italy confirms they have discussed ways to lower the budget deficit targets. dancing queen, theresa may bogeys on stage at the tory party congress while analysts see an 8% selloff in sterling on a no deal brexit. jerome powell highlights the economy and shrugs off inflation fears. >> welcome to "bloomberg daybreak." impressive.y we got dancing queen in there very quickly. that was just a few moments ago. >> what would be your theme song? >> it goes from dancing queen to world war i. >> that is a tough turn. that is a big tone changed. all about the future and what happens with brexit, but she goes 100 years in the

past to set up the future. alix: it is like we are all in this together. then we get to the part where we hated each other in disagree with and our home party. alix: and we didn't fight so hard and lose all those men for nothing. david: that is the story of one head of state. siege, u.s. state authorities investigating taxes. there is a long article in the new york times saying the way he got his money was his father giving him $400 million and saying they at best cut it close to the vest on tax laws. is not truesay it and there is no fraud whatsoever. alix: it's like, who cares? his base would not care. he was the one who said i could shoot someone on fifth avenue and everyone would vote for me. thed: the irony is normally

irs would investigate, but the irs reports to him? we don't like taxes anyway. alix: good job. here are the markets. the s&p and dow hit a record yesterday. small caps still rolling over. euro dollar flat. higheru.s., bonds moving , yields up by one basis point. not a lot of movement either way. brent crude now stable. the saudi oil minister saying some areas are oversupplied. we are not doing anything because of technical markets. we are doing it because of physical markets. at eight: 15 eastern time, adp employment numbers for september. at 2:18, president trump will

send a message to hundreds of millions of mobile phones across the nation as part of a nationwide test of a national wireless emergency alert system. at 4:00, we hear from fed chair jerome powell as he speaks in washington. it is time for bloomberg first take. we are joined by our cross as a reporter and rachel evans. rachel, italy, big news. willthey are saying is we have a big deficit now, but take care of it in a couple of years. you can see what happened with italian assets. they were relieved, at least at the promise the deficit will come in. >> we saw fear in the market yesterday that we could be on track for another greece. clutch onhe parallel juncker drew. italy tolooking for come out and say it will not be like greece. we had comments suggesting some

in the italian government are eurosceptic. so i think today saying that we are going to increase the deficit next year, but rain it again -- rein it in again in subsequent years. alix: ubs says they want to go short. pimco says i am cautious. who haveve seen people stepped in and made a conviction call one way or the other get roasted in this process. alix: yes. >> trading italian bonds has not been helpful to anyone. think it would be a greece convergence, but it is good to see that back away. u.s. traders need to pay attention to this. we have seen that embed it in the 10 year. that has tracked the german-italy spread since mid-may.

good job ofa explaining the u.s. 10 year to some extent. it is sad that u.s. investors have to pay attention to these twists and the of time political saga. alix: which leads us to the other drama in the u.k. there was a survey by economists that says if you have a no brexit deal, and 8% decline in sterling. so far theresa may has not talked about it. she made fun of the show, apparently, called the bodyguards. we are hearing more from traders on how to price this in. it feels like a different conversation than three or four months ago. >> you have to markup your odds because you have seen it has that what is acceptable to the eu and the tories and never the twain shall touch, seems to be how this is going.

on all these projections on what forgetppen, let's not about the vote itself. if you told people to sketch out the trading picture afterwards, everyone would have probably gotten it wrong. david: we talk about the pound, the cable, but what happens to the british economy? how much difference is there between a hard brexit and the soft brexit in terms of growth prospects? >> the situation in ireland at the moment, the conversation is about this irish backstop. ireland was the heart of sectarian troubles with a bombing campaign that went on for decades. no one once to see a return to a hard border because of those memories. ,ou see the movement of people sending trucks between the two every day. there is $3 billion of trade

that moves between them every year. if you see a hard brexit and no deal where the border comes back , that could be a real issue for the economy. ,lix: if you follow our blog you can get the play-by-play about what is happening. we are getting tweets from those in government dissing her dancing. come on, guys. she's also talking about the toxic nature of british politics. when she does dance, she does not dance that well. alix: i know. and she is a woman leader. i know. she still has a huge task. david: we have been to italy, england, abba. alix: did you say the abba? david: i've seen the musical. where were you? let's come back to the chairman of the federal reserve.

he was in boston and spoke yesterday. he addressed the irony or wonderful situation of limited inflation at the same time growth. >> this historically rare pairing of steady, low inflation and very low employment -- unemployment is it testament that we remain in extraordinary times. our ongoing policy of interest rate normalization reflects our efforts to balance the risks that come with extraordinary times. to extend the current expansion while maintaining maximum employment and low and stable inflation. i read something very interesting yesterday. it is an interesting difference when they rate because they have to and when they want to. jerome powell is saying we have to, and that is a more positive message? >> especially when you contrasted to emerging-market central bankers. the central banks basic

communications challenge is that they have had dots that same the world take policy into restrictive territory against needing to raise unemployment and hamper growth. jerome powell is saying this is just the way we balance risks. it is a good thing that inflation and unemployment are low. he basically said when you are calling for circumstances like that to persevere, you probably better check yourself hard. david: that is a great point. one thing we are seeing from the chairman is he is not willing to make tough new predictions out in the future. he is saying we are not sure and will keep monitoring it. >> he is a steady as he goes approach. he does not want to put his neck on the line and say everything is awesome. steady as it goes. we are looking at the economy and taking that into consideration. we are on track for one more rate hike this year, three next

year. we have more data this week on payrolls. we saw the biggest hike in wage increases since 2009. it will be interesting to see what that tells us. , ite is cool and collected will be interesting to see if the data backs that up or we see a bigger increase. saying weonly wages, might see price increases, but it does not necessarily lead to higher inflation. david: he is a very practical former private equity guy. alix: you can understand what he is saying. ok. thank you very much. still ahead today, a conversation with patrick harker at 8:30 a.m. eastern time, 1:30 p.m. in london. we are watching theresa may still speaking at the tory party conference. , butge headline so far

nonetheless we are watching for anything that crosses. party unity and making fun of last years conference as well. italian assets reading of fresh sigh of relief. we discuss that next. this is bloomberg. ♪

>> i am taylor riggs with your bloomberg business flash. martin falling in their debut in london. it went public in an offering that face the company at $5.6 billion. analysts have expressed concerns about the valuation and aston

martin's profitability. tesco falling today. it posted second-quarter earnings that missed estimates because of weakness in its asian and eastern european business. u.k. sales rose more than expected. the company said it is on track to reach a profit margin of as much as 4% within two years. of j.c. penney are higher in premarket trading. firstain has named a new female ceo. chief executive of john stores since 2015. the job has been vacant since may. forecasts a much wider loss for the current year. that is your bloomberg business flash. italian assets breathing a sigh of relief after the government agreed to restructure . now looking attitude percent deficit -- 2% deficit. joining us now is our guest.

what this brings to of forefront in addition theresa may and her tory party conference is how you price and regional political risks that could have big ramifications if. >> we are seeing the repricing of money led by the fed began in 2016, and the repricing of geopolitical risks amid late cycle dynamics of higher interest rates and slightly higher inflation. like there iseel an appropriate risk premium in markets where there needs to be? >> the u.k., for example, we have become less negative, less pessimistic. we are more neutral on u.k. markets because you feel the risk is priced in. in europe, we are seeing markets adjust to italy. we are still not seeing the growth we would like to see.

david: how do you sort out what is going on in italy? there is a tension there with the budget. they say it is 2.4%. there is a report they might get it down. some people don't trust the numbers. there is revenue income some people are skeptical about. budgetarylook at any process, you will have this to and fro. i think this will play out over the coming weeks. there is a problem in terms of demographics and growth in growth in europe, so the budgetary problems will remain. it is something we are concerned about. david: the relative lack of growth, is that a cause, comparable, result to it? >> you have a business cycle where you have european growth has rebounded, but the pmi's and the variables this year, it looks like a ski slope. they have slowed precipitously.

we saw infrastructure spending and i rising emerging market middle-class helped to boost demand for european products, but it did not have the long-lasting effects and growth did not rebound as much as we hoped. alix: how do you diversify in equities globally? this is a chart i love to talk about, earnings revisions for the s&p for european equities and msci without the u.s. all world is going down. european stocks slowly moving higher. the s&p totally outperforming. how long can that the emergence last? >> that is the word. our economics team came out with a new quarter report called diversions. scenario a goldilocks where we have good growth, stable employment, and good corporate earnings. the rest of the world is struggling. the dollar has made that worse. we think emerging markets of the next place to look. david: you have convergence as

some point. how and when does that happen? 2015-20 16, we saw the dollar reached all-time highs. we are seeing a similar event. we think it could surpassed that. not a tremendous rally, but the dollar store is in place thanks to the fed removing the term accommodative. 12 monthsk at 2016, after the dollar peaked, emerging markets were up 40%. david: future saying it's going to happen -- if you are seeing is going to happen, you would prefer selective em to europe. where would you go? >> china, india, malaysia, and mexico. we have seen some moving to the center, at least officially, and mexico. david: how does it moved to the center? he doesn't talk to the center.

he talks to the left. >> he does. but we have seen movement to the center in speeches and commentary, so the hope that remains in place as he takes office. david: thank you very much. hsbc private bank will be staying with us. extraordinary times, that is how jerome powell describes the u.s. economy. this is bloomberg. ♪ >> this historically rare herring of steady low inflation unemployment is a testament to the fact we remain in extraordinary times. ♪

powellfed chair jerome in boston yesterday. he addressed a relationship between rising wages and inflation. >> the rise in wages is broadly

consistent with observed rates of price inflation and labor activity and does not point to an overheating of the market. higher wage growth alone need not be inflationary. hsbc privates is bank. is not toowell worried right now about inflation, despite the growth and low unemployment. if you look at the secular story in terms of inflation since 1982, it has been a slow down for -- downward. the phillips curve is not dead. technology continues to put downward pressure on wages. you have a new technological revolution that is about to begin that will be very deflationary. this concept just has to be extended. david: this chart is a little complicated. i will explain. the blue line is unemployment. it is down 4.5%.

blue ise line below the inflation compared to the 2% target. it is coming up toward the 2% target. 2%, evenen well below as an employment has come down. in the past, as unemployment comes down, you have seen inflation spike up above 2%. it makes me nervous when you said this time is different. >> i think what we are seeing it -- think of what has happened to crm software and hardware, the supply chain. when i started in this business, we watched bottlenecks in the business and manufacturing sectors. look at capacity utilization, bottlenecks, they are nowhere near cycle highs. they are trending higher, but not worrisome levels. david: what about amazon? $15,ust amazon raising to but all retail stocks went down

yesterday. people are saying this could be as sea change. yearrnings are up 26% this , so margin compression is not a good story, but higher wages are a good story on the consumer side. you are also seeing it in mexico. $16 inca, we are seeing mexico, up from eight dollars or nine dollars, so that is better consumer spending power. alix: if you look at amazon and wage increases, on the other side you have tariffs. you have higher wages, then they are offset by higher tariffs. consumer, we will see how it nets out. if you have good job growth and better wages, that is usually a good story for the consumer. we are getting some relief as well. look at automobiles. alix: do you think this expansion can continue?

>> absolutely. alix: how long? >> through 2020. the growth is slowing and will slow, so we will see the economy so modestly into 2020, but we see the expansion continuing. david: is it fundamental growth? effects just the direct of taking $1.5 trillion and pumping it into the economy in fiscal spending? >> the fundamental still looks solid. again, i go back to the technology sector. 1990's,er in the technology is a sector, but every once in a while it is a sector that gets a kick. the rotation into defensive names, you would be against that? you would go cyclical? defensive.omewhat we like energy, health care. we see growth in the consumer

sector, but selectively. alix: thank you very much. coming up, the tale of two corporate boards, what tesla and ge are doing. we will talk about that with a former general motors chairman. theresa may finally starting to talk brexit after she danced through the last 20 minutes of the opening. accept the eur current brexit offers. they need respect from the eu and they will honor the results of the referendum. lows of cable at the the sessions as the dollar picks up. this is bloomberg. ♪ ♪

alix: this is bloomberg , we have futures climbing up higher by nine points, the dow hit a record, but it was led with names like boeing and intel, is large-cap

companies, small caps hitting a dose, blow, that reversal drained out. especially when it comes to -- a two blow, that reversal drained down. have as offering to lower budget deficit, still above the 2% level but trying to make some concessions for the european commission. the dollar is getting a little more steam, it's flipping to negative territory and so is the sterling. theresa may continues to speak at the tory party conference, doubling down on brexit, saying they demand respect from in you and that the conservatives will and austerity and honor rags it. but we don't know what that ,inds up -- and honor brexit but we do not know that once a meaning. refineries is out of service, adding to issues

when it comes to tariffs. -- one of the steel refineries is out of service, adding to issues when it comes to tariffs. david: one of the stocks we are watching his aston martin, -- is it ismartin, unfortunately trading down, over 7% so far off the ipo price, in fairness, it's impressive at the open, because it had lost money for a long time. andrew palmer has turned around the probability, we spoke to him today about whether he's concerned about the share price? >> we taken a hundred five years to get to an ipo, we are not going to worry to much about what the initial shares are doing. we always look over the longer-term, and plan on which ipo is a long-term growth plan. david: i like mr. palmer, but i really want to take his cars.

i love when he says everything is great, i'm not worried about it, but you lower the top end of your branch and you are down 7%. come on. david: but five years ago they said there was no with a could ever take it public, because they cannot take money. alix: compared to ferrari, they are nowhere near where ferrari is. david: ferrari is not far off actually. alix: that's a point, why should the multiple be paid on ferrari when -- david: they're both great cars. alix: i'm not talking about the cars, and talking about cars versus revenue. david: let's say on the subject. we have u.s. autos yesterday, there is still softness and , -- in demand, chrysler been the only one that was up. we welcome dan akerson, the former chairman of general motors. welcome. i want to ask if you would rather have a ferrari or and aston martin?

but tell us about where we are in the auto industry. we expected some softening, these car companies, one of which he repositioned with general motors, are they prepared for a downturn? >> i can only speak in terms of general motors, i would say that they are generally in good shape after going through a restructuring. the margins had improved over , nowast couple years commodity prices are going up. early in the summer, there were a lot of incentives in the industry. that has changed. ,hey pulled back in the quarter as the growth in the sales demonstrated. david: as they face an overall softening demand, they also go through huge readjustment in room -- a, whether it's electric vehicles, or connected cars,

kind of capital is required back up can these companies come up once that capital on their own or do they need to partner? my natural inclination would be to partner with others, but i'm sure that strategy would be there he did across the spectrum of companies. when i was a general motors, we needed better battery technology. battery folks in competition with lg electronics for the next generation, and ultimately that became the bolt. me that lg electronics with their core and it's one -- won, their battery in the bolt. you have to innovate, you can dollars look in the house and sometimes that means going outside of the comfort zone. david: with an established company like general motors,

ford, fee it, or chrysler, is it hard to innovate? particularly with of starts like tesla coming in? scratch, theyfrom could reinvent the entire things, general motor cannot move that quickly? >> i don't know if i agree with that. was atht teslas when i general motors, we reversed engineered them, and i think they build a great car. the battery technology does not offer any technology jump. they have a fine looking car, and its competitive. do they have the scale? i don't know. it is in general motors, you have european competitors, ford, general motors, general motors is throwing off tens of billions of dollars of cash flow year. that's not true of tesla. there is some scale, i would not

,ide them off -- write them off but their road is not clear going forward. it will be interesting to see how it turns out. talked about the ball than i had an opportunity to drive one, it has not been a raging -- the bolt, and i had an opportunity to drive one. it has not been a raging success. will the technology be the basis for new electric vehicles? >> i think in the future there is going to be a lot of electric cars. that transition is on its way. you can see it. it will take a while. the economy of scale has to be achieved. but it will not just be the bolt, general motors, or ford, it will be chrysler, toyota, honda, and the european competitors with the high end side of the equation. david: while we have you and we

have been talking about tesla, let's talk about the corporate averages. tesla has been in the news with the sec selling complaint. you have two's situations of general electric where the board moved quickly on mr. flannery to put in a new ceo. boards, whatlot of is going right and what is going wrong in corporate governance right now? with respect to general electric in particular, i'm not surprised by the change. too often, companies forget how important culture is. do you accept new ideas? take outside perspective? gm, therek at ge and are some parallels and some radical differences. my personal opinion is that conglomerates no longer work. when you look at general electric you have a company that went into power, petroleum,

energy, they have a jet engine business that's world-class. they just sold other medical technology business. it's the conglomerate. i don't know if you have core competencies that are transferable from one of vision to another. the board was slow to move, i thought. , whobrought in larry kulp did a hell of a job at denver -- den her. now he's going to have to inculcate a new dimension into the ge dna. it will not be easy, but culture its strategy for breakfast -- eats strategy for breakfast. if you reflect back on ge they were one of the biggest a natural institutions with ge credit. i was the ceo at nci and they

were our biggest lender. going into the other question, tesla. that would be a tough one to be on the boardgoing into the othe, musk is truly a genius. he has a differentiable internet -- personality and intellect, cannot be translated to a corporate overlay? solarcity, i did not see why the merger of that company on the automotive side was necessarily in the shareholder's best interest. i don't mean to be great call but if i would have sold them -- i don't mean to be critical, but i would have but sold them. and you don't want to see your ceo on television smoking pot. as a board member that would have upset me a lot.

and the board appears to be moving forward. alix: the question but the sec ruling is why would anyone take the chairman job if elon musk could come back in three years? if they called and said would you become an independent chairman for three years, maybe more, what would you say? >> i'm a gm guy so i would have said no, but you are asking a broader question. i might take it if i thought i could make a difference. i would like to speak to elon musk and board members and are? will he simply say i have all the answers. that's always a bad trait in a ceo. and very few successful ceos take that perspective. david: always great to talk to you. thank you for your time. dan akerson, general motors ceo.

alix: taylor riggs is here with first word news. have openedrities an investigation into allegations about president trump and his family fortune, the new york times said to be trumps created a real estate empire through outright fraud and invaded taxes on hundreds of millions of dollars. according to the paper, the president has received more money from his father than previously stated, he called the allegations one hundred percent false. secretary of state mike pompeo heads back to north korea to meet kim jong-un to set up a second summit. he promised last week than he would be making the final preparations for another meeting between kim and president trump. he was a formal commitment from kim to give up his nuclear weapons. and russia have agreed to increase oil output, saudi's have produced oil output to record levels following pressure from president trump. russia reportedly also has increased its output.

global news, 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists in more than 120 i'm taylor riggs, this is bloomberg. you so much. also an interesting thing coming it's it's aa, russia saudi arabia world rather than an opec world, oil prices could do anything in the geopolitical instability. coming up, he does not like meetings, jamie dimon to planes ofblames the decline companies on should -- frivolous shareholder meetings. theresa may continues as big on the tory party conference, she says we are entering the toughest phase of talks, but they demand respect from the european union and will honor the brexit vote. we will keep track of that. this is bloomberg. children going up with an

example of hard work hope, and dignity for millions of people in our country. ♪

>> the hewlett-packard in her prize rick -- enterprise greenroom, we have patrick harker coming up in the next half hour. now let's get your business flash, general electric may have to pay a little more the next time it makes payroll. has beenredit rating cut on it short-term debt, that will force a struggling conglomerate to pay more to borrow in the market. ge relies on that market to fund its daily operation.

yieldedthe stoxx have -- and ford stocks have yielded and wall street has more that the company will have to pare back the payout, which is the most generous about generous automakers. ford says it will not have to do that, microsoft has come up with upgrades, and it has also released software for iphones and android phones, they updated their tablet and processors are now faster. with aputer comes brighter screen and improved graphics processing. that is the business flash, alix? alix: you are cramming this time. david: i am. dimon said that shareholder meetings had to come --a stop, and goldman's

plain silly the firm, and investors kick the bottle. mcallen goes up for auction tonight, and that is where david will be. david: now i know what to get for christmas. kelly. turn to jason alix: he was a jp morgan yesterday, speaking to a panel and he was talking about how shareholder meetings were basically a farce. love my shareholders, but the shareholder meeting has become a farce. that's what it is. we all know that. ,'m not against social groups but we get hijacked by this. alix: do you think that he sits there and says what can i say that's more outrageous? >> i feel like maybe we should create a sub segment of wall street called oh jaime.

it's amazing he manages to do this, stick his foot in it, and ultimately, and i daresay given somehe has made connections of the present, it's a little trumpian. he goes up and says i will wing hate it, oru will love it, but you will be talking about it. that is his shtick. it's interesting he says the senate time when investors really do -- it is interesting that he says this at a time when investors do want transparency. i think his point is more that these meetings have become theatrical. at the same time, this is one of the only times that shareholders really can stand in front of management, and the board of directors, an action make their case. david: how much money do you get paid a year? and once he or you stand up and take questions?

-- and once a year you stand up and take questions? and justin byner of goldman sachs, use leaving, is as part of a general changing of the guard? >> we are seeing this and i think we will continue to see this, our colleague who covers goldman, every day there is some tip about someone leaving. this is the normal course of business. in part i think the big question will be who takes these jobs going forward? i think you made the good point the other day, when someone officially took over, they talk a lot about diversity, does he follow through on those promises? he was speaking to the fortune conference of powerful women. david: he carried the mantle. >> right. people will be looking for him to put his money where his mouth is and start to make more

diversity. david: you could not have a better transition. alix: did you know you are doing this? >> i cannot -- david: i cannot believe this, they were going to auction a bottle of scotch for $7.7 million. it's roughly $7,000 a glass. this scotch was actually bottled in 1986, but the grapes were grown in 1926, they sat in the cask for 60 years. there is a huge run-up in rare whiskey. people areeels like treating this as an investment, i don't think anyone will crack this open. come over to my house. alix: here's a hundred thousand dollars, happy holidays, and you're welcome. trillions of take

dollars, and put it on the balance sheets, it will have to go somewhere. thing withhe same one investing five or six years ago. david: it's been ramped up dramatically but some of that is more money going into fewer things. true, where we see luxury spending, there's a great story coming up about flowers, and how much money people spend on flowers for their wedding, baby showers, things like that, and it directly correlates to gdp. as gdp rises, and people feel more confident about the economy , they spend more on flowers. so you can track it. i don't know if there's a scotch but to mix our beverage metaphors, that would feel a little bubbly. david: it's an argument about discretionary spending. alix: he did do the calculations, just give him a moment. i love that. david: many thanks to jason

kelly, thank you. him on bloomberg radio every day from 2:00 to 5:00 eastern time. the taxman cometh, tax authorities are looking into how a geisha and the president trump and his family building a real estate empire from instances of outright fraud. more on what we're watching next. alix: check out tv , and watch us online. interact with us directly and go to tv on your terminal. this is bloomberg. ♪

david: this is what i'm watching, and i'm not the only one watching. the new york times came out with this big investigation into how president trump got the wealthy got, because he said my father gave me a million dollars at one point and i built it into a multibillion-dollar empire.

the new york times reports that that is not what happened, his dad over the years gave him over $400 million worth of money. but more to the point, it's not just how it got made, but the way that they gave it to him through tax issues, mainly taking positions, at one point his lawyer said that these allegations of fraud and tax evasion are fraud and defamatory. there was no fraud or tax evasion by anyone. the facts which the times bases its false allegations are extremely inaccurate. they go through a lot of different instances. he was having trouble with an atlantic city can -- casino. according to a report, his father went and bought $3.5 million worth of chips and did not use them. that's one of the allegations. crafty.ally? that's david: and illegal. you were supposed to pay tax on that.

he wasegation is that transferring money, it's fine for a father to transfer money to his son, but you have to pay either the gift tax. and what's this a lot, i understand if it's illegal and there's a criminal investigation. but i made the point that if you are one of his constituents, and you heard that he was able to avert taxes you are like cool, thanks. yes there's a criminal investigation, but it's not much of a debate at the end of the day. david: i agree, his base will not desert him for this. up, and investment strategy will be joining us, her take on the rotation on small caps. this is bloomberg. ♪ is is bloomberg. ♪

alix: messy politics in europe.

may saysister theresa the u.k. must hold its nerve to get the brexit deal. everything is awesome. the extraordinary economy. .nflation turkey battles near record high prices. jonathan garner says it is time to buy selective market debt. david: welcome. i am david westin. with -- i am david westin with alix steel. julie: we saw small caps at a two-month low. dollar flat. dollar getting strength. italy reverberating in the market. debt as well as currencies. u.s. up by one basis point. saudiflat as you have the minister speaking in russia as well as mr. putin talking about oil and cooperation. david: time for the morning

brief. we are going to get an adp employment numbers for september at 2:18. president trump is going to send a message to mobile phones across the united states as part of a test of the national wireless emergency alert system. at 4:00, we are going to hear from jay powell for the second day in a row when he speaks in washington. now for our big story, theresa over birmingham, england. you see her shaking hands as she walked out. she said the u.k. will never accept the eu's brexit offers. >> some people asked me to rule out no deal. --i did that, i would negotiating position and have to agree whatever the eu offered. that would mean accepting one of two things.

either a deal that keeps us in -- eu in name or a deal that northern ireland as part of the country, effectively leaving it. let's send a clear message from this hall today. either ofver accept those choices. david: we welcome from london our colleague, david merritt. as you listen to this, has she changed her position at all? has she changed her position at all? >> you heard this is not a from the prime minister. she has in saying that we are at an impasse in europe. the offer is not good enough. she has heard checks and proposals out on the table and talk sport stalemates. nothing new. was not about shifting the conversation on brexit. it was about survival of the

prime minister. the same speech last or was seen as a disaster. she had to show she could get through this in order to set her up already. she came onto the stage dancing to an up a track. that caught everyone by surprise. it was a show of confidence from the prime minister, joking about herself and her image and laying out a confident vision for what she sees as the future of the insert of party and britain post-brexit. -- isnservative party over. the real work can begin. now we have a few more weeks to get a deal. we expect concessions from both spies -- sides might be made. david: we saw a glimpse of the bba.ised her dancing to a in terms of survival, was that in part indicated by boris johnson, he did

not really challenge her did he? >> we had a lot of people getting up and making speeches, including boris johnson. who would want the job? with just a few months to go till brexit? they are lining up in the wings for when we get over the line at the end of march next year and we can expect some to throw their hats in the ring. they are keeping their power to drive, waiting and hoping we can get the country over that deadline next march without there being a disaster. david: thank you. that is david merritt. now, the -- david: hello, darkness mild friend. [laughter] alix: markets are finding relief after pressure from the european union and making budget deficit

concessions. italy says reductions will not come right away. we are working to define the budget and the optimal deficit growth. this will mean an increase for what i said before: a contained increase in deficit for 2019 to compare to 2018. then a gradual reduction in the following years. alix: joining us is kevin costello, reporter. we also heard -- saying earlier a 2.4 budget deficit risks breaking rules but there was a good signal italy was willing to cut that going forward. where does this leave the conversation? for now, that 2.4% is the sticking point. there will be discussions that rules andtside the eu regulations and that has caused problems. they have decided to cut back in

the following years am a 2020 and 2021. the problem remains 2019. alix: thank you very much. joining us now is liz young, investment management senior in strategy -- and strategist. the blue line is european equities, slowly starting to come up. you can focus on emerging markets. how do you play this in relation to the political messiness in europe? liz: i think what the markets are looking at is idiosyncratic risks going on whether it is italy, brexit, nothing has spilled over. thatarket is waiting for backlash. if it happens to the rest of the year. for brexit, everybody is focused on the march 29 deadline.

we are going to have a resolution in november. till then, we are going to see volatility if there is a deal. if there is no deal, volatility picks up. we can look at these earnings separately and digest them separately. , one of the things happening negatively in italy is italy negatively surprised the markets by saying the target is 2.4%. now it is 2.4%. there has been upset. david: italy may be different in that the contagious is built-in. if the european rejects the budget, you could have an existential threat to the entire euro zone. italy is a substantial part of the economy. contagions -- contagion starts to take over. the market looks at other countries around europe and says what looks like italy?

what other economies are similar to italy and that is where it starts to get contagious, but from a sentiment point of view. they expect the problems italy is having is going to spill. what this is driven is bite euro steps a schism -- euro skepticism. the largest trading blocs in the world could break up. alix: let's go to the u.s. premiums are at the lowest level since 2007. small cap is starting to roll over. do you change the narrative in the u.s. based on trade and based on the dollar? is it a large cap cyclical? liz: the u.s. market continues to look at why this is late cycle and reasons why. there are endless the fall reasons but what we see is everything is strong. the economy is strong. business confidence is at all-time highs. it does not appear we are late in the cycle and indicators you

would watch for, things like a pickup, which has happened, you look for a rotation into growth and value. tend toay small caps perform later in the cycle better the march caps. performance in small caps through this year but it has been driven by trade. david: let me talk about about performance by small caps. there was performance in the stock and company. increasing the emergence between the profitability of small caps and stock performance. the blue line indicates as a percentage manner on the left axis what percentage made money in the last 12 months and it is down to 63%, were suggested that while overall they may make money, it is concentrated in a small number. what does that tell us about the overall situation in the marketplace? liz: there might be a delay or

lag. the large-cap -- coming in to 2018 there was optimism. on tax reform, repatriation. small caps might be feeling that lag. what they benefit from is if we have this pickup in m&a. small caps are going to see take out and their profitability goes up because of it. what you might see is small cap waiting to see what large caps do first before they are comfortable getting on that train, getting on that hiring train and there is a big shortage of workers. if we can close those gaps, i think small caps will pick up. if you look at earnings momentum and small caps versus large gaps , small caps is ahead of large cap. david: ok, liz young. thanks for being here. coming up, morgan stanley's emerging market fix. we're going to talk with

jonathan garner. that's coming up. this is bloomberg. ♪

david: today it is turkey, yesterday it was indonesia. there was some emerging market in the crosshairs. when is it time to move back into emerging markets as an investment? >> higher all prices. stronger dollar. slowing growth and tightening financial conditions are not a great cocktail foremost emerging markets. in the short-term, the careful. this is not the time for the anti-divergence trade. >> emerging markets has had disappointing returns. earnings estimates are not holding up.

evaluations are becoming stretched on the cheap side so this is a time to do homework. china isimulus that pursuing now will begin to be seen over the next 3-6 months. that should left markets as well as the end. -- is seen as a dangerous place. there was going to be a day where em is going to be the hottest asset. david: welcome, jonathan garner. he is emerging-market equity strategist. where do you weigh in on this? is it time to get in business? jonathan: we think you are that are up buying japan then he am. -- e.m.. unlike japan, the evaluation is not cheap. been on the has

come for 25 years. why do you think this is how it is? jonathan: we wrote the morgan stanley blue paper. we tried to point out japan has deflation. we have the first sustained increase in private since the public economy era and growth is better than anywhere else which is surprising to many. go back to the question you asked. if you look at japanese r.o.e., it has closed $.75 a gap coming up from 4% almost 10% over the last six years. we talk about a scenario where it -- the rest of the world. david: we have breaking news about general motors. honda is making a major investment. companythe vehicle owned by general motors. shares are trading up. honda is putting $2.8 billion

into cruise and $750 million will be 4.5 percent equity stake. that will value crews at 14 $.6 billion. they are going to develop and orloy an electric vehicle vehicle that will be sent around the world. honda approached general motors for this investment, not because of manufacturing. honda makes carswell. because of the autonomous vehicle technology. as we know, soft band made a substantial investment in cruz as well. softbank, general motors and honda. general motors will be doing the production for deployment. market last ate general motors? david: it was reported they paid a billion dollars and a lot of commentators said -- what are they paying that money for?

it was a startup based in san francisco. now it is over $14 billion evaluation. it is like what we were talking to dan akerson about. you have car companies. ted -- can they be tech companies? he seemed confident yes. this seems to say no. david: this is a substantial investment. i talked to the president of the u.s. about this. there was a capital investment and you need as much resources as you can to go into it. honda has distribution around the world locally and this positions g.m. well in the new york times available. jonathan: it is interesting because honda is one of the 21 stocks we named in a japan blue papers. next-generation technology, things like ai and i think people underestimate

leadership japan has so it is nice to see that company active. alix: do those companies, can they do it themselves? jonathan: in some cases they have propriety technology. if you look at robotics, there are japanese firms. five g mobile networks, we mention marotta in particular. probably an over focus on emerging targets this year. -- markets this year. alix: white is g.m. need honda? david: capital and distribution and brand and engineering. they have technology. general motors does not want to leave this short. they have been clear. this is a huge development. we are point is the such transformation and automobiles. they know it is a big thing and

up against competition. bmw give out. toyota has come out with announcements. alix: fortis doing premarket. they were behind g.m. no matter what and now i wonder. david: last week, i talked with jim hackett, the ceo of tort and he admitted they have to do catching up and have plans to help them catch up. in aannouncement puts gm strong position going forward. alix: jonathan, when you look at senate companies in japan, do you need to look at car companies or they call them tech companies? one industryis where we see global change. parts of a lead in electric vehicles but do not underestimate the technology bench that exists in japan across the manufacturing. has: three cap, honda

invested in gm. billion in ast $3 transformational shift within the car world. david: the other point is to the global car. it is not a u.s. vehicle. with theirto that footprint in japan and international generally. look at car growth. you have got to look at china, india. it is not just the united states. making sure this is a global enterprise from japan, making sure it has a honda from japan, and it gives it a global footprint. alix: talk about investments. about autos, it goes back to china in the you need to get your foot in china and we heard tesla saying we are

60% less cost competitive in china than in does -- those domestic cars. jonathan: if you will get china now, we have got auto sales running. there is a credit cost competition now. it is important the end remains competitive. one of the things we like about japan is weakening so that room at the and exchange rates. alix: i want to bring our this for who covers us. >> it is another strong investment in gm crews and that has proven to be a smart bet on the part of mary bar. she found kyle boat who was a star in the valley in this self driving seen. , what is purchased for a small pittance in the grand scheme of things relative to today. ats deal values valuing them

14.6 billion. this is on the heels of g.m.'s softbank coming in and investing . bringing scale to this, that is when we need to be important. technology has a long way to go but the cost has to come with down. we are talking about these units that are put on these cars, these early test vehicles that are or than $100,000 cost. we have to get to a point of scale and bring the cost down a bit. alix: let me backtrack. what is crews? gm crews does the brains behind of thomas vehicles. they have been doing acquisitions about buying a lighter company. those are the eyes of the autonomous vehicle. david: literally, is like the

thing -- like on the roads? like those eyes? >> remember the goo vehicles we were driving around that had kentucky fried chicken on top? lidar is able to send pulses of light to around the vehicle to sense whatever is around it so capabilities. to bes software problem able to supper and to dissipate what is going to happen in the surrounding environment. that is difficult with human drivers having to coexist as long as we think that is going to be the case, which i think is a safe assumption. david: when we talked to dan, he said they would have a diploid vehicle in the united states in the calendar year 2019. as far as we know, is that realistic? >> it is going to be important.

the catch to that because i think we will start to see some autonomous vehicles to put in different parts of the country, but they are going to be in controlled areas off from the rest and it is going back to that issue of the call -- coast systems with humans and human drivers. it is difficult to cope for. what to anticipate is someone going to walk away to the road? one thing gm has talked about doing is ringing this technology to places like new york, san francisco. it is a tough problem to solve were people around and all the traffic around. unless you control that area specific roads, roots you can map out and plan for. we are long way from this technology being ready for big skill projects. i want to turn back to you

jonathan. this is boiling down to tech. if you were going to buy emerging markets, you love japan so how do you wrap that into the narrative? if you buy tech in emerging markets, you are buying semiconductor stocks in taiwan or you are buying. both of those? 's. remains thegrowth accelerated markedly. we have worries about cyclical concerns via sonny's for things like the dram price. if you look at the next generation technology for disruptive technology as we touched on, you are better off going to japan because they are more -- worried about names. craig many thanks to goodell. alix: and jonathan garner. david: coming up, we are going

to speak with general motors' president. honda will be joining with gm crews. also, softbank. a new vehicle will be supported globally. help develop and employ this automobile, it is atuing crews all overall $14.6 million. the stock is up and we will be annking to dan ament --amm about it. alix: this is bloomberg. ♪

i am alix still does alix: i am alix steel. another solid employment report.

essence be up nine points. -- essence p up 9%'s. s&p 500 up nine points. still above that 2% level. italian equities up by over 1%. the fx market trying to digest up but it is a stronger dollar story to the session and tables all over the place. theresa may spoke earlier at the tory party conference. still trying to hard line brexit but bridge devices within the tory party. difficult wrote -- rope to watch. tenure.s points on the 2/10 of 1%. fascinating stuff coming out of russia from mr. putin. as well as saudi arabia oil minister, talking about

cooperation and it almost makes it feel like opec in ways is less relevant and that is a russia-saudi world now versus everybody else and talks seem to be as such. david: we have stuff to talk about. let's find out what is making headlines outside the business world. we turn to taylor riggs. taylor: a lawyer for president trump says it is false that the president and family created an empire. he was reacting to the new york times report. the times said trump evaded taxes on millions of dollars. that prompted authorities to open an investigation. president trump is turning up the pressure on one of his closest valets to curb rising oil prices. in mississippi, the president said saudi arabia might not last two weeks without u.s. support.

the u.s.he rally protects a rich nation and is not get reimbursed. the mystery of what happened to china's actresses has been solved. she and the company she worked for have been ordered to pay $129 billion in back taxes and fines and a tax a vision investigation. she had vanished from public and fans saide she was ashamed and apologized. global news 24 hours a day, on-air at tictoc on twitter, powered by more than 2700 journalists and analysts, in over 120 countries. i am taylor riggs. this is bloomberg. david: thanks. we are to turn to mike mckee live in baltimore with patrick -- with patrick harker. mike: thank you very much and

good morning president harker. do you have a rock somewhere? -- where these workers are these workers coming from. these numbers keep surprising us. we are bringing more people off the sidelines who have dropped out of the workforce completely. that is a good story. going?you keep that pat: eventually it will slow down. i thought it would slow down sooner than today but eventually we will get back to around 100,000 which is the steady-state number. left said we're going to have a rate increase in december, you have been advocating we -- maybe we should go slower. i think it is a question of timing.

three this year, two next year, to the hereafter. some have accelerated. i have not seen acceleration of inflation. we see good job numbers. i do not think there is a rush. i do not think we have to rush the normalization process. i am open-minded. i think inflation -- if inflation starts to accelerate, i could port -- support a december increase. mike: we have 3.8% unemployment. 200,000 people getting hired. what have you come pushed by waiting? ask the opposite question. what you accomplished by going sooner rather than later? there is good news in the economy. there is risk. i worry about with the yield curve so i would like to avoid that. i would like to slow the pace. stillfinancial conditions

loose after the fed tightening. long rates are low. are you having effect raising interest rates? would it matter? pat: i honestly do not know. yes. manager conditions are accommodative. we are moving the short and. the lottery is not moving. i think we can take our time and moving the rates up. mike: maybe the phillips curve is nonlinear and we could see inflation accelerate. pat: i do not buy that now. there is research out of our bank by the head of our research group that people at curve for the last several decades has not been a good predictor of anything. it is simple. if inflation is around 2% and you correlate something around 2%, you are not going to find anything. that is what we see. mike: how long do you think an

implement can go? i think we will get down to 3.5 before we go back up. that will happen next year or the year after. mike: when do we see wages rise? and that is a big question a lot of reason we are not seeing wages rise, fundamentally it is productivity. wages are tied to productivity. we have not seen productivity move up substantially. the hope is with capital deepening with automation etc., we will see that number move up. i am skeptical because if that happens in manufacturing, great. 80% of the u.s. economy services and we have not seen that service move much if at all. mike: one of the arguments for the president tax cuts is it would create productivity -- boost productivity. our ceos telling you that is going to happen? pat: they cannot find the

workers. a lot of the manufacturers i talked to, they are accelerating their case of bringing technology and -- in because they cannot find workers. mike: your colleague at the niv in boston said in his district companies, they can raise prices and they are going through. pat: some of that is due the tariffs. some of that is because of the tariffs. what i mean is companies that are not subject the tariffs use them as an excuse. i have the opportunity to raise prices so i am going to. mike: has there been a change in corporate psychology? for the longest time, it was bottom line. keep costs contained. now we see amazon raising minimum wage. they are a big national employer. his corporate psychology changing? pat: i think it is the tightness

of the labor market. you look at the job openings versus the number of people looking area that is unprecedented. -- looking. that is unprecedented. paying to take pretzels off the line and put them in a box. mike: the neutral rate, when you get there, what is it going to be? 3%: i think we will get to as a neutral nominal rate and 1% real rate. we will get there by 2021, somewhere around there. we will overshoot that in my forecast. 45 basis points above that but this is subject to change even what we have learnt because we do not know where that neutral rate is. mike: you said you could go 2.5% and inflation for a while above your target. pat: for a little while.

it is about acceleration, not be number. we are not seeing inflation acceleration. mike: when you talk to corporate leaders, are they confident you have inflation anchored? it does not affect the corporate decision-making? pat: i am not picking up any signal they think inflation is not accurate. time in theds spent last couple meetings talking about trade wars. what is the general feeling -- what is your feeling about the impact on the economy? pat: i think the biggest impact is not the tariffs. it is the uncertainty. what i am picking up is people causing a little on capital expenditure, trying to let that uncertainty resolve itself. that is a concern. mike: do think they are investigating -- investing in human capital as well as machinery equipment because it is cheaper? pat: it is quicker.

it takes a while to bring machines and -- in. to learn how to increase productivity as opposed to bringing more people. mike: are you willing to consider the possibility we're going to see because of the tax cut in increase in productivity that will be lasting? pat: we might. i go back to the productivity of the services has to move. that needle has to move. take the biggest part of the health care. how do we even measure productivity of health care? there a big sectors of the economy, 80% where we have measurement issues and there is doubt we can move the needle on productivity substantially. manufacturing, yes. agriculture yes, services more difficult. mike: you are releasing a report at this meeting. where do you see it going?

[standby] people going to lose jobs to machines in a way they did the last 20 years? some but morel be importantly, jobs will change. when you talk to manufacturers, they are not replacing people with machines as putting machines to work with the people. it is enhancing the human capability. peoplell need people to to maintain robots. we wanted people to do other things. jobs will emerge we do not know. think about 20 years ago. how many web designers there were -- think about joan operators. -- drone operators. there will be new jobs.

pat: times are good but you are -- mike: times are good but you are paid to worry. what do you wary about? pat: i do worry about inflation accelerating faster than i forecast. the broad level of uncertainty i hear from people who were trying to make decisions -- if we can create a more certain environment, that would be good for business and the american people. mike: any recession on the horizon? pat: no, not in our forecast. mike: the president of the federal reserve bank of philadelphia, back to you. david: we're going to recap the new set of general motors. they announced honda will make a substantial investment in their cruise autonomous vehicle company. softbank made a substantial investment as well. there is the finance of it.

there is the doing of it. they are going to jointly develop, produce him a distributor in autonomous vehicle that will be distributed locally. i am listening to the call. it is purpose built. he said you not expect a steering wheel. it is going to be designed rum scratch. they talked about timing. he stuck to his position they hope to deploy in 2019 but it depends on safety. he says as soon as we are ready to go, we will go. as dan puts it, they believe this technology will be good for the world so the faster we get this in a safe manner, the better off we will be. when a softbank that came in that seemed aggressive. you will be speaking with dan. david: next hour i get to talk to him about his news firsthand. look --p, we take a pepsi's chief. we take a look at her time as ceo.

taylor: you are watching -- looking at the enterprise green room. coming up, howard marks. ♪ -- officially ends her ceo as -- at pepsi. we welcome taylor riggs. pepsi shares have underperformed coke over the time you are over the last 12 years. coke shares have been pushing. that's only 80% and the s&p 500

coming in in the middle. what is impressive is the growth on both the top and bottom line. i did math going back 12 years and the autumn line profit growth looks like annual growth was 5.6% and topline growth on average. 6.4%, not bad in terms of adjusted earnings. i want to take a look at deals. there has been good. some of the biggest ins they have done is made -- he took initiative to go into japan and russia. they brought diet mountain dew, starbucks, ready to drink beverages so that joins their portfolio. a billion-dollar brand bringing that up to 22 billion dollars. a pretty nice job under her tenure. david: thanks. the successor of pepsi has been

well telegraphed at general electric. let's take a look at how pepsi has handled it. professor andi is a senior economist at the white house council of economic advisers. he comes from durham, north carolina. give us a sense of how pepsi has handled this transition. it was not a surprise. aaron: no it was not. they have always had insiders through their history. the ceo is no exception. textbookoking at a transition, one that is typical. we will be watching closely because the new ceo will have challenges. david: just like nco has challenges, you might have said the same thing when mr. flannery came in. he was well known. what went wrong there and what should go right at pepsi in your judgment?

great question. you look at ge, only when you're on the job, this is what pepsi is trying to avoid. who has beenmeone with the company for 22 years and not just managed in the united states where the growth of the beverage market should slow down. extensivehave experience in europe. setting them sunday society will understand if reports of the business, and having the old ceo on the board to make sure that transition goes smoothly. we will see if it works because there is somethings out of the ceo's control. alix: we talked to dan akerson. here's what he had to say about company culture and started going forward. >> companies forget how important culture is. you accept new ideas?

do take outside perspectives? when i look at ge and gm, there is parallels and differences. conglomerate no longer work. this brings up the tesla versus ge and how they change their boards. backing elon musk, not changing that to versus g coming in with decisive action. what do you think about? -- of that? different -- a different challenge when you look at a ge. or pepsi, for ge there is a court interest. doing that is like being ambidextrous. that is a difficult thing in a large company. in an area like tesla, you are trying to build a business from the ground up. a different challenge that

requires a different ceo. pepsi, what we focus on is the snack business is stronger than the beverage business and also getting into emerging markets. that is a challenge for a ceo on the inside for a long time. fortis going to have to be behind him. david: that goes to the core of the general motors. when you talk about a corbyn this moving into a new business, it is fair to say it had an entrenched culture and they are moving aggressively into this new world and doing it to partnerships, first a softbank vision fund and then honda. how important is that to shake up a culture in an established company? aaron: incredibly important. collaboration is the new competition. let's give gm credit. look back in 2009. a lot of people were writing discovery off and it is rare to

have these studies of state old companies that manage to be innovative and the cruise automation unit in this and the collaboration with honda validates. honda is making a double down that on cruise. it is stacked to see more on the still this investment needs collaboration to get it done. why unique collaboration between the auto companies but also the auto companies and technology companies. alix: thanks a lot. coming up, it is more on gm and honda's partnership. i and david is watching next. stay for future reference. this is bloomberg. ♪

alix: here was what am watching. you were on the call during that show. thed: gm asked you about 2019 days. they are going to make it as fast as they can safely. alix: they are bringing his self driving car to the market in 2019. david: they asked -- what did honda bring to the table? you said they had a long-standing -- they said they have an engineering capability. he emphasized geographic reach. it helps them. gm sold opal. they went out of western europe. they are big in china, not so much in india. finally, capital does not hurt. $2.57 billion gives them runway. alix: you will be talking to them in the next hour.

what is your number one question? david: i have not thought. alix: what is the big? david: i think one question is to pick up on his point about safety. how do you know it is safe? is it regulatory? who is going to be deciding this is safe enough? he has as a priority, how difficult is it to get to that point? david: coming up, -- alix: coming up, the open. jonathan ferro. this is bloomberg. ♪

jonathan: i am jonathan ferro. this is the countdown to the open. ♪

jonathan: pockets of pain in em, inflation surging in turkey. a four-year high. the president wrapping up with russia on saudi arabia. italian bombs finding relief. deficit reduction. in the markets, 30 minutes away. futures better. 11 on the s&p 500. 4/10 of 1%. euro dollar, 115.28. up to basis points on the session. in emerging markets, pockets of pain. overshadowing easy concerns. nist --g's opinion, columnist on why it is too soon. >> be careful. higher your prices.