>> the treasury denies reports that the finance minister has threatened to resign over the deficit target. uncertainty growth over the ability to get a deal. the fed indicates more hikes to come. president trump says he is not happy with jerome powell. emmanuel macron says he would welcome the u.k. back to the u.k. -- back to the eu with open arms. for the rest of europe, and our special relationship, for friends in the u.k. for sure.

nejra: welcome to "bloomberg surveillance." i am nejra cehic in for francine lacqua. the asian session and u.s. session yesterday lower. pretty much every group down. the italian 10 year yield jumping 12 basis points, and widening out. something to focus on, because markets are reacting. bluffalled luigi demaio's a concern. earlier.elow 1.17 so much going on in markets today. let's look at what is happening. u.s. equities jumped yesterday. the last 20 minutes was when we saw the most activity. yield continues to

fall. we are down a basis point. it planned yesterday and steepened earlier this morning. we are on a roughly 22 handle on that. the wti crude is jumping. philippine central bank raising its rates to 4.5% in line with the estimate. earlier, we saw that central bank in indonesia hike by 25 basis points. we are seeing central banks follow in the footsteps. currencies have been under pressure. let me get back to crude, up 1.3%. brent crude up. we heard from the u.s. government that they will not release supply from the strategic petroleum fund. that could have given a bearish outlook on crude prices. it is jumping despite the fact

we saw a rising inventories. we will be joined by an exclusive interview. let's get the first word news with taylor riggs. taylor: donald trump says he and xi jinping might not be friends anymore. he accused president xi jinping from interfering in the election. >> you suggested the chinese had meddled in midterm elections. president trump: that is what i hear. >> what evidence do you have? president trump: we have evidence. it did not come out of nowhere. they admitted they are going after farmers. has beenett kavanaugh accused of sexual misconduct,

the republicans press again on a hearing later. of --accuser was part kavanaugh rejected the latest claim as ridiculous and from the twilight zone. president trump dismissed the allegations as fake. south africa's president and his -- instration will plan an exclusive interview with bloomberg, he also said he is considering whether constitutional amendments necessary to make it easier to appropriate properties without compensation. >> what we are seeking to do now is to balance that equation, and make sure the land in our country is shared by all who live in it. that is an inclusive process that seeks to have an outcome

that will lead to social cohesion, that will remove the threat and instability. we are managing the risk. >> an investigative journalist organization in the u.k. has identified the hitman who targeted russian agent skripal. wanted ino is connection with the nerve agent attack was a decorated russian colonel, who was given the country's highest award by vladimir putin. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. nejra: thank you so much. with the fed off raising interest rates for the third time this year, and signaling more hikes to come. jay powell said the u.s. is in a bright moment the challenges remain. >> our economy is strong, growth

is running at a healthy clip. unemployment is low, the number of people working is rising steadily, and wages are up. inflation is low and stable. all of these are good signs. that is not to say everything is perfect, the benefits of this strong economy have not reached all americans. nejra: following the decision to hike, presidential made his feelings clear. president trump: unfortunately, they raised interest rates. i am not happy about that. debt, orather pay down do other things, create more jobs. toare worried that they seem like raising interest rates. nejra: joining us now is peter dixon, global equities economist, commerzbank. good morning. markets areisk that

still underpricing what the fed can do in 2019? peter: markets are beginning to move slowly. i think it is a long way to go before they matchup. the fed may be overly aggressive, but i guess the economy has momentum and will grow rapidly for the next 12 months. if it does that, clearly there is reason for the fed to do what it says it will do. if it does not, and the economy slows, all this depends on inflation, we are not seeing any building up. i think this discrepancy suggests we are somewhere in the middle. the market is under doing it. nejra: in what sense is the fed being aggressive? they say they are going to do

with they said they will do. perhaps we should not read too much into that, but why too aggressive? peter: aggressive in the sense there was a danger, because we do not know where the usual rate is. they go significantly above 3%, we could end up in contractionary territory. it will be a classic example of the fed killing the dynamic. there is a risk there. probably not for next year, but in 2020, that is something to think about. the fed is running down its balance sheet as well. that is a form of monetary tightening. not only are in just rates going up, but the balance sheet is going down question mark nejra: we saw u.s. equities close lower yesterday. peter: it is early to make those

calls. i believe the market believes all is fair under the circumstances. markets do not have an awful lot to worry about from the fed. impulsegoes on, as the from the tax cuts begins to fade, and growth is not what it once was, costs are a little more expensive, that is when we might think we have had a good run, investors have had a good run, now it is time to take money off the table. nejra: morgan stanley says traders are mispricing the curve at both ends. the 2-year note below, while the tenure yield shows over optimism on the economy. should we be bracing ourselves ?or more flattening cu i think the short end of

the curve, yes. the market may be underpricing a bit. it would be prudent to be closer to where the fed is. in aenure yield is pricing significant pickup in inflation. we are concerned about wages, maybe we are overdoing those concerns. surprise ondownside wages, maybe the curve will adjust of it. nejra: peter dixon, global equities economist, commerzbank stays with us. italy, there from will not be a resignation over the budget. up to19 deficit target is 2%. we will talk more with peter dixon. a lot of discussion between that

2% and 3% level, what will work and what will not. jumping 15field basis points. excuse me, the two-year yield. the tenure yield is still up 10 basis points. coming up, we hear exclusively from emmanuel macron, his thoughts on brexit, trump, and climate change. here is a preview. we will explain to voters, if it is good for you to leave, they just leave everything after the decision. he did not want to implement this decision. ♪

nejra: i am nejra cehic in for francine lacqua. that's get the bloomberg business flash. , he is proud ubs -- sergio armani made the comments in an exclusive interview with bloomberg. >> we are sorry to see him leaving. he was crucial in helping us execute our strategy. on the other end, we are also teamand proud one of our is taking on such a new -- but100 oil on the horizon, not thrilled about it. on iran aretions

pushing prices back to triple digits since 2014. developmenta lot of for the price of oil. for lack of supply, disruption of supply. libya.la, today we havek strong support for oil prices. demand is quite high. >> h&m shares jumped this morning. the third quarter profits were knocked down. investors focused on the growth margin. weakness among clothing retailers have put them in a battle for lower prices. that is your bloomberg business flash. nejra: let's talk europe and

confusion over italy's budget. the euro is lower. there are reports of this agreement between the finance ministry and ruling populist parties. ministers will hold a premeeting at 11:30 rome time. ours get out to rome where italian government reporter joins us with the latest on this fast-moving story. we appreciate you joining us. you have been working hard all morning updating the timeline minute to minute. some up for us where we are -- sum up for us where we are now. >> we are in crunch time with key players absent. premiers are not here.

we will have a pre-cabinet meeting to thrash out remaining tensions, and the big argument is over more than decimal points. the treasury minister is ok with pushing the budget deficit up to 2%, but the other parties, have an agreement to push it toward 2.4% because they are desperate to push through election promises. nejra: we are really saying a market reaction today whereas yesterday we were talking about the fact that markets shrugged off comments by luigi demaio. given that we have heard reports that the resignation is not true, what is rattling markets now? is it the specifics of this

dispute? >> it is the whole cocktail. we have had two weeks denied by the treasury. he was either under pressure to resign. he is the linchpin. there is an official this morning saying if tria is not on board, we can replace him. the pressure is huge on him. there's concern about the postponement because if they do deficit,e the budget all the sets the framework for the 2019 budget which will be the next hurdle, and finally they will decide on what promises they keep an drop. nejra: thank you for joining us. we will let you get back to your bloomberg terminal to keep updating everyone. peter dixon from global equities economist, commerzbank is still

with us. we know 3% is the eu limit, but for markets, where is the outer bound for equity markets? peter: in terms of markets, i think they are concerned about orething in the high twos three. the concern is once you start going toward that 2%, the high three theou go about european commission will not be happy. , whichll provoke unrest europe does not need. nejra: absolutely not. we are seeing strong reactions about bond spreads widening -- --bund spreads widening. 2%,e get that number below how much could that spread tighten?

possibly more tightening thereafter. this is something which has been pressuring markets for months it seems now. even if you get the budget problem out of the way now, it is not resolved. we will come back to this question in a few months. the risk on italian spreads will remain elevated for a while to come. nejra: it is nonstop with these. the italy cabinet decision on the budget apparently will not be postponed. this is an official saying this, and also sang if tria is unwilling to tweak fiscal goals, that will be an issue. we are not seeing a huge amount of movement off the back of that in the markets. we are seeing tenure yields elevated. the two-year yield up 13 basis

points. man,, you are in equities let's talk about the ftse as well. if performed while but that -- it performed well, but since may -- peter: many clients would say italy has lots of good news going for it but too much political uncertainty. is dependentget it on what happens elsewhere in the eurozone. complex between italy and the wretch of the eurozone -- the rest of the eurozone, there are other places to be. italy will lose out. nejra: peter dixon, global equities economist, commerzbank stays with us. president macron has emerged as one of trump's biggest antagonist, and it will not agree on trade deals. is disrespecting the

paris agreement for sure, i cannot accept. , awill not do a trade deal broad trade deal. it will be inconsistent. we are investing a lot. we are asking a lot from our .armers to make such a shift if you open your markets to products and goods from countries which decided not to respect the rules, it will be crazy. we will have ongoing discussions to avoid a trade war. i dressed this issue with ago,dent trump two days and if we can fix the situation industry, it will be how to find arrangements to

avoid a trade war. the deal from the former administration could work for me. brexit,sa may, you have and the first time from the labour party you could have a second referendum. if the british were to vote to remain, would you have us back? >> for sure. even though you are lowering it is aboutondon, history. not about domestic interest. i am not the one to decide such a move. i accept the choice from british voters. respectful, but i did regret the vote for the rest of

europe and for our special relationship for france in the u.k. for sure. in the short-term, what we have to do is have a discussion following the lines of the existing referendum, with all agreement for the backstop for ireland, and to find the best .ay peter dixon, global equities economist, commerzbank is still with us. if you look at the equity session in asia, japanese equities were lower. how vulnerable are global equities to trade tensions now? peter: i think it is clearly one thing that keeps us awake at night. the u.s. will probably be the

short-term winner in a trade war. if you look at what is happening to european equities over the last month, it has been a roller coaster ride, and the trend is flat. we are not going anywhere and u.s. equities are going up. we know about em equities which sold of heavily over recent months. investors are concerned. it is going to be a theme that will go on and on because we will not get a resolution anytime soon. the channels will not roll up and say, donald, you are right. they will fight back and trump will push them. nejra: just because we heard from emmanuel macron, i want to talk about germany, they have cut growth for europe's biggest economy. the best opportunities are not in italy, where then? peter: if you look at germany, to a large extent, the german

equity market is dependent on the strength of its exports. germany is a player on the rest of the world to a large extent. it has done remarkably well the last few years. china is weakening, the trade war is playing a role there. the dax is not making the gains we want. it is a problem. nejra: peter dixon, global equities economist, commerzbank stays with us. the french energy market jumps on the bandwagon. this is bloomberg. ♪

nejra: economics, finance, politics. i am nejra cehic in for francine lacqua. signed a second

japanese client, but the payload will be lunar rovers rather than space tourists. launches in 2020 and 2021 share for humans tons live in space. emmanuel macron said he will welcome britain back if voters decide to stay in the eu, but insisted it is not up to him if the u.k. holds another referendum. read stories on the terminal, trump hits out on china over election meddling. 18 to 24 months left in the market rally, and the signal of more fed rate hikes to come. here in the studio, first word news from taylor riggs in new york. taylor: the u.s. federal reserve has raised interest rates for

the third time this year and signaled more hikes will come. jay powell said the american economy is strong, but challenges remain. the era of ultralow costs cents skyrocketing, the london-based -- hours after the hong kong monetary authority raised its benchmark rate hike 25 basis points in line with the fed. u.s. president donald trump has said he and chinese counterpart xi jinping may not be friends anymore, after trump accused xi jinping from interfering in the election. >> you made a significant allegation against the chinese government. you said the chinese are meddling in the midterm election. president trump: that is what i hear. >> what evidence do you have? president trump: we have

evidence, it will come out. it did not come out of nowhere. they have admitted they are going after farmers. isthe european union exploring what measures it needs to take in the case of a no deal brexit. bloomberg learned during the closed door meeting in brussels, eu ambassadors discussed in a lateral steps to block -- french president emmanuel macron says he will welcome that u.k. back to the eu. he spoke to our editor-in-chief at the bloomberg global business forum in new york. british word to vote to remain would you have is that? >> for sure. >> even though you are lowering bankers to paris. history, nott about domestic interest.

>> u.s. supreme court nominee brett kavanaugh has been accused of the most lurid sexual misconduct yet. the hearing will be held later. would getser says he girls intoxicated so boys could have sex with them. kavanaugh rejected the claims as ridiculous and from the twilight zone. president trump dismissed the allegations as a big fat con job. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. oil.: let's talk crude back to triple figures. strong support for higher prices. with what is happening in the world, there is a lot of supporting development for the

price of oil, lack of supply, disruption supply. iran, venezuela, libya. -- i think today we have strong support for oil prices. the demand remains quite high. i'm not sure it is good news for the price to be too high, even for the oil industry, because when prices are too high you open the door to competitors. and demand will fall again. that is the fact. and opec allies, can they put in enough barrels? russia.relies on they will increase production.

pushed the production up. --be the margins are not so high. ncine: isn't saudi arabia is saying they have enough barrels to make up for lost production? >> you have to mobilize the world and the region. you do not push a button and oil flows. francine: you have made acquisitions and oil, what do you tell investors? i think natural gas is a growing market driven by china.

china shifted policy to natural -- and they want to include gas will have to come from somewhere. for us, it is a big push. share isnt of market better. ncine: will you buy anything? if you make acquisitions today , when you look to the future, electricity growth is incredible. it is more than 2% per year. business,nt and our

production from natural gas or and then down to the residential customers. we are doing that. we have 4 million customers in france and belgium. somewhere we create a new model of company in oil and gas. that was total ceo. peter dixon, global equities economist, commerzbank is still with us. you have a growing chorus of voices sank $100 oil is within reach this year or next. does it stay at or above $100? peter: good question. the first question is will we get there. i would have said a few weeks ago, no.

the momentum behind the market, the fact that bigger players will be forced out of the market is going to put additional pressure on supply. i am not convinced they can make up for it. whether we can hold and stay guess is we come down again. we do not have the same momentum dynamic. it is bigger and absorbing more oil per unit of gdp, that it is not growing at the same pace. i suspect we can hold it below $100 in the long-term. this time around, the sanctions on iran are different, are they in terms of impact on the oil market? peter: i suspect they might be, they are designed to keep iran

out of the market and force it to go elsewhere. i think there is an issue whether the arenas want to sell their supply to the chinese. iranians want to sell this apply to the chinese. definitely a different in the sense that the relationship between the u.s. and iran has taken a turn for the worse. nejra: u.s. energy secretary say in, ande priced there are no plans to release strategic petroleum funds, that could be a bearish signal for the markets. some say we could have that happen before the u.s. midterms, if we get to $100 oil, will that be bad for the global economy and oil majors?

peter: it will not be great news. countries are getting back on their feet after 10 years of a tough time. of $100vived in excess before. expansion ise u.s. long in the tooth, and additional hit for oil prices will not help. ters, if we get a more spike, if it is ongoing rise, then maybe we can adjust and cope with it better. nejra: thank you so much. peter dixon, global equities economist, commerzbank stays with us. breaking news out of italy, demaio cutting short his

visit. there could be a delayed cabinet meeting on the budget, and basically we heard the decision of newsudget, a lot flow to digest, and the impact on the market. the two-year yield has been jumping significantly. some pressure on the euro. .p next, our interview this is bloomberg. ♪

nejra: economics, finance, and politics. this is "bloomberg surveillance. " i am nejra cehic in for francine lacqua. ceo spoke exclusively to bloomberg. for december,e and three more for 2019. i think the fed is executing their plans, and the economy is sustaining this policy. i think we will continued to see this in the future. manus: what do you make of trump's comments having a punch at jay powell? >> historically speaking, any

intervention to implement central bankers is counterproductive. i think in any case, it is in fedt, under pressure, the and any central bank feels the pressure. policy sense, monetary should be a matter of the central bank. said you june, you would not be surprised by a 15% correction. to the investor turning on this market? u.s., youlook at the could argue we are reaching an all-time high. if you look at asia, what happened in the second quarter, in hong kong and china, markets were down 20%. movement between

the u.s. and asia which is .ndicative of the state manus: what does it mean to the investment bank? we regret and are sorry to see him leaving. crucial in helping us execute our strategy. on the other end, we are glad team willone of our take on an important role. usessence, what it means for , the investment bank, we continue to operate with the same focus on strategy and discipline we have been doing the last six or seven years. are you committed to this

bank going forward? committed, andam focus to make sure we execute on our plan. we have a very strong team and executive board, and in the rest of the organization. bankcommitted to lead the into the next frontier. sergiothat was ubs ceo ermotti speaking to manus cranny. peter dixon, global equities economist, commerzbank is still with us. people are saying, are we going to see more deals? do you see more consolidation in the european banking industry? peter: at some point it is inevitable. remains a fragmented business. we have not got enough scale among the players out there.

companies ors banks have found it difficult to realize synergies. the requirement former consolidation, the weakness among the bigger players to do so is limited. nejra: are the markets underestimating more european integration in terms of banking union, but also fiscal integration? peter: the markets are pretty much aware of where we are. they realize something that will happen in the longer term, but at the moment is not on their radar. with regard to fiscal integration, that is something we have been talking about for years. emmanuel macron put together a proposal last year with regards to making moves. it has been difficult to drive

pen-european solutions forward uropean solutions forward. when you look at european equities now, is it a play against the u.s. rather than industry groups in europe? peter: i think on valuation terms, banks would appear to be attractive. it could be better. in the course of 2019, once the ecb's about interest rates, that is something that will give banks of lift, but it will not show through until 2020. as a medium-term play, it is gaining attention. nejra: peter dixon, global equities economist, commerzbank stays with us. let's focus on emerging markets. >> we are doing a lot of what

we need to do ourselves to support our economy. when the rand is weak, we are concerned but at the same time it works both ways. others feel they benefit, so we -- we are working very hard to reposition our economy. , we will beeconomy -- [indiscernible]

alibaba is also coming. many other investors. we want these investors to come to the conference. francine: you say it is market forces moving the rand, is it fair value or is it undervalued? is this because of emerging-market contagion? [indiscernible] we are susceptible to that. we are an open economy, and the rand is one of the most traded currencies in the world. was south african

.resident cyril ramaphosa we will bring you more of francine's exclusive interview route the day. peter dixon, global equities economist, commerzbank is still with us. we talked about the rand's gain yesterday. we have had quite a bit of news flow from the central banks in asia, both hiking rates following the fed. r rate hikes a nafta support an r e there was a sense dominoes were beginning to fall. things seemed to stabilize. momentbe enough at the

there is a sense it may be unstable. if it were to heat up again, and you can bet you merging markets will feel the full force of investor flows, once we get to the situation where the discussion comes back to the table, rate hikes will not be enough. it could be capital controls. that is what i was advocating last month, but that seems to have gone away. all in all, emerging markets have gone quiet, but i'm sure it will not remain quiet for long. nejra: there has been a reprieve, it is time to take stock. it had you changed your view on which emerging markets you might be more positive on? peter: i think to a large extent, the basic position remains unchanged. , was not af turkey

favorite of mine. south africa, the economy is in recession so it is not strong there either. in the asian world, it will depend on china. as long as china keeps growing, which it appears to do, and again i think that will support most of the asian region, there are concerns that countries such as india where the rupee is falling to all-time lows, but investors seem to think they have a short-term problem. nejra: you are an actual mindreader. i love the point you made about china. with india we have seen the central bank taking measures to ease bank liquidity shortage, and the court made a policy move. there has been bad news and oil rupee. tumbling

punch.ike a 1-2-3-4 basically it is heading for its worst month in 2.5 years. you say you continue to like india does that mean you will buy indian equities? peter: for technical reasons you might want to step aside with a moment. there will come a point where the rupee stabilizes, and some of these issues begin to resolve themselves. if you want growth, if your aturns, you have to have neutral position in your portfolio. it comes to where if you want to go overweight. nejra: thank you so much for joining us, peter dixon, global

equities economist, commerzbank, great to have you with us today. let's take a check on the market reaction and the news flow out of italy this morning. the latest is we heard from a cabinet decision on the budget will not be postponed. yields see the 10 year up nine basis points. the two-year is jumping as well. the ftse down 1.5%. we will keep you updated on "bloomberg surveillance." this is bloomberg. ♪ ♪

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and the euro tumble as uncertainty grows. the fed hikes as expected. president trump is not happy with jay powell. we hear from emmanuel macron. he said he would welcome the u.k. back to the eu with open arms. good morning, this is "bloomberg surveillance." i am francine lacqua here in new york with tom keene. we're talking about jay powell and donald trump. italy is circling back. tom: with the interviews we have done, it is amazing how people circle back to italy. it is about europe and international stability. francine: it is sticking to the roles are not, reactions to that report, we will have all your

market action shortly. let's get to the first word news. here is taylor riggs. >> on capitol hill there will be high drama on the high court. a woman who is accusing brett kavanaugh of sexually assaulting her will testify before the senate judiciary committee. , shehristine blasey ford said she was too ashamed to tell anyone. , and thiswill testify week other accusers have come forward. kavanaugh has denied the allegations. international monetary fund has expanded its bailout for argentina. the countries credit line -- the imf will develop -- deliver more of that money up front. the idea is to pull the economy out of a recession. in italy, negotiations have been hit by last-minute demands for extra spending from the populist

coalition deputy prime minister and luigi di maio. says there is no point being in government if you cannot deliver on your promises. president marcon will welcome back the u.k. if voters decide to stay in the eu. macron spoke to our editor at the bloomberg global business forum in new york. >> if the british vote to remain, would you have a spec? -- would you have us back? >> for sure. it is about history, not about domestic interest. >> south africa's president cyril ramaphosa says that will not be any landgrab or mayhem in his plan to redistribute land.

he spoke to francine here in new york. >> what we are seeking to do now is balance that equation, and make sure the land in our country is shared by all south africans who live in it. that is an inclusive process that speaks to have an outcome that will lead to social cohesion, that will remove the threat and risk of instability. we are managing risk. >> he says president trump's criticism was misinformed. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. the equities,k at currencies are moving later. the curve flattening came in off the sequence.

1.17.ro comes in at oil maybe not part of that discussion. in, the 10eld comes ,ear francine: stocks in europe and asia falling thursday. investors trying to digest the likelihood of more fed rate hikes. the euro is falling with italian bonds. it has been difficult because today there are talks from the alliances, but also liga. there are huge differences going on here. -- there are huge do virgins

ivergences. here is chairman powell. noted that thely stance of monetary policy remains accommodative. this does not signal any change in the path of policy, instead it is a sign that policy is proceeding in line with our expectations. unfortunately,: they raised interest rates, i am not happy about that. debt, orather pay down do other things, create more jobs. about the fact they seem to like raising interest rates. we can do other things with the money. analysis on the president of united states. optimism onchief of

recovering american economy. he has been dead right on the vector of the fed. i love how the president went to, we need to pay down debt, but percolating in the background, one question to chairman powell was higher interest rates, higher interest expense by government as we put out hundreds of billions of dollars of new debt. are we paying down debt? >> i am one of these people that thinks the u.s. can run budget perpetuity of gdp in as long as growth is around four or 5%. defense, he did make the point that people will earn more on his deposits. what is the first order condition for our viewers and listeners where we are getting

up to real nominal rates? this is important. this is the fed fund's target rate. we are thrilled to have you with us, this is a huge deal. or the first time in 10 years it has come up for oxygen. it is finally at a positive real rate. neil: historically, that has been -- policy is starting to move to neutral. if it keeps going higher, you get into restrictive. 's point, raising rates is a sign that conditions in the u.s. economy are healthy. francine: let me show you this chart that basically goes to what tom was saying.

policy crossing into tight territory of each cycle. tom: there it is. francine: target rates, and core pce -- that is euro. overall, what should the rest of the world look at? will they slow down because of emerging markets? what is the next risk out there? they if the question is will slow down because of emerging markets, i think it depends. it is about what is going on with the u.s. exchange rate. if the broad dollar index strengthens from here, that produces the downside risk of inflation goals. forecasts, thend fed is dependent. estimate ofe median three hikes in 2019 is conditioned on a next edition of core price inflation in the u.s., consumer price inflation is going to accelerate up to

2.1%? francine: will it. ? neil: that remains to be seen. there is some chance if the dollar strengthens, given the weakness in emerging markets, you have upward pressure on the dollar, downward pressure on em currencies. francine: should the fed be more sensitive to the dollar? neil: i think they are sensitive to financial conditions generally. , lendinguity prices centers are accommodative, conditions or lose. the dollar -- conditions are loose. this allill talk about through "surveillance."

we have the brilliant question that goes to your point, which ex-post, it is delusional the any central bank can get out a crystal ball, didn't chairman powell asserted that yesterday that they are data dependent? neil: yes. tom: and the market moved. neil: i think that is the right way to think about it. he made the point they are going gradually mitigates the risk of long and variable lags from interest hikes. that is the point he made in a q&a. clearly, there is more uncertainty, and that is inessyed in the squishin of his answers yesterday. the fed is going to have a press conference every meeting. tom: we are finally back to where it is real analysis versus

fiction. neil: the fact they dropped accommodative means they are closer to neutral. if they go to restrictive, it will depend on the trajectory of the inflation rate. for investors, a simple thing to do is say inflation is firming up, they go more aggressively, if not, they don't. tom: we will continue on this theme drop the show. coming up, and exceptionally important conversation with the governor a puerto rico. and an update on the island after the horrific catastrophe of the hurricane. this is bloomberg. ♪

francine:

>> this is the bloomberg business flash. totalo of the oil company , he says it may not be a good thing for the economy. he spoke to bloomberg about what is driving prices higher. >> with what is happening in the world, in particular lack of supply, disruption of supply. libya.enezuela, on the opec side we have the position, so today you have strong support for oil prices. demand remains quite high. for the 10th time in 12 quarters, the swedish fashion retailer h&m, inventory rose higher.

rival chains slashed prices. hedge fund billionaire ken griffin is concerned the next financial crisis can take place in europe. see there areo places we are more concerned about, it is a crisis in europe where because of the nature of the euro, and the inability of countries to print their own currency, there can be a crisis too big for government as we think of it to solve, and that is frightening. >> that is your bloomberg business flash. budget talks have been stalled by last-minute demand for spending. that comes from the populist coalitions. --maio once a budget deficit leaders are expected to hold a

budget meeting in 20 minutes. we have news that can be delayed. let's get to our bureau chief for clarity. why is it unraveling? frankly, it is going as expected. everyone here has been predicting this is going to be at a tough budget plan to get through. gences betweenrsion the populist leaders who are trying to push more of a growth package, heavy spending on campaign promises they made before the march election. tria has to negotiate on the package he is pushing. whether that happens, we will find out tonight. francine: yesterday, i spoke to

the commissioner for financial affairs, and we talked about the italian budget, and he said he is concerned. is to interest in italy be a core euro zone member, and stick to the rules. it is through europe they can make the reforms for a better economy. francine: if the italians in this budget flout the eu rules, what does it mean for investor anxiousness? take a look at yesterday's market reaction. we had similar headlines as we have today. republica focused on tria resigning.

2.4% budget deficit figure that populist figures are pushing for. that thisoping cabinet will recognize that they cannot flout the rules too much. tom: that is right where i wanted to go, there is no market reaction. why is that? what are they hoping for? i think they are hoping that at the end of the day tria's philosophy and position of gradually implementing some of these programs such as the universal income, cutting income taxes, that he will be able to convince them to spread these over a couple of years, and not do everything in 2019. at the same time, convincing brussels that the trend of

massive public debt will be going downward in any case. that is not an easy job. francine: when i speak to cheap tickets, they tell me what -- when i speak to chief executives, -- these industrialists do not want the markets to go haywire, because they have a lot to lose. >> it is a fair point. i do not necessarily agree with it. i think salvini and the league have stolen votes across the political spectrum. convinced low income people, metalworkers across the board that perhaps his philosophy -- he is focused on immigration -- that he is also pushing hard on the tax issue.

i do not think you can overlook that right now. francine: thank you very much. we will be back with neil dutta, head u.s. economics, renaissance macro research. up, the vice president for energy at the european commission. that is a: 30 in new york. this is bloomberg. ♪

tom: good morning everyone, "bloomberg surveillance" from new york. an important conversation particularly with mr. ermotti who has an empty chair at the board table. francine: he named two people to take over. i am a little distracted because i am looking at market news on the bloomberg terminal, the 10 are italian bond -- people interested in italian yields. the uncertainty about the budgets and the meeting later. as tom was saying, ubs ermotti talked about trade tensions and how that is hurting, and they talked about central banks. here he is.

we expect another hike for december, another three hikes in 2019. the fed is basically executing their plans, and the economy is sustaining this policy. we will continue to see hikes in the future. manus: what do you make of trump's comments having a punch at jay powell? >> historically speaking, and intervention to influence , it is aankers counterproductive outcome. in any case, if in doubt, under pressure, the fed and any central bank feels the pressure. in that sense, monetary policy should be a matter of the central bank. on markets caught up

in june, you said you would not be surprised to see a 15% --how close are we to the investor turning on this market? if you look at the u.s., you could argue we are reaching an all-time high. in asia, look at what happened in the second quarter. in hong kong and china, markets were down 20%. movement between the u.s. and asia which is indicative of the state. is -- the other issue what does it mean to you for the investment bank? me, we regret and are sorry to see him leaving. he was crucial in helping us execute our strategy and develop

strategies for the investment bank. on the other end, we are glad team has one of our been asked to take on such an important role. usessence, what it means for and the investment bank, we continue to operate with the same focus on strategy and discipline that we have been doing the last six and seven years. those two gone, are you committed to this bank going forward? >> of course i am committed, and focus to make sure we continue to execute our plans. we have a very strong team on the executive board, and the rest of the organization. bankommitted to lead the into the next frontier. tom: superb interview by manus

cranny with the ceo from ubs. it paints a backdrop of what we are seeing this week in new york. a boom economy, and a lot of people comfortable. neil dutta, head u.s. economics, renaissance macro research is not comfortable after talking to hundreds of clients. inryone is talking recession 2020. why all of a sudden recession talk and recession predictions? neil: i think it is a cottage industry of getting the timing on that right. i would mention that the u.s. economy has been two years away from a recession, since at least one he 14. 2014.ce at least

by most of traditional things we look at, risk of recession is look at lending standards, employment growth, leading indicators like temporary help employment and things of that nature. to me, you do not have excesses in real economy getting off excesses in the financial market, that is a classic tell for recession risk in the u.s. as you know, u.s. productivity growth is accelerating. 's growth leading productivity, or is productivity leading growth? neil: i think the fact that labor markets are tight. tom: it helps out productivity. neil: and the notion of a full employment productivity boost, tight labor markets, stronger investment relative to aggregate hours worked. that helps productivity, and that has been the driver for weakness in the first place.

investment spending is strong. francine: what is the what does that mean for fed policy? >> it is no higher than it is in any given year. francine: are we late cycle? imagine doing this type of analysis back in 1997. my clients cannot make money like that. when you see this ridiculous confidence is so high, it is bad. bull markets cut off. we lostuch money have playing that game since the middle of 2014? we need to look at things like excesses in the real economy. -- is thereut upward momentum and price inflation? those things have not happened.

is there an aggressive fed? we have not seen that either. at some point a recession will happen but i think the chances are quite low. tom: what is great about this is we can prepare for the friday doom and gloom industry. clock p.m. friday, they will all come out in the world is coming to an end. francine: we will see what the next crisis is. neil dutta from renaissance macro. spacex has signed its second japanese client in as many weeks but the payload will be lunar rovers rather than space tourists. watches signed up for 2020 and 2021. -- launches signed up for 2020 and 2021. said he wouldn welcome british bankers if the

u.k. stays in the eu. does not stay in the eu. trump hits out at china over election meddling. really interesting press conference yesterday in washington. right now, your "first word news." taylor: a showdown on capitol hill. a lifetime appointment to the supreme court at stake. the woman accused -- the woman at -- the woman who accused supreme court nominee brett kavanaugh of sexually assaulting her decades ago will speak before the senate judiciary committee. she says she was too afraid and ashamed to come forward before now. kavanaugh will come forward and deny anything ever happened. since the announcement, two more accusers have come forward.

the budding friendship between president trump and president xi jinping may be falling apart. said he and xi may not be friends anymore. the netherlands has its eyes on his misses in the u.k. that may want to relocate. we spoke with the prime minister. >> we know there is a dis-balance between the u.k. that could affect more -- u.k. affectingtherlands business between the u.k. and the netherlands. we know that the dwt is holding .hem back and making them italy is deciding on its --get and debt levels here

that levels today. >> i think the interest of italy is to be a core eurozone number. i cannot understand how these things -- it is true europe to get a better economy. taylor: 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. francine: it has been a rocky in africa ticket biggest economy -- second-biggest economy. i sat down with south africa jake a president at bloomberg's

global business forum and he said his currency has weakened against the dollar. alsoe position of the rand has to do a lot with what we need to do ourselves to put our economy on a much better footing. when the rand this week come up -- when the rand is weak, we are concerned. but it works both ways. , we feel thatnd is a benefit and with a strong rand, we feel there is a benefit. we want to find a balance. hard torking very reposition our economy and transform our economy to make our economy more attractive to investors. we're going to be holding an investment conference in october

where we are seeking $150 billion over the next five years. a lot of investment. having that come from denmark. alibaba is also coming. many other investors. we want investors to come looking at it as an important event. francine: i respect the fact the market force is moving the rand but do you think it is undervalued? is this because of the emerging-market contagion? because we are susceptible to that. we are an open economy and the rand is one of the most traded currencies in the world.

francine: i also asked about that tweet that president trump where he was accusing south africa of grabbing land with no reason. he did say they will redistribute land but overall it is the right thing to do and it will not cause mayhem on the markets. tom: interesting to say the least. this is a joy within the international markets. we are thrilled to bring you a man with 32 years in china. mckinsey.oetzel of he delivers a terrific .merging-market report congratulations on your report. of 71 economies are

really different and you have an alphabet of names we never talk about. laos? talk about laos. jonathan: laos is one of the big out performers. two things about laos. ends -- andagenda, secondly companies. tom: can you combine progrowth with nondemocratic regimes? whatever those shades are of non-democracy? jonathan: we did not see any difference in the form of government across the universe of outperforming or performing. improvementsee was in the quality of government. improving the rule of law, transparency, the ease of doing business. the institutions of government makes a big difference.

that sets the out performers apart from the rest of the pack. francine: i had a conversation with the leadership at credit neede and he says we may to stop talking about developed well-runnd focus on countries and not so well run countries. i could say those 18 outperforming, those of the ones who are delivering the goods. they'rethey're the ones who are increasing household incomes, getting people to work. they are saving errand invested -- saving and investing. francine: structural reforms being pushed through, but to they also have to have not too much debt denominated in dollars because that would hurt no matter how much they are improving their economy. jonathan: having more debt than

you can sustain, that will get you in risk whether it is in dollars or anything else. tom: with your experience on china, you are an important voice as we see trade between the trump administration, rhetoric versus what we are seeing in china. is the administration and the people that fear china, what are they getting wrong in their analysis? jonathan: if i had to pick one thing, it is that the dynamic of china is essentially a domestic dynamic and most of the growth in china comes from domestic forces. the policy implications of waiting for china are domestic factors. tom: you seem to be looking back to the time when richard nixon met with congress and there was the fear of the right and fear of the left, hysterical about china. jonathan: there is a great book out there, the beautiful country

and it sums it up greatly. china-u.s. relations go in cycles. tom: what does this do to gdp in america, neil dutta? neil: it is hard to know. based on what is going on with trade, you have to remember that that is overwhelmingly offset by the fiscal tailwind. right now i think it is having a very marginal impact on the macroeconomy. clearly there are winners and losers in the country. francine: jonathan, what is your take on china in terms of stimulus -- how much do is the need to put in? jonathan: we feel -- how much stimulus they need to put in? jonathan: this is not good in

the sense that it is not going to create upside, but it is a minor drag and the majority of factors are domestic. francine: isn't this a concern because if they focus domestic lee, it means they cannot help out with trade for the emerging markets. jonathan: we see china's starting to pick up as an important destination for emerging markets, particularly if you look at cambodia and myanmar. was low value everywhere, we are seeing exports picking up from those emerging markets. that is the future for china. tom: neil? neil: i was going to ask the question, do you think there is a threat that more tariffs come due at the end of the year? do you think there is a risk -- starts moving out of china? tom: a really important question. wel: what is the risk that

stop making iphones in china? jonathan: we're going to start seeing a modification of their value chain. has reallyue chain deepened over the last couple of years with all these components moving into china. that effectively reduced the level of trade in the chinese economy. we will start to see what you are saying, some of the labor-intensive parts of that value chain are moving out. tom: this goes back to the wonderful leadership of the urban china initiative. the labor arbitrage dynamic. discuss from the major cities on the pacific rim versus moving to vietnam or myanmar. jonathan: we can chart trade flows around oceans and ports. commerce.ways of

any place that has reasonably reliable infrastructure, a decent deepwater port and a ready and able workforce gets a lot of assembly work. in china, they said we need land for it and so they have been developing that domestic infrastructure. tom: this is my book of the summer. -- what is itate called? belts and silk road? francine: belt and suspenders. tom: the trot -- they are trying to rebuild the land roads. closing that gap is not going to happen in two years or five. i think they are learning as they go but it is capital projects every year which is not nothing but nor is it everything. tom: what is your number one advice to president trump? jonathan: negotiate. francine: like you so much,

jonathan woetzel of mckinsey and neil dutta of renaissance macro. switching gears, the european union has started exploring unilateral emergency measures in case of a no deal brexit. president emmanuel macron weighing in on this yesterday. disrespectinga our agreement, i cannot accept because we would not do a trade deal with america under the president if it is not compliant with our economic objectives because it would be inconsistent . lot of ourg a citizens to make such a shift. if you open your markets to products and goods coming from a country which decided not to respect the same rules and constraints, it is crazy and inconsistent.

we will have ongoing discussions to avoid a trade war and i think it is good to have such negotiations. i think if we can fix the industry on cars and we could have a transatlantic find it would be how to specific arrangements to avoid a trade war. a big deal at the one negotiated with the former administration could be acceptable if the u.s. is compliant with the paris agreement. >> let me ask you about another country, you have theresa may, brexit, and for the first time in the labour party, at least a hint that you could have a second referendum. my question is if the british were to vote remain, would you have us back? >> for sure. >> even though you are trying to

lure all these bankers to one side. >> it is about history, not about domestic interest. i am not want to decide such a move. i respect the choice of british voters. i did not want to interfere in this debate. >> but you would definitely take us back. vote for theet the rest of europe and for our very special relationship for france and the u.k. what we have to do in the short fall in line with the existing referendum, with the backstop for ireland and find the best way to monetize the next phases by respecting the rules of the european union and the single market.

francine: that was the french president speaking exclusively with our editor in chief. -- is the now is the chief executive of -- for 10 years. ceo and this, he was general manager of valentino. as always, thank you for giving us a little bit of your time. the want to talk about the luxury sector but first of all you are an italian. is it tough to do business as an italian leader because of all the politics involved regarding the budget? >> good morning. andink it is difficult mostly do business with non-italian or non-european entities. it is not totally clear what the ilitical situation is but -- k the in septa to

it is really uncertain and i for a while, it will be difficult to understand italian politics. mean there isn't a discount for any company that is listed simply because you are an italian company? it 10%,, more -- is more, less? plenty of companies are expect -- are exporting -- it is slowing down investment. foreign entities want to develop something. this is where they would freeze for a while and then maybe

expect to have a clear idea of how the social system will be changing in italy. on the other side, the value of italian companies is still very the awareness of the italian name is still very strong. francine: where do you see europe going? do you worry about the fabric of the european society? we should have some concerns about europe and it immediately reflects on the fashion and luxury market, the local consumption is not growing. dynamic -- wea don't have the dynamic we used to have five years ago. lack of activity

normally in china. advantage.initely an tom: about yergin a show up today with year work at -- is not working, but physically unfit avenue, they can't keep them in the store. luxury is booming and gucci is leading the way. how has gucci changed the world balentine oh and the rest of luxury. michele: luxury companies were growing by geography and in the last 3, 4 years, it was quite clear that not only in the product, in a vacant indication

-- innovate -- not all companies can do it. how do you do that? how do you make, how do you bring together michael cores and -- and versacci? -- is a very talented manager. group, morein the

industrial synergies. -- is a very italian manufacturer. the michael cores group is positioned in a different way. i hope they will be able to give an impulse. i think the luxury position is fundamental to italian brands. francine: what does it mean for extra consolidation in the sector? there seem to be very few luxury players left that are independent. the you assume they are going to be bought out? michele: in italy, there is a clear problem of succession. you can name at least five companies which are north of $1 .illion

probably theymost will finish or start going expect -- i do not financial institutions or an italian group as a factor for all of these companies. tom: let's bring up on the screen, francine's next acquisition. all you have to know is these are out of a movie. what i want to know is, is this h&m ino be copied by about 10 days. how is that tension between luxury and the people copying

everything in real-time? michele: it is much more difficult to copy shoes. -- was able to copy in one week, buying the same fabric. shoes are a completely different practice. concernedry is not so . internet, counterfeits, this is an area which is technologically expanding. imitation has been successful meaning you have done something brilliant. tom: thank you so much for the update. michele norsa. iranve images here on

which is front and center in president trump ticket comments at the u.n.. francine: we are seeing the president coming out shortly for those on radio. what struck me in the address by president trump was how he hit a in twothe world is split between those who support iran and those who are against iran. tom: there are a lot of people who support the president on this. that cannot be forgotten. a huge part of america believes in mr. trump's thoughts on globalism. when we continue worldwide, this is bloomberg. ♪ xfinity mobile is a new wireless network

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history. chairman powell marches towards neutrality. memo, president trump is not accommodating. wills hour, we catch up with dennis gartm. gartman. i am tom keene. then they gog home, as we see and iran. francine: they continue to work to offset u.s. sanctions. to figureen working out what sanctions mean for oil and whether they have enough oil to fill that void. you can see mr. rouhani as he

arrived in tehran. they will find ways of offsetting sanctions. tom: $81.86 brent crude. one of our interviews talking the price of oil as well. much to talk about in this hour. here is taylor riggs. taylor: on capitol hill, high drama over the high court heard a woman who accuses brett kavanaugh of sexually assaulting her will testify. testify. dr. ford will say the events drastically altered her life. kavanaugh will also testify. two more accusers have come forward. denied theas

accusations. the imf will deliver more money up front to help argentina denie accusations. pull the economy out of recession. italy, a last-minute demand for extra spending comes from the populist coalition deputy who want aters, budget deficit higher than the one back by the finance minister. the prime minister says there is no point being in government the if you can't deliver on promises. the u.k. would be welcome back if voters decided in a second referendum on the eu. emmanuel macron spoke in new york. >> if the british were to vote you take us back?

>> sure. it is about history, not domestic interest. the south africa president says there won't be land grabs or may have and his plan to redistribute land to the black majority. he spoke in new york. seeking to do is balance that equation and make sure the land is shared why all south africans. that is an inclusive process that seeks to have an outcome to social lead coalition and remove the threat of instability, so we are managing risk. president says trump's criticism of the land issue was clearly misinformed. global news 24 hours a day on air and on tictoc on twitter powered by more than 2700

journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thanks so much. equities, bonds, currencies, commodities coming off. futures up, curve flattening. euro comes in, oil higher. 12.71 on the vix. to year yields on 10 year yields in. the argentine peso to the rescue. francine: i'm looking at mainly ds of theitalian bun country is trying to decide on deficit targets. withlast-minute dispute five-star saying we can't at the ,oment move towards austerity and that is really hurting all this. i'm looking at what the fed means for the other markets.

the s&p a little changed in europe. tom: we start the hour and go to kevin cirilli. this is all over the media. the new york times put it on the cover. in judgemportant kavanaugh's calendar, june 1982, weightlifting, come home from the beach. it is extraordinary what washington has become. kevin cirilli is living this within the beltway. i guess this comes down to a calendar from 1982. this you translate this morning? it will come down to key senators, collins, murkowski, flake, the latter of whom gave a speech yesterday, but did not reveal whether or not he was going to vote to support or not

judge brett kavanaugh. judge kavanaugh and dr. ford released their testimony. ford says she is "terrified" doingtify today, but is it out of what she believes is her civic duty to testify publicly. the senate judiciary committee tomorrow 9:30 a.m. is set to vote to approve or not the nomination of judge kavanaugh, send it to the senate floor, then you could have the senate voting on his nomination. link to the election, or is the up or is the uproar discrete and removed from america and their intentions on the first tuesday of november. kevin: the president would say it is linked to the midterms. the president referred to this as an "con job." democrats -- he would say

democrats are trying to use this for the midterms. democrats say this has nothing to do with the midterms. this is a larger part of the me too moment. expect --when do you do we expect that testifying to have more clarity on what the gop and president assad with judge kavanaugh? flake said hetor is hoping he will get more clarity and answers from this testimony and urged his colleagues to go into it with an open mind. senator lisa murkowski is the one to watch. the republicans can only lose one republican vote. do, vice president pence breaks the type. commentmurkowski's signal she is trending away voting from judge kavanaugh --

for judge kavanaugh. that means republicans can't lose other senators. on those fourre senators just named. tom: great update. thank you. kevin cirilli. we will speak with dennis gartman about the fed and the fear, but first washington. dennis what you do every day in your newsletter, how important is this political debate for markets a year from now or two years from now? >> the market seems to think it is unimportant. i am surprised the market continues to go up no matter what the political circumstances are. continueded by that trend. it surprises me every day. francine: what will become of it? .> who knows we have an important election coming up. decided bywill be

the debate over the kavanaugh circumstance. would change 1% or 2% of the votes. see them change their minds as events roll out today. with us.is gartman an important conversation at the bottom of the hour with the governor of puerto rico. he will join us. looking forward to that update on an island in recovery. please stay with us. worldwide from new york, this is bloomberg. ♪

>> this is "bloomberg surveillance."

i am taylor riggs. total sees oil hitting $100 a barrel. he says that may not be a good thing for the economy. he spoke to bloomberg about what is driving prices high. >> with all happening in the world, there is development for the price of oil, particular disruption in supply, iran, venezuela, libya, even on the opec side. today you have strong support for the oil price. the demand remains high despite prices. profit fullating for h&m. it said it would not require

more markdowns in the fourth quarter. few investors have accepted that. is concerned the next financial crisis could take place in europe. dell spoke atd a the bloomberg global business form. spoke at the bloomberg global business form. >> where because of the nature of the euro and the inability of countries to print their own currency, there can be a crisis too big for government to solve. that is frightening. thanks so much. we are thrilled to have dennis this, writing the rtman letter, sometimes wrong, sometimes right. and even more fascinating

statement and fascinating fed press conference. i want to go to the argument about the new nafta fed policy. pushed beyond its practical utility. a boom is not a time for triumphalism. is --utral rate endogenous to economic policy. >> what is the neutral rate? to discuss it has always surprised me. it obviously changes from one month to the next. trying to find that number is beyond comprehension. tom: this is classic gartman writing a few years ago. ring it up.

for decadesid the fed is rarely if ever a creator of rates, but instead a follower." we preferred the markets collective assessment. smartest thing i have seen in the last 24 hours. what do you mean? >> to have the fed chairman make the decision as to this neutral break is silly. ofhave the collective wisdom all the people buying and selling making that decision is the way to go. the fed has never been a creator of rates. it has always followed rates. it is the proper thing to do. francine: because they are data dependent. , the you to hillary clark natural rate of interest in the u.s. in this chart, also core pce.

we will also push it out on social media. what are you looking at? it is a good chart. it tells you the various things the fed is looking out for. fundsemember when fed traded at 20%. 2.5% is the fed rate is likely to make 4% before it is done. the fed will follow rates higher. it will get that done. yearsld take another 1.5 to two years to a copper set. francine: will we ever go back to the world we saw? >> not in my lifetime. 20% fed funds rates? not in the next five years or 10 years. tom: francine, this is so important. mario draghi is trying to do what jerome powell is doing. he has the idea the ecb will wait a we're -- a year before

they raise rates. whether: i wonder what it is because the market is bigger than 15-20 years ago that makes it more difficult. they are following that data, but have to guide the market. is there too much transparency? >> the more transparency, the better we are. are you data dependent when a market has 100% pricing in you are hiking? that is not data dependency. >> sure it is. why not? francine: the market is guiding you. >> the market should guide you. we look at the data, follow, move. tom: i thought michael mckee was thrown out of the press conference yesterday. after jerome powell and the dots. the fedrman through

under the bus and said i don't look at the dots. the you look at the dots? >> i have stopped looking at the dots. i thought it was a silly idea to begin with. i refuse to look at the dots. tom: this is the fed we are seeing now versus what we knew with chairman greenspan, which was my way or the highway. i hate to use the word communal. this is a communal fed. is a european phrase. >> it sounds leftist in orientation. and you are wearing a ferragamo tir. >> my wife supports ferragamo on her own. francine: do you look at the phillips curve or is it broken

are dead? >> it's broken. i assume it is dead. francine: when does it come back? >> i think it is gone. he actually puts his trades and track record in the back of his newsletter, so he is the street and yada. >> they beat on me a lot. what wet do we do if observed yesterday. are you fully invested? 100% in cash? what do we do. francine: you should be longer on bonds. tom: lower yields? >> i think rates go lower rather than hire from here. take a look at the futures positions from the cfpc. tom: it is a one-way call on higher rates. >> it is going the other direction, no question about that. francine: what does dollar do from here? probably get stronger, even if the long end of the yield

curve goes down. the curve will go inverted. it is just a matter of time, six months, when year. tom: imminent recession, slow down? now expects an inverted yield curve will create a recession. i don't think that will happen. i think a recession will occur, but not dependent on an inverted curve. francine: will the fed do everything in their power to stop that from inverting? >> the fed always follows. the fed will be slower raising rates than they should be. tom: look at your iphone, n.c. state football schedule. we are going to do something european now and you don't have to be involved. francine: it is actually one of the most global european banks. dennis gartman stays with us.

the ubs chief executive spoke exclusively to bloomberg. hike forect another december, another three hikes in 2019, said the fed is executing their plans and the economy is sustaining this policy. i think we will continue to see hikes in the future. >> what do you make of trump's comment, having a punch at jerome powell? >> an intervention to influence out to bankers turns create a counterproductive outcome. doubt, under pressure the fed to come in the ecb, and any central bank tells to the contrary of the pressure, so monetary policy should be a

matter of the central bank. >> in june you said i will not be surprised to see a 10% to 15% correction. investor are we to the turning on this market at the moment? , you you look at the u.s. could argue we are reaching all-time highs. in the second quarter and hong kong and china, markets were think we see the symmetries of movement between the u.s. and asia, which is indicative of the state of the world. >> the other big piece of news is the ceo is gone. what does that mean for you and the bank? regret and are sorry to see him leaving.

he was crucial helping us execute our strategy and development strategy for the investment bank and execute the strategy, but we are also glad teamroud that one of our has been asked to take on such an important role. usessence, what it means for the sameate with strategy, focus, and discipline. >> he is gone. are you all in and committed to this bank going forward? what do you want to say to markets today? i am committed and focus to execute our plans. team ina very strong and in theve board rest of the organization, so i

am committed to lead the bank to the next frontier. tom: let me bring up a chart with dennis gartman that shows the great distinction. much of american banking versus the european model, we have shown this chart many times, j.p. morgan in blue. down below struggling unicredit and deutsche bank. what do you do, by the value of europe or stay on board the growth of america? >> you stay on board with the growth of america. if you bought the s&p and sold the dax, you have done well. regionals and the roll up of bank and come at 10 years ago, the role of of

everybody into one or two banks. where thee that again new york city banks have roll up everything else? >> having grown up in this business in the south, the land of in cnb, now bank of america. as to whetherts there will be many more rollouts. it will be hard for someone to buy towne bank. francine: well the markets correct significantly? >> sure. the question is when. it will start when it starts and it won't start until it starts, but it will correct. francine: give me a time frame, six months, two years. tom: i was thinking 3:00 p.m. >> there will be a substantive bear market, no question. what will cause it? who knows? perhaps something in india

versus pakistan, southeast asia, and inverted yield curve? take a look at the term structure on interest rates in hong kong. that may be a canary in the coal mine. francine: do you worry about shadow banking? has a chart he was to show. it shadow banking the biggest risk? >> what you mean? francine: the lending not regulated in china. >> yes, that is one thing one should be watching. tom: shadow banking is when you move money to ferragamo. artman letter g fresh off the press. this morning, we are traveling tom keene and francine lacqua. have you survived the traffic of new york city?

problemunbelievable with delta airlines itself. the traffic coming in was not so bad. tom: so many people in new york from their public. is president trump removed from southern virginia? >> he is imminently moved by my lovely bride, but on balance, by thesident is moved middle of the united states, who get him. outside, especially south and west, find him disconcerting. francine: i feel like i need to stick up or europeans. taking the subway all week. you need a u.s. zip code to buy one of those cars. tom: a 14 year project. the european union has

started exploring unilateral emergency measures and case of the no deal brexit. emmanuel macron weight in on this issue and trade yesterday. >> with america disrespecting the paris agreement, i cannot accept. why? >> you would not do a trade deal with america? >> if it is not compliant with our current objective, it would be inconsistent. we are asking a lot to our farmers and citizens to mix such a shift. if you open your markets to products and goods coming from countries which decided not to respect the same rules and constraints, it would be crazy and inconsistent. ill have executions to avoid a trade war. i addressed this with president trump two days ago.

if we can fix the situation on come it would be specificnd arrangements to avoid a trade war. like the former administration, could be acceptable if the u.s. is compliant with the paris agreement. >> another country, you had hear, brexit, the first time from the labour party , i hand of a second referendum. if the british were to vote remain, would you have us back? >> for sure. >> even though you are trying to lure these bankers from london to paris. , not is about history domestic interests. i am not the one to decide such a move. i respect the choice of british

voters. i don't want to interfere in this debate on the second referendum. i am respectful, but i did regret the vote for the rest of and for our very special relationship, for france and the u.k.. i think what we have to do is precisely have a discussion in light of the agreement, the backstop for ireland, and find the best way , byonitor the next phases respecting the rules of the european union and the single market. francine: that was the french president emmanuel macron .peaking with john micklethwait it was an interesting conversation. i have not heard the head of state of the european union say we will welcome back the u.k.

tom: when you get back to england, i believe the debate will continue. francine: i'm sure it will. tom: to say the least. good morning to all of you on twitter. we have been thunderstruck by our streaming on twitter. thank you for the many responses. we were out there for three hours on twitter. thank you to jack dorsey and all at twitter. this is a real joy. the governor of puerto rico destroys stereotypes. besides need to know moving a tennis ball over the net is that he has taken the most rigorous path in science, , theine in america esteemed biomedical designation from the massachusetts institute of technology and onto a phd at is asan, which procedures. i want you to talk about the

stereotype of puerto rico. you go to 100 2nd avenue in new york city and there is a street named for the sacrifice of puerto rico in world war ii. get does the president wrong in his stereotypes of puerto rico? >> the first thing is puerto ricans are u.s. citizens. that was a little known fact prior to maria. afterwards, everybody knows about it. the people of puerto rico are strong, resilient, and have added a lot of value. of the highest per capita military rates in the united states, so we want to make sure we are part of the process. puerto ricans are proud americans and want to be a full part of america, not a second class america. tom: what do you have do to get to a first class investment plan? what do you need from congress? >> we will need some rebuilding

money. some of it has been in place, a couple ofll be other statutes that need to come along, so rebuilding money. we will make changes on chronic .roblems francine: will we see financial investors back? because you are coming to the end of bankruptcy, it may bring traditional bond buyers back to the island. >> one of the challenges and puerto rico is we are close to the markets because of the oversight board and fiscal challenges we have had, but there is a great opportunity. touilding funds can range up $100 billion. the opportunities represent a

great moment for investors to come back into the island. puerto rico represents a place where real estate can have a very high value, and because of the rebuild money and a very incentives, it is the right time to invest in puerto rico. francine: when will you be out-of-court protection? >> it is a long process. what is called title iii, sort of chapter nine arrangement to come it is the first time it has been executed. nine creditors in puerto rico, 19 main creditors. we have started negotiations with three of the main ones. hopefully we can move quickly come up it depends on the negotiations. tom: within the government of puerto rico is the idea of puerto rico having a brain drain and a general people drain.

the first-order condition is you have to give puerto ricans to come back to the island. how do you a fact that? -- effect that? >> people leave for quality of life issues. right now we have an opportunity who has leftne know we can rebuild puerto rico and make changes to chronic problems in the past. a lot of the folks just want opportunities back home. tom: what you need from american business, multinationals? .here is a stereotype what do you need from tim cook, from gm? come and see puerto rico and invest. >> it is a unique opportunity. time for folks

to see puerto rico as a platform for innovation. our view is that if we leverage this moment, we could have the reverse brain drain, make what we are calling the human cloud , anybody who wants a great quality of life and can benefit from the incentives. francine: i'm looking at a moody's report. they say gdp has increased, but the pace of future growth is uncertain. people want certainty. when will we get that? it is a challenging predicament and puerto rico, but now there are certain opportunities people need to see . i think there are three parts, rebuild funds, over $100 billion , opportunity zones that will ,ake that dollar, capital gains

frozen capital be able to come into puerto rico, and competitive incentives for the investor and people who export services that are the most competitive in the nation. together plays puerto rico as a prime location for growth and opportunity. tom: you mention the military contribution of puerto rico, the sacrifice in world war ii has been noted. the new thing on the block is a new cuba as well. you mention competition. how does puerto rico compete with the new cuba and the excitement over restoring cuba to some caribbean path? >> some people see it as competition. i see it as an opportunity. cuba will have to leverage and puerton, growth, rico is positioned as the prime helper in that. sharing a the u.s.,

language, we can be part of that rebuild once it completely opens. opportunityhas an to grow tourism has cuba grows as well, but help it rebuild infrastructure, because we have the know-how, the quality people come and it would be a natural fit. tom: within all of this are the politics of washington. who do you want to speak to and what is the number one message you have for the executive and legislative branch? with the one, continue help for the rebuild of puerto rico. to makewo, it is time sure that puerto rico doesn't have obstacles towards the future. the main obstacle has been a political one. the second-class treatment, ipcond-class citizensh treatment is because rodrigo is

a colonial territory of the united states. tom: you are still advocating for statehood? i am. it would be in the best interest of puerto rico and the united states. tom: thank you so much. the governor of puerto rico. gartman on the markets. gary stern, every time he speaks, it is interesting. that is at the 8:00 hour. stay with us worldwide, this is bloomberg. ♪

francine: this is "bloomberg surveillance." from london.

not london, new york. theresa may, that interview yesterday. i'm looking at italy. italy is the one thing that could derail the euro strength. tom: agreed. francine: the coalition is fragile and you have a finance that was unelected. it is freaking out the markets. every time you think they will tell the line, one partner says we need to spend more money. if you are for the markets, you are against the citizens. tom: exi ther are some heated -- there are ther some heated headlines out there. minister ofe prime the netherlands said populism is great if it is channeled in the right way.

it in the matter that hurts your finances. let's get to first word news. a showdown on capitol hill with a lifetime appointment to the supreme court at stake. who accuses brett kavanaugh of sexually assaulting her will testify before the senate judiciary committee. in her prepared remarks, she will say she was too ashamed and afraid to come forward and tell now. brett kavanaugh will deny any wrongdoing. this week, two new accusers have come forward. the friendship between president trump and president xi may be falling apart over allegations of election meddling. president trump said they are trying to help his political opponent in the political election and that he and xi may not be friends anymore. the netherlands has its eyes on businesses in the u.k. that may want to relocate.

>> we know it is creating an imbalance. businessttract more from the u.k. to the netherlands . to bring track companies to amsterdam. is holding them back and making them decide to prolong them. the eu's economy minister says it is in italy's best interest to limit its depth size. it is deciding on its budget and debt levels today. debt will allow room to maintain credit worthiness and borrow at normal rates. he spoke in new york. italy is toest of be a core eurozone member, stick to the rules.

that is true euro, true europe. that means enhance productivity. taylor: global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thanks so much. the ramifications of newspaper ads in des moines. the president made note. here is the president of the u.s. to the yuan general assembly. now, your today and made a significant allegation and suggested the chinese had meddled -- >> that is what i hear. >> what evidence do you have of that? >> we have evidence. it will come out. i can't tell you now. it didn't come out of nowhere.

they have admitted they are going after farmers. tom: and 81-minute press conference. the general assembly, then a lengthy and freewheeling press conference. we have dennis gartman of the gartman letter, and pimco, expert on the policy of those republicans, democrats. all of you and washington are transfixed by the first tuesday of november. what happens the first wednesday of november? >> well, i wish i had a crystal ball. we don't see the new congress until january. what we could see after the election is a busy lame-duck session, especially if there is a change in power. for republicans, this midterm election cycle will likely be difficult, especially in the house. , the electionse

are usually a referendum on the party in power and the president. with a 41% approval rating, i might be concerned. 2016,anging over this is where a lot of people got it wrong. if you see debbie wasserman , how domicroanalysis you take that? >> a lot of people got the 2016 election wrong, including us. all this comes down to voter turnout. , whether theasm country is on the right track or wrong track, all that seems to be a headwind for republicans, but the economy is strong. unemployment is low. wage growth is creeping up. that could be a cushion. i am getting at of the election prognostication game. francine: do we trust the polls?

you could argue that when president trump got elected, a lot of people did not want to say they were voting for him. will we see the same thing this year? republicans are not willing to say they want to vote democrat. >> again, who knows? ,he real question for us because if the house flips democratic, that is interesting. if the senate flips democratic, that is a real question from an investor perspective. that is the least expected outcome. tom: dennis is squirming. >> there is no question the republicans will lose the house. the question is how many seats, 10 or 15? i am scared as to what might happen in the senate. all the committee assignments you coulds change, so lose three seats in the senate

and change the entire government of the united states. >> even though you need 60 votes legislation, there is reconciliation, which is what they used to get the tax bill through. if democrats take back the senate, you can see legislation passing. whether the president signs it into law is another question. francine: we will get back to that shortly. you both stay with us. , ourg up tomorrow interview with mark carney. we focus on climate change and disclosure. this is bloomberg. ♪ osure. this is bloomberg. ♪

tom: good morning, everyone. and tom keenea still on speaking terms. francine: we love each other. tom: i should say a shout out to

the new york police department. francine: they are great. tom: they have stopped me a couple of times and have been very polite. the sikorsky is down. the single best chart. we are going to dazzle pimco with this. dennis knows this chart. this is the deficit to gdp of the usa. good morning on radio. i will put it out. the reagan deficit at 5% of gdp. with greating there speed. what happens when we click 5% deficits to gdp? >> id. no. it is disconcertingly little. backup when interest expenses are crowding out -- tom: you are not calling for

that. >> no. two, an important point here, it limits the ability for future fiscal stimulus. if and when we go into recession, it means congress and fiscal authorities have less ammunition to mitigate the , which of our recession means our recession will be shallow, but longer because of that dynamic. >> the fed will do another round of qe. if we can't do anything physically, we would do something monetarily. francine: if they have the ammunition. >> you can create the ammunition. tom: print it. >> there is an argument that fiscal policy might be a more direct tool. >> that is correct. francine: what about the unintended consequences of extra stimulus? inequality? >> i will let that pass.

>> i will let that pass as well. going back to the chart of the ay, the other implication is more imminent impact come the likelihood of an infrastructure passing. one of the implications of the democrats taking back the house is there will be a focus on a big infrastructure bill. if the republicans keep the senate, there will be enough fiscally conservative republicans concerned about that. tom: this is critical. a rural senate versus an urban growing america. >> infrastructure used to be a bipartisan issue. every member of congress and senator loves to bring goodies home to their district.

is that a surprise? tom: that is an exclusive. >> i'm shocked. francine: early-morning revelations. >> historically, this has been a popular. it is a symptom of how polarized things are. tom: thank you very much. we have much more to talk about today, including watching italy. francine: we are. volatility.at euro it has increased in the last 10 to 15 minutes. tom: we will continue. please stay with us through the day. this is bloomberg. ♪ this is bloomberg. ♪

, trump isfed hikes

not so happy. in 2019sees more hikes and tries to engineer a soft landing. president trump he is not happy. solomonfin and david warn of the cycle turn in 24 months as j.p. morgan says outperformance is over. italy meltdown, a budget deadline by midnight. the five-star and leaders may push for a 4.2% deficit. welcome to "bloomberg daybreak." i'm alone again in new york. david is in the windy city and chicago. david: i'm moving farther and farther away from you. i am excited to be here. we will have an event tonight from the chicago council tilray of foreign affairs. council of foreign affairs. i will also talk about the state of