be defensive. 2020, it would suggest you want to be more cyclically positioned in terms of better growth. the way to think about that would be more technology as part of the portfolio and that is consistent with the fact that companies are investing the most in their opportunities in terms of capital spending and that is likely to drive future growth as well. it is a strategy we have focused on with many portfolio managers. the companies were taking their cash flow and directing it into

investing for the future, that is both research and development dollars as well as capital pex.ding cap david: there it is right there. years,: in the last 20 19 of the 20 years you have had ex is the number one -- buybacks will be the number one use of cash. that is a situation partly thatcting this new tax law had companies repatriating some of their cash and using it to buy back stock. also the opportunity is very robust. lots of cash flow with companies having their cash flow that have grown 36% this year. sales up.

problem, what do you do with this incremental dollars. one reason why you want to be focusing on the markets generally moving higher. alix: there is a push and pull. the pull is going to be trade. chart showingat earnings estimates and where you think they will be an once you account for trade, the earnings growth is not so much. can you walk us through what you see? david k: if you look at this , our baseline forecast for s&p 500 earnings per share in 2019 is $170 per share. what is the scenario of various tarriff for trade tensions that may take place? -- in womannounced did on monday, the $250 billion just enacted on monday,

the $250 -- $250 billion tarriff . baseline forecast is earnings growth, 7% and a more dire scenario would be no earnings growth. if you are paying 17 times 7% earnings growth, what multiple would you pay for 0% earnings growth? are we less than that? somethingio would be in the area of 2600. my baseline forecast is 2850 for this year and 3000 for next year. that for theid rest of 18 into 19 and 20 and even 21, you are seeing growth. that is further out than many people are willing to look.

that vantageu point and how would it change your investment decision? david k: the discussion of when the next downturn is going to take place is a much debated point in most client meetings. is economicorecast expansion decelerating in 2019, 20 and 21. but is not the baseline forecast at the current time. that is still pretty far out if you think three years out. what isline forecast is the likely trajectory of economic activity in 2019 and 2020 because the market for next year will start pricing in the growth in 2020 and my argument would be consumer confidence is still extremely high. is -- the u.s. economy small business optimism is one of the highest it has been in 40 years. corporate buybacks are buying

back a lot of stock. those are consistent with economic expansion and more importantly, earnings growth. you don't need a lot of activity. and where you get most of that growth is going to be technology. david: david kostin goldman sachs will be staying with us. don't forget to tune in to bloomberg television tomorrow for special coverage of the fed decide. coming up, an exclusive interview with the ceo of one of the world's biggest oil companies. bob dudley, ceo of bp. that is coming up. this is bloomberg. ♪ >> -- ♪

david: this week is climate week in new york as world leaders

gather to discuss the climate changes we think. we will be taking a closer look at climate change each day of the week. we will have an installment of our climate risk series. alix: one company leading the charge here is bp. bob dudley, the ceo is one of the founders of the -- of the oil and gas climate initiative. new members coming into the forum like exxon mobil and chevron. joining us now is bob dudley. so great to talk to you. walk me through the reducing of methane you are committing to. what is the conversation? is it about diversifying your product mix? and oil and gas and energy agriculture has such a huge role to play in this. ago, we cames

together and said we need to get together and work on climate technologies. ,ne of the great things about the important things about methane is it is a really potent greenhouse gas. put our shoulders together and start working together, developing technologies to measure methane. natural gas has a great important role in climate change and transitioning, combining with nubile bulls and other things. satellites, drones, companies coming together and now three big u.s. companies have joined us. alix: the other part of that story is the diversification of big oil's portfolio into renewables and new energies. if you had to spend more money on new energy and had to keep your oil and gas business running, that the capex will bloom and investors to not want that. bob: you cannot ship completely and spend money without real care.

in our case, we have half $1 billion a year of renewal spending going on. -- renewable spending going on. a billion people on the planet today do not have electricity. omissions have to be down by half -- emissions have to be down by half. national we need governments to get us where we need to go? apart from the epa? do we need them? can we get this done other ways? bob: we are doing it because it is good business. keep the methane's in the pipes and burn it efficiently. we believe in regulation but we are not going to wait. a believer that the transition needs to be made from coal.

that is the epicenter of climate change and natural gas would be able to go and work in asia. alix: let's move to the broader conversation of the oil price. i talked to the ceo of equal nor earlier and asked him about $100 oil. >> we need to be prepared for much lower prices. that is what i think about it. $100 spike, do you see it? >> it happened before and it can happen again. alix: do you see it? bob: it is possible. i would like to think that is not what is going to happen. there is a lot of uncertainty and volatility in the next month. what is going to happen with the iran sanctions? you can see it going up or going down. oil prices feel high to me. stock levels are low overall so there is upward pressure but

volatility is the word. david: what happened the last time with iran sanctions? good that instruct what will happen this time? on: there is more pressure the sanctions this time because you get into a financial system where the chinese, the indians, the japanese, they're going to have a hard time leasing ships to actually move the oil, even if people said they would buy it. alix: and it is oil which is different than last time. what are the longer term and -- implications of this for you and the market? bob: we're going to continue to plan our company within that disciplined framework. oil prices have come back up. the industry is not off to the races spending capital. stock levels are now down below the last four -- the last five years of average. they can't get out of the framework and then there is -- and then it loses credibility.

it is quite a delicate move forward with the companies. david: as the ultimate control over oil prices, has it shifted from saudi arabia and russia over to the united states? bob: you have three countries out there, all about 11 million barrels a day. saudi arabia can flex more than the other countries and the u.s. is market lead and bottlenecked right now. alix: talking about america and the opportunity -- america and the opportunities for you. it feels like you are really shifting your focus to north america. bp, it was built out of the big merges with u.s. companies. we finally have the confidence to make a significant investment with bhp in the u.s..

it is a really important place for us. alix: can you rank it? there is more availability of supply. what would you put? what excites you the most? bob: existing production in the gulf of mexico, though the highest margin barrels in the world for us. shale, we are just getting started. you can optimize that. andwe can take the talent put it on liquids in the u.s. and i think that will be more important. david: you have to make investment decisions over a long period of time. how do you account for electric vehicles? how do you accommodate that in your investment decisions? bob: we have five or six scenarios. there will be lots of electric vehicles, particularly in the cities.

we bought the largest electric vehicle charging company in the u.k. you combine it with retail. we interface with 13 million customers per day. it would be liquid fuels, electric fuels and retailing. in terms of solving the climate change issue with electricity which will come, you can't just replace that with pollution and move it outside. electric can between but you can't move it with a coal-fired power plant and say you are solving this issue. alix: you still needs coupled -- need cobalt. with the issues between the u.s. and china, have you seen any direct impact on where your oil is going? bob: not yet. the crude flows continue to move. it is a global market. the iran sanctions may have more impact. those of the big things that affect trade flows.

we see some impact of sanctions. we see the cost of steel going up. for now, the impacts are not there. the market is anticipating things but that is where the volatility comes in. alix: fairpoint. what about with -- have those trade flows toted to shift -- started to shift? bob: there has been talk about not bringing lng but about a third of the gas can move from other places. we will move to china without big dislocations. it could slow down some natural gas projects in the united states. are you seeing a reduction in investment in things like lng facilities because of the uncertainty surrounding trade? bob: we have seen a reduction in

-- in investment globally because they overran the cost for a little while. the discipline is going to build them in phases. a better way to project manage them. there are projects on the cards around the world. alix: how do you see the short-term implications of sanctions on trade flows? now we have indications that is not the case. europe coming in and saying we want to keep trying to do business. is there a backstop? i think the issue is that infrastructure which can be affected by this. are there ships out there that would not be subject to the sanctions? all of that is the big question. it does not feel like it but if the u.s. granted some exemptions , suddenly that would open that up and that could affect -- that is one of the things that could

affect price on the downside. alix: how tight is the market short-term? the issue is if the iran oil , that is going to tighten the market. bob: they are not empty. saudi arabia has the ability to bring more oil into the market very quickly. a prolonged on for time, you would see stock levels coming down and that is because demand continues to go up. alix: even if we have a trade war impact, what is your demand forecast? bob: if you take 1 million and a half barrels off the market, we .ee it affecting world demand not a giant impact unless it is really prolonged. alix: the thing that freaks you out the most? bob: cyber. alix: really? bob: it should, everybody. it is not a bp thing.

ciber is the thing you worry about for your own companies and the world. alix: the thing that freaks me out the most, i ignore it. ceo, thank yous very much. coming up, we will speak with the ceo of the world's largest agricultural company. david: and we still have david kostin hear from goldman sachs. i want to ask you about bp specifically. how do you regard energy as a sector? david k: if you think about it from the top down point of view and cyclicals, it is part of the cyclical part of the economy. if you think about it from a micro point of view, there is better growth in areas of the cyclical part of the market. double-digit growth in earnings and the technology space as an example.

from a top-down or bottom-up, a different perspective. david: some of this rebalancing that happened after the close of the markets on friday. , they put services some really odd companies together. tell us about what happened and what is the significance? david k: it will take place this friday afternoon at the end of ,he quarter, and the standard the global index allocation in terms of how individual companies are classified are going to change. what they are basically doing is taking the telecom sector which is verizon and at&t and to that they are going to be adding a number of the media companies as well as some of the big technology stocks. you will also have disney and netflix and viacom and comcast. all of these are moving into a category called communication services and medication services will be 10% of the s&p 500 and

as a result, you will find companies or individual portfolio managers will be revisiting their allocations. if you look at the hedge fund , as a result of the shifting of some of those companies, out of what is traditionally technology, they will be underweight. david: explain the rationale. if you said to me we going to put at&t together with disney and facebook, i would say those are three very different profiles. how does it work to fit those three together? david k: think about communication services the same way you think about health care. health care has pharmaceutical stocks, biotechnology and hospital companies. companies with a variety of different growth profiles, risk, but with what the. ,hink about medication services businesses involved in communication in various forms and modalities.

you will have some that are more telecom oriented and some of the higher flying internet-related companies in the new have some of the media companies and between. think about health care and think about medications services -- about communications services. david: what difference does it make as an investor? how will i see this show up? david k: to a certain degree, it does not make a different. with about a deck of cards four suits and now you are dealing them into five suits. the market becomes more balanced in a sense that right now, technology is about 26% of the capitalization of the s&p 500. this darkly since we were just talking about energy, you had in the late 70's when energy was 26% of the market. technology was a third of the stock market and if something

happens to be sector, whatever development may take place, and that comes down and there is a lot of concentration by definition. by diversifying the market and reclassifying it, there is less concentration. that is one way in which you would think about that risk. the risk is less isolated. it will be around 20%. david: it goes from 33% to 20%. david k: we will lose about a fifth of the technology sector transferred. it is a way of thinking about risk as well. so now the legacy technology is a very attractive area to be an because some of the fastest-growing stocks while they are excellent companies, moving to the communication services, some of the legacy companies won't get as much focus. david: does it change any of the

recommendations you make? david k: not from a fundamental perspective. with think about volatility and risk and there -- we think about volatility and risk and the risk profile. alix: the other issue in the market is the passive funds. it really wants to make money off of the passive funds but you are not in it. can you walk me through your thinking? david k: what stocks are overrated or overly positioned as opposed to the funds that are the active funds.

-- only 5% weighting, so there will be diverted between the weighting of the stock and the index. there are changes taking place with how classifications take place. alix: david kostin, so great to get your perspective. david kostin of goldman sachs. in the markets, and little bit of a risk on, s&p futures up by about six. european stocks up for tents. and the other asset classes, that gets my attention. euro-dollar still moving higher. .ou had that spike yesterday now there is a pause in the dollar as we wait to see what happens with the fed. sterling no continuing to climb higher on the highs of the session -- sterling still -- sterling note continuing to climb higher on the highs of the session. yields in the u.s. up by about one basis point. germany taking it on the chin.

crude up 4/10 of 1%. david: time now to find out what is going on outside the business world. we turn to emma chandra with the "first word news." emma: bright kavanaugh says he never sexually assaulted anyone and is not going anywhere. kavanaugh defended himself last night, appearing with his wife in an interview on fox news. the senate judiciary committee will hear testimony from him and on principal accuser thursday. deputy attorney general ron rosenstein. the president says they will discuss what is going on. bloomberg learned that rosenstein told white house chief of staff he is resigning. his statement led to confusion, following suggestions he suggested secretly taping conversations with the president. will set up aries mechanism to allow what they

called legitimate business with the islamic republic that reflects growing countries -- pressure from france and germany, which do not want uniform policy to rely on what they see as an unpredictable u.s. government. global news powered by 27 hundred journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. david w: world leaders are at the u.n. in new york. presidents trump and macron are scheduled to speak. tomorrow, we will be live from the bloomberg annual business forum. let's go to talk with roger , andson, president and ceo former fed vice chairman. theresa may will give the keynote speech. to ask why the pound is so strong. alix: it is like the super bowl of politicians. david w: you walk around the

street and you see all these people that you know. his misleaders, world leaders. it is extort near you put them together for four or five days of incredible gridlock. alix: yes, take the train. david w: china and the u.s. are digging and for what could be a bruising trade war. isgo is a major -- cargill a major grain trader that employs 150,000 people across seven countries. we welcome david maclennan, the chairman and ceo, and michael mckee, bloomberg economics and policy editor. david m: good to be here. david w: you have almost a unique perspective on global trade, not just u.s. trade. how do you see it right now? are we seeing the effects already of the tariffs? david m: we are and it is not just the effects of the tariffs, but to your point, the

uncertainty -- anticipation of what this could mean. soybean prices are at an 11 year low. been a another good harvest, a good growing season in north america and south and brazil. nevertheless, there has been an impact. david w: it is a global market. you are constrained about what you can bring to the united states, and you can bring it from somewhere else. but does it really disrupt the trade patterns? david m: i think i might choose a different word than disrupt. it certainly rearranges the trade clutter -- patterns. pride and the trade war that is going on, and there are prices. it is making sources like south america cheaper. it rearranges the supply chains. alix: we are going to get nerdy with soybeans in a second. the broader question to mike and dave is, our trade wars

disinflationary or inflationary? from an economic perspective, what do we know? an economic perspective, they are both. some products go down in price, and a lot of products we impact go up in price. it is a tax on consumers, the tariffs -- not on the other country. the real question, in terms of how much inflation we get -- maybe dave can answer this. how much can companies absorb? dave: i agree with mike. alix: that is usually what we all say. what that guy says. ,ave: relative to food prices soybean prices are down for the reasons we describe. there has been an impact. we have had five or six years of really good weather, good growing patterns in north and south america. however, statistically speaking, you get a draft every two to ten years.

we have had hot and dry conditions in argentina this year. that has impacted the soybean crop. the major producers of soy, the u.s. and brazil, but really good harvests. right now, it is deflationary. it is good news for the consumer. david w: could these supply chains switch fairly quickly? suppose we have this trade battle, whenever you want to call it, and it is -- some actions are taken by companies that look hard to turn around in the short run. dave: good question. in theory it could go back to the way it was, but there are a couple of things at work. one is, what was the long-term impact on looking at the u.s. as a long-term trade partner? , whichlook at china imported significant u.s. agricultural products, they say, i don't want to take that risk anymore. i am when to switch supply, but also change sources of protein. instead of including soybeans in feed for chickens, they will

switch to corn, for example. short-term -- maybe if it were fixed quickly, we might go back to the way it was. long-term, it has a detrimental effect on the u.s. act economy. sourcing. when you had a 24-hour embargo on soybean exports into japan, japan started investing in brazil that in essence created the soybean market in brazil. that is what we do not talk about in terms of long-term capital allocation. mike: you have a harvest and stored grains, and people can buy from other places. people will be hit in manufacturing, electronics, where they have supply chains from around the world and factories that cost billions of dollars to build. the auto industry in particular -- the president might put out

auto tariffs. it would be a very slow move to change supply chains and other industries. do you think? are you going to see china start to make investments in agricultural model these and other locations and not in the u.s., and that is a huge longer-term disruptor? dave: i think that is exactly what will happen. a couple of years ago, china .ought noble and madeira they have ambitions to be in the agricultural supply chain. i think it also will extend. you see them making investments in minerals in africa. that is just it. when you get a trade disruption without seeing it, no market is going to sit and say, it is going to be fine. we go through budget process, longer-term planning -- what do you build him? this is going to last for five years.

how do you anticipate that and make decisions that could have effects for the next five years? dave: right now, david, i think it is a matter of not building it in. we have not said we are going to budget this way, that there is going to be this disruption, these trade wars, for a long time. on,ver, the longer it goes the longer you have to think, what is it in terms of sourcing and shifting the center of gravity? now, we are not event planning, but the plan relative to what it could mean for your budget, not results for the year. alix: what conversation steve have at the white house that are different than the ones you had 10 years ago? dave: we have been more in touch with our legislators, our senators and our representatives. --have been very accurate active talking to the secretary of commerce, secretary of agriculture.

at the same time, we recognize that what they are pursuing is a tactic to make trade more fair and balanced. we are an american company behind some of the moves, but some of their tactics could improve trade relations. the state department -- how about yesterday, the south korean agreement? love farmers. whatever he believes in his heart, is he acting in a way that shows love to farmers and the agriculture business? dave: depends on the way this plays out. i do believe he does love farmers, but i think when you talk to farmers, we are getting increasingly concerned as we go deeper into harvest season, and there is a lot of product they want to get out of the fields and traditionally sent to china, that they will have to find alternative markets or put into storage. with lower prices, they will

make that decision. short-term, if this plays out thectively and achieve what demonstration wants to, they will be happy. the longer term, i think it is detrimental to the u.s. aggie economy -- ag economy. mike: we have heard the impact on farmers is not as great right now as it could be, because so many have futures contracts that will enable them to get a decent price. really hitting as hard as maybe the press would like to make it. the congress would have to make a decision. and my going to plant soybeans? do i know where this is going? mike: farmers are great risk managers. they understand futures markets. they are increasingly greater users of technology. they will adapt. they are resilient people. they are a resilient industry. they will also react when they

make planning decisions, planting decisions, next spring. if the markets are still disrupted, they will make decisions to plant other crops or not plant. ultimately, there is a supply and demand response. mcgill will be -- dave will us -- be sticking with us. this is bloomberg. ♪

emma: this is bloomberg daybreak. in the next hour, kate moore, blackrock chief equity strategist. this is bloomberg. now to your bloomberg business flash. the google ceo wants to deal with the uproar from conservatives who say their views are being censored online. he will meet this week with lawmakers on capitol hill. google denies it make content decisions based on politics. president trump and other prominent republicans have accused google, facebook, and twitter a silencing conservative voices. that event deals after an 18 month focus on improving products. the ceo was responding to a question about a possible merger with commerzbank. is u.s. government supportive of the idea of combining the country's two largest banks.

germany begins the trading day at a nine year low. the power market may be going away soon. siemens hasters say a good chance of winning a bid that ge was also going after. thank you so much, emma. ge, what is left? david w: cannot catch a break. alix: literally cover what is left? what business will be left that will make a difference? david w: they cannot sell turbines to iraq, for goodness sakes. you have to feel bad for them. alix: that is going to have a nine year low. staying with the commodities, i promised you the nerdingness. soybeans really caught in the tariff trade. prices down 12%. china imported 9 million tons of soybeans, as of last month.

a third is coming from the u.s. still with us is david maclennan, carville -- cargill ceo. dave: if there are any soybeans getting him now, it is low quantity. the chinese have made it clear there are not -- they are not going to take american soybeans. they will find alternative protein ingredients. that may change, but it is to minimize -- de minimus. alix: one side says, they are going to need it. can beid the destruction such that they can satisfy their soybean needs with brazil and argentina crops. which narrative do you see? dave: i think i would take the former narrative. i think they are consumers of protein. their appetites are changing. it is a big country, obviously, 1.3 billion people, eating more meat, more chicken, more pork.

they need to feed their livestock. americannce on soybeans is significant. especially with the drought. they will find substitutes, maybe use what they have. they may come forward and say, we need american soybeans. least somer at purposes. if they want to buy a lot of week to make up for a lot of soybeans, where would they get it from? dave: they would get it from russia. talking about new ordering of world trade, russia this year and two years ago was the number one exporter of wheat, a title that used to be held by this country. russians are very low-cost producers of wheat. it shows markets are dynamic and will respond to price action, but also to things like tariffs. alix: we talked about things

like climate change. literally a ship can go in a different direction around the arctic tundra. you can ship things in a better economically than you could before. david w: is climate change helping russia when it comes to wheat? dave: no, i think it comes more to -- they are a low-cost producer. shipping conditions are different because of climate volatility and climate change. ships can pursue different routes. but it is more about the agricultural economy. the production is up in wheat 50% from a year ago. canada, the u.s., australia, russia -- alix: and they had a drought. let's go back to china. we talked about the demand. u.s. soybeans, the stock about the price. 25%.ans, at what point does china say, i literally cannot afford it? the big question.

where does the pride and the political rhetoric have to stand ?own i was with a group of foreign ceo's this summer and we met with president xi jinping. this was before things devolved. towas clear we are not going stand down. this is a matter of pride for my country and we are not going to be bullied. can drive a lot of different decisions. saving face is one thing, when your people are having to pay more and more money. that can have political effects. are there signs that prices might bring pressure on the regime? top of mind for them. they have a huge country they have to keep fed. when people get hungry or prices for food go up, they get mad,

and rightly so. china's government has a real balancing act. they have to make sure they protect their people and make sure prices are stable for food. alix: my favorite quote -- bad things happen when people get mad. dave: remember that. alix: i am going to give it to my husband and be like, when you pick a fight with me at 9:30 at night -- [laughter] talk about the impact on farmers. we touched a little bit on this. goingch money are farmers to lose in the medium-term on this? economy, we have had record harvests or huge bumper crops. rises have been down for a while. i read an article just yesterday that came out of iowa state that said the impact to the iowa ag economy-- to the iowa is $2 billion from the tariffs.

there was a range from $800 million to $1.8 billion. it is an important state for pork as well as corn. i think it was something like 5% to 6% -- gross state product of iowa. david w: as a practical matter, do people go out of forming altogether? do they borrow more leverage? what are the knock on effects? farmers will leave the industry. they will try to do something else. they might plant alternative crops. there are a lot of farmers rotating into non-gmo or organic farming. it takes a while to clear the soil. out and partners got pearaising people team -- protein. when you think about the knock

on effects of tariffs, technology, consumption patterns, looking away from the traditional beef, chicken, turkey, pork -- that is over the years to come. last question -- what is the thing that keeps you up at night? i would say the safety of our employees, 155,000 around the world and probably another hundred thousand contractors with 1300 locations. we make beef, turkey, chicken, plants, equipment. to focus on their safety and the impact the safety has on families and loved ones. i have made it one of my top objectives in my time as ceo, to send everybody home safely every single day to reduce injuries. cargill is the safest it has 150 three year

history. i sleep well because we have a great team. about trade or china, all right. david maclennan, such a pleasure. a wonderful perspective on the global economy. michael kors buying for such a $2.2 billion. does that wind up at tj maxx? that would be cool. ♪

alix: michael cors binder such i-4 $2.2 billion -- michael kors $2.2 billion. for david w: don't those friends do extremely well in china, the luxury brands? anx: this is definitely amazon play. amazon cannot get their act together when it comes to luxury brands, face products, and

high-end products. you could make the argument this is also a play that might have more pricing power against the likes of amazon. david w: amazon proof, high-end luxury things. alix: i am not kidding. when i go to tj maxx, you can get pricing and luxury at the same time. nike, after the bell, we are watching that. coming up on bloomberg, the open with jon ferro. chiefoore, blackrock equity strategist, join him. equity futures get a little bit of a boost. ♪

jonathan: from the city of london, i am jonathan ferro, 30 minutes to the start of trading. this is the countdown to the -- the countdown to the

open. the fed meeting beginning today expected to be teeing up a rate hike tomorrow. the president ready to ramp up the pressure on iran and the u.n. and heading to the exits following tensions with mark zuckerberg? let's would through some price action. futures looking good, up 4 on the s&p. on the fx market, a weaker dollar starting to bleed through g10. on a u.s. 10 year, we grind toward 2018 highs, a couple of basis points away. another rate hike widely expected tomorrow. thing isst important that financial conditions have not tightened enou