and it is also a great deal for our country. likes hisdent trump new trader with canada and mexico. u.s. auto and dairy companies rally and relief. a budget with the european union and italian official suggested mainly it is not a good thing after all. rain clouds start to drizzle is how imf managing director christine lagarde talks about growing challenges coming from trade tensions and tightening monetary lessee. ,elcome to bloomberg daybreak i'm david westin all by myself in new york as alix steel has gone to the sea. a lot to straighten out down there. in the bar, i assumed it would be about kavanaugh but everybody was talking about nafta. i was very impressed. david: a lot of relief going on. it is auto's, gary, rail.

,lix: the reason i'm down here basically the industry group for banks. we will talk a lot about regulation. and like blackrock, you get his take as well. today is lots of angst coming from europe. it is sitting at a three-week low. buying all across the bond market. and brent, i can't believe it. this most bearish headline in the market, but barclays is

morning of and overshoot at some point. david: the iranian sanctions are really biting, it appears. boris johnson addresses concern of party over new england where he will continue his attack on prime minister theresa may's approach to brexit. in the 9:00 hour, we give u.s. auto sales. and at 1245 p.m. this afternoon, chair fed jay powell will address business economics in boston. it is time for the bloomberg first take. by the chief equity strategist right here in new york and bloomberg's u.s. economy recorder -- reporter. i will start with italy. big news overnight and conflict" who is in charge of the house of parliament. he says i'm more convinced that italy with its own currency will be able to resolve its problems. but then he turned around and with our own francine lacqua

said that there is no plan to leave the euro within this government. >> they need to support and they realize that. the idea of decoupling from the euro is too much instability. it is completely unpalatable. david: they took the budget with a 2.4% deficit up to the eu, and said, thank you very much.

>> it is investors pricing and a lot of risk and italy. you have to have some really strong pushback which, maybe a few ticks below that. but there's not a lot the eu seems to be able to do to enforce. this is the environment we've been in for years now. i don't imagine italy will really change the game. >> how about the u.s.? it is over 3%. but it seems to be ignored. >> we see the u.s. with expansionary and budgetary policies. this is exactly what will be hitting.

you have policies driving and anothernding goal of president trump to narrow the trade deficit. alix: what do you do with italian assets right now. >> what matters for all asset prices is where the economy is going. this is clearly the bigger .river if we push through this budget, it does contribute to economic growth in italy.

the euro has depreciated a lot this year. you see pretty strong growth in earnings and discounted prices. for all the political risk. it is the fear of what policy will do. one of the things weighing on earnings, it is basically the tariff war's. we talked with the bmw cfo and they talk about the trade tensions.

>> of we talk about the trade impact, we are shy of negative impact in 2018. a high-impact in the p&l. that is the bmw carmaker, and we have some issues still. >> they are still close to the year-to-date low. if you think about where we are in the cycle, this is not a time for auto stocks in general. this is regardless of housing stocks because rates are rising. it is just getting more expensive.

the structures are terry's issues that impact the auto stock. unless you start to see real sales recovery, it is just unlike he that these will be the big out performers. and there's the under performance of small caps yesterday, the shift in mindset. is that the correct assumption? >> let's go back to the u.s. and ca -- usmca. the best part is that it happened. there is that risk that people were thinking all of a sudden, some stability.

this is to congress, mexico, and canada. the rules of origin, they have to pay to work with a bigger percentage. but it is not necessarily good for these companies. when they start, they start to pay out more. alix: on the heels of that, warns of tradede and global growth. >> six months ago, i pointed to clouds of risk on the horizon.

but it is not boring. but there is a bit of a drizzle. risks have of the become -- begun to materialize. and indeed, you will find that growth has plateaued. alix: so poetic. the u.s. could be shipwrecked when they go alone. in particular, emerging markets. that she didn't call out the u.s. and china by name but the implication was very clear. get your stuff together. get into a room, figure it out. these are the two parties that have still not come up with a framework. they are countering each other for months now, starting with for americanive workers.

it slows down the entire global picture. it is not just the u.s. or china. it is the global growth picture for 3.9%. saying christine lagarde would likely slow it down. you don't have a number yet. david: with all of these weather reports, i'm a little lost. of the christine lagarde's job is global growth. we've had a lot of forecasting in the u.s. and it has not come to pass yet when it comes to trade or deterring earnings back in the united states. >> i'm glad you brought this up because it is a critical point in time. it came out just one after the other end said there is no

impact. we are only seeing upside the growth. when we start to see real damage to growth conditions. inclination is there is an opportunity for upside beats. third quarter is hanging in there quite a bit. is a very small share of overall gdp in the u.s.. this is a critical point to make . trade impacts everyone else a lot more than it impacts the united states. david: a little sun in the forecast. bloomberg news, thank you so very much. on yourng g tv

terminal, you can browse recent features and save the charts for yourself by running g tv . coming up, italy's political roads. this is bloomberg. ♪

the euro are from under pressure over fears that the tying government's new budget. the lower house budget committee by first saying, "i am more than convinced of italy with its own currency will be able to resolve problems. actually talked to francine lacqua saying that there is no

plan to leave the euro regardless of my own personal convention. joining us is paul richards. good to have you here. i think it is affecting the euro as well. >> it felt like free money in the world and something that we are reminded of the european's is him around. it will probably have another 50 odd governments from the end of the second world war. that gdp is 130%. 70% of debt is owned by italians. he will not be in parliament for much longer. at the nail and sylvain, the popularity has been managed quite quickly. this is his play. but what about the argument of the government that says, wait a minute, what worry

about growth. it will help the euro and it will help italian growth. >> this is what they were trying to convince markets on the weekend. 15 billion earmarked for public investment. drive around here and everybody is rushing to spend their budget. promise but ito is the issue in italy right now. it is 291 basis points. 400,uld widen out to nothing like what he saw in 2012. >> the problem you've got with this whole issue is that this could play out over two weeks, four weeks, or six months. , this tohing i do know

me, it is absolutely not great. the market is treading very carefully. it is wanting to look at the btv spread and i look at the euro. 115 this morning and not one 10, the market is telling you it is not a serious issue. but they are warning you it could get worse. i think that is pretty unlikely. take it more globally. we heard from christine lagarde about the rain and the drizzle. who are taking down global growth forecast. where are we? i think she's right. she is saying to china and the u.s. to be careful. they went about for five years with japan and he is digging in right now and has your of the president. it is not as dramatic as they

are probably hoping. i think christine lagarde is correct that you might sort this out. it will not be sorted out between now and the midterms. david: we are in no rush on china. we don't even want to talk right now because we don't think they are ready yet. is it possible for the u.s. to buck the trend and have the rest of the world really softening. >> what is happening is you have europe and calls by china, the u.s. is a safe haven which is why the dollar is catching a bit. you have to put your money somewhere. the problem is that the markets are thinking through and the issue for me is that in three weeks, the market has not tried. the possibility is low of the senate flipping. in the markets mind, the house moves and what if the senate flipped?

you going to treasuries and u.s. equities. that is a whole new ballgame. we are talking about the risks of global trade and here is what she had to say about rain. >> six months ago, i pointed to clouds of risk on the horizon. pouring, but there is a bit of the drizzle. the risks have begun to materialize. and indeed, they will find that growth has plateaued. alix: how do you invest for drizzle and a plateau of growth? or is the imf super behind global growth revisions. respect to, with christine lagarde, is that it's a little bit conservative.

i understand the drizzle analogy but i think the sun is still shining and 70 degrees out there today. i think in three months, it could be very cold and miserable. but i think it is a little premature to be talking about drizzle and rain clouds because there is a lot that can happen in the next three weeks and three months. your moneyre you put in the meantime, you put it in the u.s. and think about the midterm. that is why the italians need to think this out. they need to stop the carry-on. they know what is going to happen. negotiateey want to 1.9%. they will probably get it. to europe is incredibly underpriced with brexit on the horizon. david: thank you for staying with us. alix: redefining big banks, the question as on nbc has to do with all of the focus on deregulation. especially into the midterms.

here are some of the questions that are still on the docket, changing the big tank leverage ratio and trading restrictions as well as the asset side. it with me is the president and ceo. he is front and center to all major issues facing financial services. i feel like the deregulation conversation will have a lot of juice into the midterms in case we get a democratic house. what is the biggest deregulation? >> of wouldn't even call it deregulation, we see regulators and market regulators take a look at the rule set that they have today. saying what works, what doesn't work, and had we make modifications to make sure banks and broker-deals and asset managers will provide credit capital to the economy.

it across regulations swaps. there are a lot of other things on the docket. the sec has issues on the docket. also, even in the swap space and equity market structures. we see different regulation from different authorities. d you feel like that, in any way, has been hindering activity? >> market participants have seen fragmentation in the swaps market where we see gold plating of capital and liquidity rules in the u.s. compared to europe. the u.s. and europe are taking a look at that to say that we have one big mobile market. you mentioned brexit. as christie and carlos said yesterday at the end will meeting, we want to get to this

1-1 where we have a global swaps market, equipment regulation that has been adopted as part of the pittsburgh agreements. it is in place and let's iron up the differences. the conversation is not shifting to where the next crisis will be. david westin talked to hank paulson earlier last week to talk about the idea of the asset managers being so huge and with so much money in the blackbox. here is what hank paulson had to say. hank: we don't have the authority we need outside of the banking system. all these things are predictable having any kind of a major financial crisis. one hand, it is so important to him authorities -- to the authorities. i wish we had a few more protections. alix: what do you think?

>> with all due respect to secretary paulson. he has the industry well but there have been a lot of changes that affect asset managers. rules related to money market funds. we have to remember asset managers are not banks. they are different from broker-dealers. the role they play create a different scheme and we have to be cautious about trying to impose bank regulations on asset managers. i think regulators, the fsb, they have thought about that now and pulled back. alix: but what about the shadow banking conversation? loans by jefferies, kkr, leverage loans there and things they had to pull back because of regulation. is there a risk their? -- there? aboutn regulators talk shadow banking, what are they meeting? sometimes they are talking about secured financial transactions or things regulated by market regulators.

sometimes we have situations where they are looking at issues even though they are affecting market a dividend. to say that jefferies is a broker-deal operating outside of regulatory framework is really not correct. i think it is fair to look at activity regulation. that is what regulators have talked about, the fsb has talked about. not trying to impose a one size fits all approach. david: what is the biggest risk you are hearing right now? >> people are figuring about the market and concerned with exit. good news on the trade front yesterday. david: thank you, good to catch up with you. more coming up on bloomberg. ♪

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moved forward, dow jones futures now up 82, but off the lows of the session. italian equities off by .5%. you're looking at the weakest italian equities since april of 2017. the follow that weak elite theme, take a look at the asset there because the selloff is pretty deep. in 2014.ds the highest they argued it could've been worse, but 115. is how we set for the 10 year yield. $85 a barrel. but that ends a meaning for the global economy, front and center. we miss you down in washington but we are glad the universe finally held area let's get an update on what is making headlines.

we're here with first word news. >> president trump has clear the decks from a protected trade war with china. findinginute trade deal japan to open up one-on-one talks. president trump said it is too early to talk china because beijing isn't ready yet. italy could face a greek style fiscal crisis. facebook to promote the new budget strategy, and italian finance minister trying to reconcile campaign promises with euro area deficits. and the killer earthquake is senomyx growing desperate for food. little assistance for roads impassable.

there are more than 1200 concerned deaths. on air and at tictoc on twitter. this is bloomberg. david: the biggest firms approach gargantuan size. bearings is a global investment management firm with offices across united dates, australia, and asia. welcome the chairman and ceo. what sorts of assets do you invest in? davis -- invested in a diversified set of assets.

there are emerging global equities and the alternatives is really expanding from real estate private the. it is frankly very global. one third, one third, one third between clients, asia, and europe. david: and what about competing for dollars? you are very big. but how do you rank? and is there an impetus for consolidation? >> there is certainly an impetus for consolidation. just to do it, you really have to bring together a strategy and plan. especially large institutional clients that make up the core of the client base. there is the strategy for the last decade, which has developed a platform that can serve the

institutional quiet base. obviously, one of the big developments has been the huge growth. what are you doing 15 years ago that the bank might be doing? interesting. we did it more in the smaller end of the middle market. >> when you're talking about the high-yield market blowing up, the diversity ride once it more institutional. they can go directly. what about the global

bearings? is there.ncome, it it is a great suppressing of the spread. do you get nervous when he narrows? the spread, you are in the credit uncle. -- the credit cycle. at the group and early in the cycle when you're and you have days, to be more selective. alix: and let's try to broaden out to bigger market conversations.

>> to take the tangent on the question, they still see it as a dangerous waste of way. you have china, the core of the whole thing. there will be a day where china gets resolved. manager, only down 10% in the end this year and it is like a rock star. next trade. the i am sorry to do that.

credit risk some time. uniqueu have some any -- announcement. what are you hearing? >> when you look at emerging markets, a lot of it is a noise that the geopolitical noise and take away from the market. ultimately, there are a lot of economic issues. there worried about geopolitical issues. people say it is time to file in. what about the market being a step behind.

and by the way, even with china. managing thebe economy better than it did five years ago. >> there is still a gap between emerging markets and the likes of are the major european economy is. i think that is clearly closing, but still, people see a real opportunity there. no one has asked my opinion. is on my radar now and it hasn't been on my radar for more than 12 months. alix: take a look at u.s. performance versus e.m., a consistent story of u.s. output limits. turn, when you look at u.s. equities and into emerging markets.

>> i don't know that i can predict the turn, but if you are invested in emerging-market debt and emerging-market equities now, we don't go to zero. our clients go to work for a long time. it's a matter of increasing allocations. tough to increase is allocations. the economies, the emerging-market economies. alix: i totally do get that but in terms of what would lead a cycle turn, would that be a ramp-up in inflation? >> i think it has to be more than you see.

if you see a stabilization and see anthe trade war, you increase in growth in china. and that may spur a run into the emerging markets. it slows down for emerging markets. david: that is tom think, bearings chairman and ceo and global advisors president. we have the chairman coming up at 10 a.m. new york time. we discussed the not so golden parachute next. this is bloomberg. ♪

>> this is bloomberg is break. i'm emma chandra. coming up in the next hour, sara malik and global head of equities. this is bloomberg. ♪ this is bloomberg daybreak, i'm emma chandra with your bloomberg is this flash. amazon is raising minimum wage to $15 november 1. amazon also says that the public policy team will begin lobbying for a higher federal minimum wage. pepsico ceo is leaving on a high note, exiting the company tomorrow. just as the struggling north american beverage unit returned

to growth in the last order. it helped pepsi beat earnings estimates and the company got a boost from the frito-lay back unit. -- snack unit. and it is a turning point for canada and the global gas. need toners and the invest in the $31 billion project that will create the fastest route to asia for north american look five natural gas. -- liquefied natural gas. turn to wall street where we cover the things wall street is buzzing about this morning. .he ge shakeup john flannery gets left with little to nothing. and the $1.5 billion fine and we prepare for customers to get around sanctions. the threeer revealed series sedan with state-of-the-art gadgetry.

tell us about mr. flannery. it looks like he may not get huge payout. >> this is so fascinating. reacted to it and there are so many leaders to it. you are not going to get a lot of money. the idea that they will bring in an outsider. was a radical move for them where company has struggled. story going back and reading about. david: they don't have big contracts to guarantee it. someone should get credit for having him move in. they brought him on the board.

>> ge has been well-known. all the derbies that have taken place. bring in an outsider and it will danaher.sting to see they left after having a bit of the fallout. alix: les moonves get set of cbs under allegations and still gets a pay package of like $160

million. can someone explain how this makes sense? david: he had a really great contracts and i know something about that. that big payout is put in escrow right now, subject to the outcome of the investigation. i talked to somebody in the business recently who will see if he gets that money at all. fair. i think $380 million was the initial package. i get that. this is one of my favorite stories. a fine for violating iranian sanctions, here is the bigger takeaway. they might think twice about doing it again.

>> this is a massive story that i think keeps going. and their management kindling must be feeling that as well. another shoe to drop. allegations saying they funneled money through dubai which i think anyone who spent any time, that is shocking. again, this comes as a backdrop. generally, the world has gone away from this. it is less seven appetite. of clout around the world, through the banking system. some people say, be careful. at some point, people will move away from the u.s. and avoid paying bills.

it would have really long-term geopolitical consequences. we are with minority a bank. the whole push and pull of the various regulators especially between europe, it is fascinating. >> they should get together. >> china, russia, and europe. alix: mildred with the euro and iran will totally bypass the u.s.. >> it has been too long. let's get to the importance of that. engined not change the or the trim, but they changed the electronic. a set if you are in front.

that is the big at that you drive around in. >> there is a lot of economist driving and you are a car guy. cuspels like we are on the of a really new and interesting era where people are really trying to one up himself in a much more meaningful way. the competitors are trying to of each other. >> they try to challenge mercedes. >> everything going on with cadillac, there was a great .tory they are doing some interesting things and coming back together there in michigan. silly big time for electric cars. a big time for electric

cars. it do people care about brand anymore? our whole relationship with cars is changing. i have to say it is a beautiful car. alix: it is so pretty. me of me. reminds tothe smartphone is tethered your car, if you talk to any ceo or cfo, one of the biggest concerns is cybersecurity. and you wonder if you are hacking into these phones, that freaks me out. >> it should freak you out. in a world of constant tax, one of the things that we haven't talked about is a totally different story. everything happening with facebook right now. isething that wall street watching very closely, it really got swept up last week and all of the cap not hearing -- kavanaugh hearings. always cyber.

alix: thousands of attacks everyday that companies have to deal with. it does raise those questions. but it is so pretty. so pretty. david: many thanks to jason kelly. tune in to jason on business week on bloomberg radio every single day from to talk to 5:00 eastern time. this is more of what i'm watching next. directly.ith us this is bloomberg.

♪ david: amazon came out with an announced that really caught my eye. as for everybody. part-time and temporary during the season. 250,000 employees to benefit from this and you get a sense of $15 an hour, california is not going to go to $15 an hour minimum wage until 2022. they're really getting ahead of the pack here. >> what is interesting to me is what kind of treasure it puts on retailers.

it is thought to pay their workers more and the actual labor shortage and when they build out and have bigger distribution enters. people from move retailers and for them away from other industries. when walmart did something like this, we talked to the ceo who said they also purchased things from us. maybe amazon employs no more. alix: also true and who cares about profit margins for amazon? coming up, sara malik will be joining us. her take on trade and how much risk you should be taking on annual portfolio. this is bloomberg. ♪

president trump: it is the largest trade deal the united states has ever negotiated and

it is also a great deal for our country. >> president trump likes his new trade deal with canada and met go and auto and dairy companies rally in relief. italy fails to sell a budget and the entire and official suggests in the euro is not such a good thing after all. and a drizzle is happened to lagarde describes challenges from global growth coming from chait tensions and tightening monetary. , icome to bloomberg daybreak am a very lonely david westin in new york and alix steel is in washington. you picked an exciting time to be in washington. alix: i told you that i thought it was going to be kavanaugh all day. is the annual meeting of the securities financial industry. they are moderating a panel with chris wilcox.

as well as the ceo and chairman of russell investment, you have a $300 billion asset manager. it will be interesting to the are they intersect. david: and is a lot of changes with respect to the tuitions. alix: and what is that wind that meaning? dooley's rollback and regulation? in the market, there is no confusion. not as bad as we were. only off about five and a little bit of buying comes on in. also also lows, definitely front and enter. the yield down by two basis points if you want safety, you go to the long and after kissing the $85 level. upetheless, ratcheting expectations.

any now, boris johnson will be addressing the servitors conference and we ask him to continue his attack on prime minister theresa may's approach to direct it. we get u.s. auto sales in the month of september and the fed chair will address business economic up in boston. alix: there are fears over the populace to tying government's budget. added to the uncertainty and they said earlier today that i am more than vince that italy with its own current he would be able to dissolve its problems and later downplayed his remark and told francine lacqua there are no plans. kevin, whenever that becomes an actual conversation that we would rather have our own current the, how do markets have

to react to that? >> he is repeating and often said line on the position on the euro currency that isn't really anything new and he has made it clear that it is his personal opinion. that hist understand opinion is far away from being put into reality. >> i appreciate that distinction but it was also on the yield of the head of them saying there could be a greek style crisis. what would that look like for italy? >> it would be pretty bad, as a matter of fact. people are predicting the current budget will be very bad for italy and for italians. i'm not sure it would track the greek crisis, but it could be quite bad and right now, the government is trying the best it

can to avoid that. alix: what is next? >> the budget plan will be presented to parliament tomorrow and it will contain a lot of numbers and targets, and that should show which way the government plans to go forward. it is important to remember that some of the government leaders have in digging in their heels and they say the actual targets will not be changed from what we heard on friday and over the weekend and it could create some problems with the markets going forward. alix: david? david: joining us us era malik, she is the new global head of equities. >> i will put up a charge of the spread with italian bonds and the german bonds. the 300 just under

basis point level. let's start with italy and we can expand out from there. to what extent is this a fundamental risk? we have 50 governments in italy from world war ii? or is this indicating something more fundamental? >> it is creating uncertainty, it will remain white localized and there's a lot of negotiating right now. one of the issues we have been dealing with is the difference returns between u.s. and non-us markets. we believe some of the terrorists issues as the strong dollar can stabilize overtime and we can start to see more parity in market returns where you may end up with a silver lining, that the eu could push out tightening which would be positive for the markets and allow them to grow faster. david: does european growth rate support your thesis? >> is the

low single digits in positive territory. what you need is a catalyst, pushing out tightening. european markets are cheap. if we can get some kind of positive news for catalyst going toward, it would be positive. we're getting to the stretch where the international market can rebound. you're talking about the ecb backing off. is there any indication that they will do that? >> is growth continues to slow and was a more uncertainty, we could start to see talk about that. >> mervyn europe concert increase and we see a rebound in 2017. we can see growth starts increase their and look at northern european companies.

alix: would you just need to see stabilization? >> probably just stabilization but across the board. david: we will put a chart of that the blue line and the world minus the u.s. illustrates streets what you're talking about. howell it referred? >> you start to see more on an evaluation basis. mr. them to create a premium valuation. we talk about how growth stocks are in the u.s. and you see positives beyond the clouds of tariffs and a stronger dollar, china is putting in stimulus.

those markets have evaluation story and lace, just using the headwinds outside of the u.s. and supporting an upswing. increased returns outside of the u.s.. alix: it has been about high-yield dividend stock and do you think that those traits are done? or do they have more room for return? >> the growth stocks we recommend you to take some off of the table but there are nice sustainable growth stocks. as he saw, some have pretty high valuations and that led to some cracks when earnings weren't as good as we tested. cyclicals that underperform for a number of years now. the depends on where we see tears and nation going.

there are factors such as health care. ,s we get slowly higher rates u.s. cyclicals can finally start to take over leadership. risk is the wild card tariffs, particularly china. you'll start to see higher and nation and an totally, you saw amazon listing minimum wage. did we get to the fed with a overshoot rating is is and do it comes toward at the end of this bull market style. david: there is concern about how far we are in the title. we have a chart that we ran across that is interesting that suggests as much is this market has run, it has not run as far and fast as earlier markets which might suggest we have further to go. back, ittake us that

is completely intact. double-digit earnings growth and as long as that stays in place, the bull market continues through 2019 but with lower return rate. the bull will be market will die if we get a higher inflation and the fed overshoot and it will cause the classic bull market cycle where we go into what will probably be a mild and shallow recession. let's eking with us. rules breakdown the fed chair after the spoke today bond market is flashing warnings times. it is a shocker. world that you. this is bloomberg. ♪

in the: we're back with your bloomberg business flash. amazon is raising minimum wage to $15 an hour beginning november. amazon also says public policy team will begin lobbying for a higher that are all minimum wage bloomberg, we will talk with amazon's head of global operations. pepsico ceo is leaving on a high note, exiting the company tomorrow as the struggling north american beverage unit grows in the latest quarter and how pepsi beat earnings estimates. the company also got a boost from the frito-lay snack unit. expectations because of currency headwinds. and a turning point for canada and the global gas industry. agreeing to invest in the $31 billion object that will create

the softest route to asia. investment will be canada's largest infrastructure project and that is bloomberg business flash. jay powell will take the stage of the international association for business in boston later today with the markets watching for clues about the pace of interest hikes and if they will hike above neutral, when, and how far. neel kashkari says the bond market is flashing warnings signs. >> the bond market is sending is flashing yellow line. we are not saying that economic growth is going to be very strong in the future years. so that is nervous this for me. her we overdoing it with alix:st rate increases? kind of the same question for you. when you look at the yield curve, 24 basis points, what does that tell you?

>> the yield curve, even when it does take a year and a half of the session to be hit. returns see positive and we still focus back on earnings growth. as long as earning growth is what is driving interest rates higher, it is a good thing and a sign of growth and as long as we're not overheating, inc. the market can continue at lower returns and we have seen in the past. financials we think generally start to do better. thinks growth remains, we they can actually perform quite well. david: how much of this is a timing issue? earnings are quarter to quarter. the long end of the yield curve is longer up than that and sooner or later, he can't keep growing earnings if you're not growing the overall it on a me? short-termbit

oriented and we're in the small where we are right in between second and third quarter earnings season so there is a markets nervous as you go to third-quarter earnings. we see double-digit earnings growth and the market will be comfortable and continue to grow. it has been about spending and fiscal loosening that is good for the market. the question you raise earlier is an asian. you hit the target on the nose. will it hold or are there any indications that we can start moving upward which might trigger the fed to move faster? >> we're starting to see the amazon announced announcing higher wages which is in really kind of negative for the market. market can probably handle that it if we get something extreme, something that really pushes inflation up faster than expected, that would be the true negative for the market.

it brings into effect what industry has pricing power and what doesn't. many business contacts in new england that have highlighted and face a little business to passing on price increases. what industries have that power? >> i think they have a lot of pricing power. strong pricing power across the board as consumers are fairly strong. i think it can handle inflation we have been a while. when you talk about them put prices, i think that is what you are talking about. 25% year's across the board on all chinese imports and the president seems to be heading in that direction. timeat happened, what would it have to as it started affecting the economy? >> it is hard to say how much each economy would react but i think the fiscal policy would

offset three quarters of the issues raised by the terrace. it will have an immediate positive impact but that is are you see the buying opportunity. this is how the fed react, how the government react. you don't really know how the economy will react. will they start to pull back on what we do need to remember is that even with the revised nafta agreement, they are two of the biggest trading partners and that is a step in the right direction for terrace. we are slowly getting this of people should probably focus on that. country by country, we are getting there. it is just china that is a big wildcard for us. up, a majorg management shakeup in google's most important business. the company needs a new advertising chief. more on that story and others, next. this is bloomberg. ♪

david: it is time now for three company stories we're watching today. still it sara malik who is a global head of equities. bmw we talked with the cfo and the effect the tariff war's are having. >> we can definitely want to fly and impact. we are shy of 300 million in negative impact in 2018. ouran have that impact in p&l. they don't have as many problems with europe. when is the bottom for these guys? when can we put trade behind

them? i won't ask about a specific company but what about the auto sector generally. there are other issues. >> is generally good for autos. there are other companies that , and for autos, it would be pretty selective on the industry. you are mostly able to stay out of the trade crosshairs and that is good for now. >> it has been flattening out in the united take and it will go to mobility4. -- it will go to mobility. ask the ones being more innovative are the ones that will be the winners. that is kind of happening across the board and a lot of industries. the story i am watching is this rise, and it is shell.

when you invest, you have to have buyers lined up. people will commit money to you and that is why you can take your title investment decision and put that money to work. this project did not come with that and it is a big shift in the market. more: and china will need lng. is this a big move for canada? alix: yes, canada is like, please give me out of this back. this is just huge deal for canada. they need to get it out in this is a huge win for them. what also leads me to the capex world, sara, how much do you feel can be put to work at the where is the pent-up capital? you look at energy prices overall, they have been moving upward and we don't the that is a big issue because gas prices are not spiking.

it is not hurting consumers pocket books. they can now spend more and energy prices are moving a big as growth is strong. we think the energy stories right positive. low-cost, very well-positioned companies. we think those are unique and can perform well in a higher in ireland. david: and the final subject, tech. google just replaced their ad exec. their chief advertising executive is going to have a big shakeup at google. -- they havevery been very successful by all accounts. where are you on techie generally? generated marker returns for a number of years and we think that is coming to an end. they probably have gotten to

that yough levels generally is to be very selective on tech. and start looking at the cyclical and defensive companies , ones that can do well is the risk in the market continues to take up. -- to take up. david: and then there are oil companies. >> and there are terrace and we rrifsot as -- terrace -- ta and marketing strategies. alix: i feel like the narrative was that big check led the rally. if big tex peters out, the market will go to hell in a handbasket. why has that not happened? >> it is more of a tech specific issue rather than assignment. you do see a shift in other types of companies with support

stories that can pick up and outperform from here. we don't think tech is going to -- drive it lower. italyturmoil in threatening a fragile recovery in emerging markets making investors a little bit skittish. if the dollar winds up eking out, what might be the dollar buying opportunities? about digesting the italian risk on the selloff in btp's lead system buying in the treasury market. toclays said it is too early buy european banks and any some resolution to the italy crisis. this is bloomberg. ♪

alix: this is bloomberg daybreak. i'm alix steel. risk off but not as bad as if you woke up two hours ago. futures are up about three. european stocks lower, barclays

says it is not time to buy european banks. they have seen their lowest level since april of 2017. dollar,k at the euro- still off a touch. yields only up by about five basis points versus the nine when i got in. the long and,y down two basis points, crude up by .3%. you will appreciate this. boris johnson speaking on the sideline of that conference. here are headlines. aop treating capitalism as boo word and no new tax increases. the words do not stop. david: he is entertaining. i do not know if he is going to have effect. he does have a way with words

and with hair. alix: philip hammond made fun of his accent. i know the control room is going to have to catch up but tesla came out with their third-quarter production, over 80,000 vehicles in the third quarter. model threes in the third quarter, above estimates, over 53,000 model threes in the third quarter is in line with the view that we had seen going into that. it was over 80,000 vehicles. the question is sustainability. david: you've got to give them credit. important than the tweeting by elon musk. if they can deliver these model threes, that is a headline. we had that question last quarter when they made that crunch to get them out the door. it is a quality issue.

there were reports last time there were issues. likewere not made it looks an encouraging headline. alix: total deliveries coming in at 83500. demand remains high. modestly negative in premarket as fundamentals battle. find out is time to what is going on outside the business world. emma chander is here. emma: president trump has cleared the decks for a protracted trade war with china. the president has struck a last-minute trade deal with mexico and canada and convinced japan to open one-on-one talks. at a news conference announcing the revised north america trade deal yesterday president trump , says it is too early to talk with china because beijing is not ready yet. jeremy hunters stepped up his

attack on the european union over brexit. istold broberg of the u.k. angry with the attitude toward negotiations. talks stalled after they rejected the offer for a new free trade area. hun sen it is not good enough for the e.u. to say no. the nobel prize for physics has been awarded to scientists for their interventions in the field of laser physics. their laboratory is 96 years old. he is the oldest noble laureate ever. this is "bloomberg." global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. -- i'm emma chandra. this is "bloomberg." christine lagarde says the trade conflicts affecting global growth overall could affect emerging markets hard. >> countries need to work together to build a global system that is stronger, fairer.

the stakes are high. global value chains could have a devastating affect on many countries, including advance come -- advanced countries. it could prevent emerging countries from reaching their full potential. david: joining us now is damian sassower. saira malik is still with us. put a chart to appear which is profit a look the united states, the white line. the blue is emerging markets. where are we with the emerging markets? saira: emerging markets has had disappointing returns. earnings estimates are not holding up. issues in india, china, latin america. we need to work through these. we have a strong dollar and tariff issue. valuations are becoming on the

cheap side. this is the time. any of those good start to happen. we saw a little bit with the revise nafta agreement. david: is it possible to take the currency effects out? how would it be comparing? combination,a currency is a big issue for emerging markets. fundamentals have not been holding up well. growth in non-us markets has been lower than the u.s. the u.s. deserves to be the safe haven. darker clouds are coming and some of these have to dissipate. david: what about on the credit side? beian: it is going to interest rate differentials driving the currency side. dollar-yuan, the ford curve is trading at a premium.

that is going to flip next year. so goes em currencies. ic pain. -- i see pain. october is the worst month for emerging-market assets. we may see a relief rally at the year's end if things change as we think. alix: similar questions to both of you. where are you currently being compensated correctly for the risk in emerging markets? there is the agreement and mexico, a lot of people pointing to greater strength there. i see challenge ahead. the economy is weak and inflation is hot. that can decline but you look at brazil, the elections coming up, the structural reform agenda, there is none. anaro, i do at bolsanoar

not believe either candidate has a plan in place to help the economy. yields are high. asia is at risk. be poland, to hungary, the czech republic, even russia. these levels look undervalued. alix: the same question to you. where? saira: it is tough to put money in emerging markets now. at can start looking northern europe, new mexico, and canada. watching some of these countries, like latin america, for good news. brazil, argentina, china. story,ore of the 2019 more of an emerging markets story, u.s. returns dampening. you want to start positioning yourself now. david: as an investor, how do

you evaluate brazil now? theurkey, we know who president is going to be but we're not sure what he is going to do. how do put a value on it? saira: it is hard. you cannot rely on fundamentals because there is an event in brazil. our view would be to not step into things like that. wait and see, make sure you understand the countries that are strong. you can start to look to invest in companies. count oncannot fundamentals, it is hard to step in there. alix: what about southeast asia? three months ago, it was southeast asia. is there opportunity in spite of trade issues? saira: it is difficult to say. the spillover from china is hard to predict.

the tech suppliers could be at risk. you have to be cautious on emerging markets now. it is difficult to say where you would put your money today. the u.s. safe haven trade is a good one. alix: thanks so much. what a pleasure. saira malik and damian sassower. let us recap breaking news. tesla coming out with model three estimates, in line with their view out, over 53,000 models. 83,000livered a total of plus cars in the quarter. at the wind up disadvantage they're having in china, a lack of access. they are operating at a 60% cost disadvantage in china. that is interesting.

they did achieve their production rate of over 10,000 units per week. that is upside. you're going to love this, boris johnson is speaking. to backd on tories theresa may. he says back her plan. david: original plan. he is cute. the plan, he says it is a cheap, it will escalate mistrust. he says i back theresa may but what she first said. it is a dual edged sword. to do, what wants she used to want to do. alix: it is like a backhanded compliment. that is true. he does call the plan a constitutional outrage. a brave new world for the communications sector after the rebalancing.

we are going to break it down with the nice chisholm. -- denise chisholm. this is "bloomberg." ♪

emma: this is bloomberg daybreak. i am emma chandra. , pepsiup, hugh johnson coat cfo. this is "bloomberg." ♪ now to your business flash. toys "r" us may be poised for a comeback. lenders could be taking their heat for the decision to

liquidate their company and are working on refining the plan. the plan they cancel to cancel off -- auction off its intellectual property. they want to reorganize into a new company. twitter is ramping up before next month's elections in the u.s. the company is challenging 9.4 million accounts each week. accounts thatved have misrepresented themselves as fake members of the republican party. there is another sign that petroleum trade routes are being redrawn. kuwait has stopped shipping oil to the u.s. for the first time since 1990. booming demand for oil in asia, where kuwait can charge oil prices. that is your bloomberg business flash. it has been over a week since the second largest ever change up of the global industry

classification standard. after the rebalance, the largest sector remains technology, followed by health care, financials. thebiggest change comes for communication sector. they share in that sector. from boston is disney's chisholm, fidelity head disney's strategy -- chisholm, fidelity head of sector strategy and gina adams. is it defensive? what is it? it is an interesting you follow sectors and industries in the s&p 500. it is another growth sector. when you look at the definitions, you look at things like ratios, dividend yields, volatility of earnings and what we have is a new growth sector.

telecom traded as a value sector but it is only 20% of this new sector. about 50% of the market cap is facebook. it does have more of a growth and overwhelms the traditional value characteristics of the former sector. david: how do -- alix: how do trade that? denise:david: the way i think at that is to classify them into cyclical and defensive sectors that have a high outperformance when the market is down. in that bucket, with the change to the communication services sector. we have taken internet from technology and combined it. we have gone from a beta of .72 above 1.0. do some companies benefit

and some companies lack benefit? if you are verizon, do you get a benefit? there are going to be flows around the margins for actively manage sector funds, it is not going to matter. you're still going to own the same stocks. understand, you need to know what you own. own a passive technology index, internet is going to be in the communication sector. media will be stripped out. if you want to own media and internet, your option is that communication sector. there has been concern that now that internet is out of technology, is technology a negative risk reward or sell? it is true you lose some growth

and the high level of margins .ut what you gain is valuation that has higher odds of outperformance and margins for technology are increasing. that has been the driver. the positive risk reward from the data remain. alix: let us break it down. talk about tech. alphabetok at removing , you see a ford price multiple that could drop. do you think there is something more sinister? buy you i respect to agree with the knees. -- with denise. the more ominous fact is that you have greater earnings volatility likely as a result of the shift. when we look back in time, facebook and the services

components of tech had more predictable earnings streams than the rest of the sector. you will have a more volatile sector. have the sector we used to be more accustomed to where it is more cyclical and dependent on software and hardware spending. facebook, their revenue stream, is driven by secular trends towards the internet, advertising was a component of earnings growth for those. the dynamics of earnings will change for a tech and they will change for the discretionary sector. media is a huge market shift for that sector. it makes that sector dependent upon amazon and increases earnings volatility for that sector. as much as we want to focus on the sector and what it means, the loss of constituents in technology and discretionary is the bigger story.

alix: really interesting shift. gina martin adams who broke down -- numbers and in the schism and denise chisholm. a 17% gainng yesterday and the latest production numbers are keeping the rally running. a big change from what we saw last week. more on what i am watching, next. go to gtv and look at the charts we have used and save it for reference. this is "bloomberg."

alix: tesla takes a sigh of relief. no doubt you are watching it. more thany delivered 53,000 model three vehicles in the third quarter, the stock inching into positive territory

after a rally. of $300. price target walk me through the numbers we got. what do you think. , a littleeliveries over 83,000. our estimate was around 80,000. the model three came in at 56,000 which is better than postedus and they also solid results further model s and ask vehicles. is this sustainable? could they increase it? romit: they are sustainable. i would expect deliveries continue to increase in the fourth quarter and into next year. they have not started leasing the model three which is how

most consumers prefer to finance their car. they have not started shipping the model three overseas. there is a lot of runway for them to grow. can theyw many cars produce before they have to have capital investment to expand? romit: 500,000 per year. they are at 83,000. at 325,000n rating or so vehicles. --y have got room to expand room to grow before they have to add capacity. alix: what did you make of what tesla said about china? chinese tariffs are taking a toll. walk me through what you heard. romit: they are getting killed in china which, by the way, is

not insignificant. they have scaled china up close to 20,000 years per year last year. they have grown significantly, the largest market in terms of electric vehicle adoption. once you get into 2020 and beyond. statement from the release was that they are accelerating their plans to build local manufacturing in china. when they do that, some of these tax measures being imposed on the company will dissipate. cars do theyny have to make and sell in order to break even on a cash basis? romit: i think they are there now. whether they are at a slight profit or loss, 80,000 plus deliveries a quarter should get them to break even.

in the fourth quarter, if they are able to increase deliveries, say closer to 100,000, this company is going to be profitable. alix: thank you. i am missing and elon musk tweet. where is the victory lap tweet? david: the sec said you cannot tweet without the lawyers reviewing it. alix: that does it for bloomberg daybreak: americas. johnson, will be joining him. this is "bloomberg." ♪

jonathan: from new york city, me jonathan. 30 minutes until trading. this is the countdown until the open. ♪

coming up, the yuan is cleared the decks for disputes with major trading partners allowing it to focus on china. looking ahead to chairman powell speech, leading the way to another hike. populists inping, italy refusing to back down from their budget to basel -- budget proposal. futures negative three on the s&p 500. in the fx market, it is five days of weakness on the euro-dollar. it is softer by about .3%. to at time populist refused back down, the head of the european union warning of a crisis. >> when is the last time italy had growth? >> we had quite a ways before this budget is approved. >> if there is a plan to leave, we have to keep it secret. >>