francine: the ims warns against complacency calling u.s. stock valuations stretched. brexit stopgaps, talks zero in on short-term fixes that could mean they stay within the customs regime. this, as they threaten to block britain. and china is still shopping. demand is strong, but shares fall as it's so for divison -- it's sephora lads. -- lags. ♪ "bloomberg:lcome to

surveillance" these are your markets. not much lower, but still a little lower. we are getting figures and italy. august industrial production falling year on year. i wanted to show you the u.s. 10 year yield, retreating from a seven-year peak. i am looking at the euro-dollar. the dollar is edging a little bit lower, pound and euro climbing on optimism that brexit talks are surviving. we'll keep an eye on that and look at lvmh. director, the wto and joins us for an exclusive interview after 11 a.m. u.k. time. he will be on with brexit globalization and tensions between u.s. and china. first, let's get first word news in new york city. taylor: china plans to increase the number of companies deemed

systematically important financial institutions. thatberg has learned regulators led by the central bank will shortlist 50 of the country's largest lenders, insurers, and brokerages. it is a sign that policymakers are stepping up crisis prevention efforts at the nation's debt swells. donald trump has her. his criticism of the federal reserve is moving too fast with interest rate increases. made criticisms bankers have disregarded. but that is not a view shared by dallas fed president, robert cap. -- kaplan. >> there is no question the cyclical pressures are building. ,-labormean by cyclical market, tariffs, steel, aluminum, high oil prices. taylor: donald trump is

considering goldman sachs member to -- as a replacement for nikki haley. he told reporters that he is considering five people, including powell. he did say that the u.s. ambassador to germany is not amongst. -- them. the newrica says finance minister has experience in managing the economy after being involved in crafting its economic framework. they also said the new minister would help to defend the regulators independence. advocate for independence. and i expect him to continue on that trend and to defend and protect the independence of the south african central bank. importantly, when he takes his , he commits to

abide and respect and protect the constitution of the republic of south africa. taylor: a major u.s. telecoms company has discovered manipulated hardware from super micro computer back in august. that is according to security provide the documents, analysis, and other evidence of the discovery. it follows a bloomberg businessweek report that details how china's intelligence subcontractors to plant malicious chips in computer motherboards over a two-year priod. -- period. italy's finance minister is worried about the unacceptable bond yield threat. of concern came as he appealed for calm amidst a war of words over rome's spending program. he offered no sign that the government will change its plan,

repeating the targets that have already led to the bonds selloff. global news, 24 hours a day on air and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine. francine: thanks, taylor. the imf has warned that investors may be ignoring the risk that financial conditions could tighten sharply. at its annual meeting, the fund said short-term risks to global financial instability have increased modestly while interest rates remain low and financial conditions are still supporting growth. how concerned should investors be? joining us now are our guests for the hour. thank you both for joining us. it seems like there is nothing new here. it is the risk we have been talking about a lot, it is just

interesting. they also talk about stock valuations. >> it was an interesting addition. we think that valuations are in line with long-run averages, the u.s. slightly above. we are not too concerned as long as you are still getting earnings growth. but yes, as you say, these are not new risks. these are things people have been considering for some time. but as we continue, it will not go away. it is something we will keep talking about. francine: and it depends on how you manage the risks. we could see them back in the markets and something ugly could happen. peter: exactly right. the imf said they do not seem to be underpricing risk, and how often have we set that? at some point, it will turn out to be right. stocks are often right. at this point, we could get to

where investors start to take flight when we see things like the federal reserve raising rates. if the trade war were to intensify. investors have a lot to think about, and at the moment, i don't think they are. francine: i will go over to my chart of the day. we saw that huge movie treasuries what does that tell you about the markets? that: i think it shows you the treasury market is beginning to wake up to the idea of the federals monetary tightening process, about time, too. but it is not percolating through the rest of the financial markets. equities still have the financial -- potential for correction. valuations have been supported by low interest rates, and

overtime, as markets start to factor in, we will see equities soft. -- soften. i think we are in need of a cause. -- pause. francine: do you agree? peter: as long as you have earnings coming through, we do not think they will rise. in terms of the outlook, we have got 10% growth forecast for next year, which is still fairly supportive and will allow the rebalancing of the market. francine: this is our question, we have a markets blanche and urge our viewers to go on to bloomberg tv. this is what we are asking today. end -- will the lira and above or below 3.25%. caroline, above or below? and does it make a huge

difference? caroline: i think slightly below by the end of the year. i don't think it makes a big difference to the equities in aggregate. and may create a sector rotation with the interest rates reacting more depending on where it ends up. francine: and this is another chart. it is wednesday, so we're trying to spice it up. this is looking at the 10 year yield. our queen of charts put the 10 year as opposed to cpi. at some point, it is off. where do you see the 10 year? peter: higher, but not significantly. it is the speed of the adjustments which i think concerns everybody. adjustment,a big hopefully it won't be much lower. francine: thank you both, caroline simmons and peter dixon , both stay with us.

up next, cap walk cash, we are live in paris. the details next, this is bloomberg. ♪

francine: this is "bloomberg surveillance." china plans to increase the number of companies it decrees systematically important. that is according to bloomberg sources, a move that shows policymakers are stepping up crisis prevention efforts. regulators led by china's

central bank shortlisted 50 of the country's largest lenders, insurers, and brokerages. isning us from hong kong correspondant. one of the major initiatives is looking at financial stability. we have got debt exceeding 200 and 60%. it is in this redline, danger territory. china has taken numerous a debt to come to grips, and the latest one we are writing about shows that they are nowhere letting up. this should be viewed in the context of a crackdown on the shadow banking industry. that industry in china swelled to very large promotions. this year, authorities have started to deal with that shift.

moving the credit burden back into the traditional financial system, which is what the regulations are designed to deal with. them to get ator the traditional financial system and make sure that everything is in order, that the regulations are tight, that the debt load does not get away from the. -- them. francine: they are dealing with trade and trade wars, with an economy that is slowing. is this just taking extra steps so that nothing bad happens? or trying to address something that has been unaddressed with propping up the economy? what they are facing is a tricky balancing act. very clear that china wants to keep credit growth from imploding. they need to take defensive measures to shore up the economy. key is thee the

devil in the details. the way that this program is implemented will be key to watch. they want to keep that financial balance, to keep the large financial institutions insulated. at the same time, they do not want to choke out credit supply, because that could have a real feedback loop. if the trade war were to worsen, it is the last thing they want. francine: thank you so much, bloomberg's managing editor. on to other things china, lvmh shares fell, despite the giant posting results in line with expectations. the french company has confirmed that china's demand remains strong. joining us now is bloomberg's luxury reporter.

first of all, i guess it is all about china. and the markets fell they could have done better. -- felt they could have done better. luxury stocks have had a stellar run over the past years, driven by china. rapid growth coming from chinese consumers accounting for two thirds of the growth in the business. expecting aors were strong quarter, they did not get the strong signals that they would need to ensure them that these factors we have been talking about won't take a toll. what does it tell us about the appetite from these old brands? are they still growing? what is amazing is that some of the oldest brands in europe are still growing. they have found ways to renew themselves. this is the first quarter we see

christian dior consolidate themselves. a big social media campaign to relaunch the saddlebag over the summer. that is one of the things that might be driving the outperformance. francine: thank you so much. that is robert williams, bloomberg luxury reporter in paris. so what is next? peter dixonmons and are both still with us. , for example, when you look at lvmh and see some of the retail strength, it is all about china. or if there is the u.s. market. how do you view the retailers? peter: clearly, it has given china stellar growth. obviously, it is a very important market. looking ahead, you will not get

the same impetus to these brands from the chinese growth story in the coming years. obviously, the economy is growing and that field activity is being clamped down heard another thing which is underestimated is the clampdown incorruption is one of the factors which may have crimped demand, as they were traditionally given out as sweeteners. is thing that is happening all things and. i'm wondering if that may take it off. does that mean you stay invested in high end luxury retailers? given the-- peter: absence of good alternatives, i might stick with it. but if i can find something else , i think i would go tech. it a little bit more, but i think we are near the end.

what is interesting for us is the consumer story within china. everybody knows chinese growth is slowing. part of rebalancing. the stimulus that the central bank is doing is very easy to stimulate. it is harder to stimulate the consumer. it is now a large part of the economy, larger than some realize. companies get reporting their results around the chinese consumer, it is a good read across. the consumer is still strong, that makes me feel happier about our growth outlook. is there a concern that these trade tensions, something the governor told us, is he does not see it impacting the economy but impacting psychology. shies away because

of future expectations of trade tensions. i don't know if the consumer in china is particularly different, but it seems to me, if you have money you spend it. you don't worry about what happens in the future. in terms of impacting the economy, we have taken down our gdp forecast. we have a lot of people to account for some of the tariffs which have been announced. when you look at the latest china data or the latest are lookingw they at identifying the systemically important financial institutions. good or bad? does it mean they are worried? probably both, but it is a good thing. viewed long, china was as the wild west of international finance. we were all concerned about the shadow banking system. how strong was the sector?

quite encouraging that the pboc has started to look at this with more detail. they are concerned about the debts. if they can identify the problem , that is a good start. what we need is a safety net in place to back that up. around,s start to turn then the bank has a plan. but i am encouraged. francine: thank you both. us.line and peter stay with donald trump still does not like the price of oil, even after wti falls. in an attempt to side with american farmers, the president is starting to list -- lift restrictions on gasoline containing up to 15% ethanol. i want more. i don't like $74. more, i have to do

whether it is through ethanol or other means, that's what i want. i want low prices. i am ok with it. francine: crude prices shot up over the past few days, hurricane michael holding a fit of daily production the gulf of mexico. joining us now is our leader of european oil coverage. welcome to the program. the president keeps on tweeting. i don't think anybody said "guys, we got this." but he is also tweeting because i is putting out less barrels. james: yes. francine: where is he going to go? even if opec is pumping more, they are not getting ahead of the sanctions. they said wherever the customers come from, they will provide. but they are looking around and at the sanctions, and people are just worried about supply.

they are not worried about the preemptive action, which is what trump seems to want. but is it because they do not have good quality oil or are they waiting for demand? james: they are waiting for demand. the world economy, the ims downgrades. downgradenot want to prices too low. it is what they want, keep the market balanced, not let prices run away or gnostic stick lapse, -- oris what trump wants to collapse, which is what trump months. -- wants. the current storm track is for it to hit eastward and hit nonproducing areas. currently, it is not expected to do lasting damage. , they shouldm hits

be able to reopen the fields. daily oil question is will it go to $100 by year end? james: that all depends on iran, really. the problem is opec, pumping more. if there was another problem in libya or elsewhere, really, there could be nowhere to turn for the additional supply. that could drive prices high. francine: i guess that permeates through your models. we think there is a short-term upside to the oil price. in terms of how that feeds into the strategy, we are overweight on the energy sector. we think there is good flow, even at the good -- current price. agree.i largely the point i am taking away is

that there is very little downside and lots of upside. that is how we would see it. from an economic perspective, again, it is not the level, it is the speed. a recent, rapid adjustment over the recent months. it will put a bit of pressure on inflation, take a little bit off. but overall, i don't think it will be a huge economic downgrade. francine: very quickly, when can we open again? expecting a much movement? maybe they want to listen to what the president says? or is it not in their interest to keep looking at demands saying we can put out extra barrels when we need to. james: they are listening, they are just trying to strike a balance between doing what he wants in serving the needs of their own economy. there is a mini opec meeting in november, not a week after

sanctions hit. we can see further guidance, further indication of how far they are willing to go. francine: james, thanks so much. caroline simmons and peter dixon both stay with us. up next, we dive into the surprise resignation of nikki haley. how will her departure impact foreign policy? we discuss that next. this is bloomberg. ♪

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on bloomberg.com, new evidence hardware super has been found in a telecommunications company. donald trump says he is considering -- the cloud division of amazon has signed new deals with customers for a combined $1 billion. we are just getting a little bit of breaking news out of the u.k. the gdp rises from 7% versus the previous three years. interesting to see some of the economy doing well, some of it having concerns. the pound at 131.61. i wonder if that gives buoyancy

to the brexiters. haley,he u.s. and nikki they united states ambassador to the united nations is leaving her job at the end of the year. speaking with haley in the oval office, president trump says she has been special and together they have solved a lot of problems. the president said haley will be missed. pres trump: she told me probably six months ago, maybe at the end of the year i want to take a little time off. haley did not give any specific reasons for her departure, but denied speculation that she plans to run for the white house in 2020. for more on what the departure means, we are joined by stephanie baker. we don't know why she left, are there any rumors out there or anything we should be watching out for? was issue not seeing eye to eye with anyone? or should we not read too much

into the departure? stephanie: think there has been speculation that since rex tillerson stepped down, her profile had gone down a little bit. she had a lot more sway over trump policy with rex tillerson in charge because he didn't like the limelight. she was much more high profile and wasn't always seeing eye to and johnmike pompeo bolton. questioning, this is a surprise for many, people are questioning the timing. why did she announce it now when she is leaving at the end of the year? is up because she wants to get out before the midterms? -- is it because she wants to get out before the midterms deal a blow to the republican party? the other speculation is that she wanted to take time out to make money, which would make sense.

either way, she is a rising star party.republican if she doesn't run in 2020, most people think she would in 2024. francine: what are the immediate implications? stephanie: it's hard to sam as we know who replaces our. immediate -- her. immediately, it makes her less -- it makes the less diverse. -- cabinet less diverse. i think it really depends on who replaces her. one would assume that pompeo and bolton what has a hand in picking her replacement. francine: there are a couple of names out there, do we know if

any of them will actually -- the president rolled out if ivanka trump. the deputy national security adviser has been mentioned as a possibility. i think her views are quite different from bolton and pompeo so i would be surprised if she got picked. if she does, i think it says a jarred's ivanka and power in the administration. name is the ambassador to germany, but he had a hard time getting confirmed because of his derogatory comments about women. francine: thank you so much.

let's get straight to the bloomberg first word news. taylor: china plans to increase the number of companies deemed financially important institutions. regulators will shortlist at least 50 of the company's largest lenders, insurers and brokerages. that they aresign --pping down as the debt c swells. the president dismissed concerns about inflation as a central bankers disregarded as it push ahead with higher borrowing costs. question cyclical pressures are building.

tight labor markets, the tariffs, steel, aluminum, oil prices being higher. taylor: dodge up says he is considering deana powell to replace nikki haley. k told reporters that he is considering five people for the job. president did not name the other four, but did say that the ambassador to germany is not among them. global news, on air and at tictoc on twitter, powered by more than 2700 journalists and anallysts in more than 120 countries. riggs.lor this is bloomberg. as emerging-market equities suffered their worst year since 2011, some investors say they are flashing a buy sign. some say em stocks will return

an average of 7% annually during the next decade. emerging-market equities slumped into a bear market under threat from an all-out trade war between dollar and the rising u.s. interest rates. the rand gained the most in two .eeks any financial minister takes over and faces tough challenges ahead. imf, south africa's central bank governor was asked whether the appointment would be enough to be investors -- reassure investors. you are having a minister who was involved in framing the

architecture of a democratic , and not only from where we are sitting at the central bank, he was at the forefront of the regime. >> now that he is in this their important seat, what impact do you think he can have? minister. from where we are sitting, we are responsible for the .onstitution of the republic there must be regular consultation between the south african government and the finance minister. we will be looking at someone who has run the central bank for 10 years and three months, and will looking forward to working with him. >> this has been a bit of an

issue lately, central bank independence. the united states has done the same thing. it is very common to have that relationship. chief, do youank have any concerns that the finance minister would -- you is a firm too supporter of central bank independence in south africa? >> i don't have to make that assumption. he is an advocate of independence.i expect him to continue and defend and protect the independence of -- francine: that was the south african reserve governor speaking to kathleen hays in bali. still with us is caroline simmons and peter dixon. there is a lot to geither because you do have pemco saying

this is one of the best bets out there for emerging markets. then there are idiosyncratic concerns about some of these individual countries. your view on overall markets, do you stay away because the fed is raising rates in hiking the dollar or the other way around? caroline: on the equity side, we are neutral. think there is a downside risk to the earnings outlook. we do like the emerging markets bonds particularly in dollars. we think the yields are very attractive and it is a diversified index. francine: the you agree with that? think we are good on the equity side. i would even be slightly underweight on em. we have got a trade war, the fed raising rates, are rising dollar. this is a great cocktail for emerging markets.

given that investors are increasingly looking at the political angles of their investment in emerging markets, i think there are lots of concerns out there. francine: concerns we have heard about or new concerns? i think we know what the concerns are, but i think investors have put the more into focus. the underlying financial conditions have changed. as a consequence, we have a look at these and say they're not too great after all. better rateslightly of return than i could. it is a safe and steady rate of return. i think as u.s. interest rates go up, the rest of the bond space and industrialized world tracking with it, think investors might want to do more. francine: do you worry about contagion starting from one emerging-market impacting

others, and could that spread without much basis? caroline: generally not. the countries tend to have quite specific country events. we're not too concerned about contagion. i think the only region where we would be concerned of contagion would be china. we don't think there is going to be, but if there was, it would be big enough to have an impact. francine: event turkey or brazil, you think it would be quite local? investors have a little bit of contagion, but not much? caroline: yes. anything in the -- francine: anything anin the emerging-market space you like? peter: bonds, perhaps. stay away from equities for the

time being, but not forever. attractivell see buying opportunities. francine: thank you both. coming up, as the brexit deadline moves, can the eu and u.k. reach a deal on the irish border without derailing the peace process. we talk about that and italy. what happens next to the spread between bunds and ecb's? this is bloomberg. ♪

francine: this is "bloomberg surveillance." british and eu officials are discussing a compromise that

could see if the u.k. remains temporarily in the customs regime. the biggest sticking point is how to keep the irish border free from customs infrastructure. a backstop would increase checkpoints into northern ireland. intent talks made it is a professional deal by monday. has does the back-and-forth affect the market and investments? caroline and peter are both still with us. i don't know what your take on brexit is, because it seems that we take a step forward and the caused one or two steps backward sometimes. do you wait until we have a trade agreement? caroline: i think it depends on your time frame. if you can be short-term, there are things you can do. our view was that

we were going to probably miss the october counsel deadline for an agreement. today, there was noise that they might get something. without the sterling would weaken a little bit against the dollar. you could have played that trade. with think that you're going to have ups and downs. we are neutral on u.k. equities and we have quite a widespread on cable. i guess we are not taking a really strong view in such a binary event. bank -- peter: i think in a backstop, you have maybe 5% on cable. if you don't get that, you have significant more downside. certainly going down to 110 are

115 is not out of the question. basically, i think the markets believe that some kind of deal is forthcoming. i don't think anybody believes in their heart of hearts that -- government will allow the markethis believe that we can have a second referendum or election? caroline: i do think that is in the price of the assets. francine: but do you think we could or far-fetched? obviously, the government is saying they don't that.o do they need to come up with something they can pass through parliament by the 21st of january. obviously, do that, they can remain in power and continue down the path they have laid down. francine: let's move on to italy. the finance minister has said

they are worried by the bond yield spread. he offered no sign that the government will change its plans with targets that have already led to the bond selloff. is he even is that, in charge? he has two bosses. caroline: i think what we have going on with italy, everything can be politicized. comments from a wide range of people can impact the market. we just need to be mindful of that. our view is that we saw a short-term trading opportunity around the two-year because we think that risk on default on low.ears is very the spreads have widened significantly beyond the spread levels for other similarly credit rated countries.

we think the two-year provides a short-term opportunity, but longer-term, there is a debt issue in italy which needs to be addressed in various ways. peter: i think when it comes to italy, what we are seeing here again the inadequacy of the eu fiscal rules. they allow italy a high debt level. again the inadequacywhat is hat is european commission driving spreads higher and making the deficit position worse. when it comes down to it, italy will do what it thinks is right for its own people. i think it will come out with a much higher deficit number than the european commission is happy with. their not a lot of levees the european commission can exert. francine: but the market can exert pressure. italy, spain and portugal

and the spread there. how much higher can the spread go? peter: how long is a piece of string? is italy facing a fiscal crisis, no. italy will be able to service its debt. extent, the an concerns about the italian bond market is a little bit overplayed. i rather suspect that yields can't go all that much higher because there aren't that many foreigners left to sell. great chart have a looking at the italian five-year after almost touching the five-year cbs. wto directore general joins us for an exclusive interview. this is bloomberg. ♪

francine: economics, finance, politics. this is "bloomberg surveillance." we are just hitting breaking

news out of hurricane michael. we are just understanding from other of parts -- reports that it is now an extremely dangerous category four and strengthening further as it heads toward the panhandle. if you are in the region, check your local weather channel and local reports about any measures to take. in the meantime, let's get to your markets. sebastian: it was a pretty down beat day for markets. you have italy up. other than that, looking pretty dire. the cac and france is your mover. the stoxx 600 down for the fourth day in five. the majority of the sectors following, but generally a downbeat picture. let's look at some of the stocks moving individually. panels,uctors and solar at some point, the biggest drop

since the ipo in 2015. also looking at the car parts maker. francine: thank you so much. surveillance" cantonese in the next hour. hour.tinues in the next this is bloomberg. ♪

francine: china says the plan of the major bank is systemically

important. the u.s. threatens to block britain from a near $2 trillion marketplace. makes a movetrump in crude, we speak to the world's largest oil trader. this is "bloomberg surveillance." tom and francine from new york and london. there was a big move in u.s. treasuries. i would suggest that is big news tiedhina and they are not to find these systemically important financial institutions. that means it will be interesting to see where they see the main fragility's and their market. tom: china on the radar this morning. i look south to bali where meetings are beginning. a lot of political news today as

well. francine: we are watching oil on the back of the president's tweet and hurricane michael. let's get to first word news. taylor: we are starting with the hurricane. forecasters are doubling down on their warning. overnight, it turned into a life-threatening category four storm bearing down on the florida panhandle today. officials say the market has gotten stronger. have risen to 130 miles per hour. people along the gulf coast have been told to evacuate. it has already hit oil production by 40%. the imf warns investors that they might be on the risk of a financial shock. says and asset valuation appear to be relatively high in some markets, u.s..ally in the

the imf describes investors as complacent about the risk of a sharp tightening of financial conditions. as you were mentioning in china, policymakers played a major expansion of too big to fail rules. bloomberg has learned that regulators will name at least 50 of the country's biggest and brokeragesrs as systematically important financial institutions. they will have to put aside more capital and may face more rules on leverage and risk exposure. president trump steps up his criticism of the federal reserve and interest rates. he says the central bank is moving too quickly with rate hikes.he dismissed concerns about inflation . the fed has raised rates three times this year under jerome powell. global news, on air and at tictoc on twitter, powered by more than 2700 journalists and anallysts in more than 120 countries. i'm taylor riggs, this is bloomberg. thanks so much. let me look at one screen today.

and almost calm the in the markets. a little bit of movement in some of the foreign exchange.we believe it at that . francine: -- we will leave it at that. francine: things are starting to stabilize more compared to the beginning of the week. we did see a retreat from a year repeat. i'm looking at the pound climbing on optimism talks that brexit plans are progressing. the move in china is a sign a policymakers are stepping up crisis prevention efforts as the nation's debt burden swells to unprecedented levels. will shortlist at least 50 of the country's largest lenders, insurers and brokerages.

first of all, is this about them being concerned about something turning sour, or just them being extra cautious and having a plan b? italy part of this big push that we have been saying and a last couple of years here by beijing to do risk their economy. as you said, the debt pile is growing. there is concern about the shadow banking sector but also the banks, brokerages and insurance companies. they are looking forward now to try and of art any potential crisis down the road. what kind of financial crisis are we talking about? i keep hearing that shadow banking is the biggest risk. , if you likereally the real financial part of china, it is the banks, insurers

and brokerages. there is a lot of debt in china right now. it is still growing despite their best efforts. think what they are trying to avert is a situation that we saw in western markets in 2008 where the debt pile gets too much. china's economy is under pressure and a trade war only seems to beginning worse. tom: in any book on china, there is a direct link to the communist party to dominate chinese companies. that is usually symbolized by some sort of phone. a direct line of not crisis management, but just oversight. does that also include the banking system, is the government intimately linked into the strategy and tactics of these major banks? sam: the leading financial firms a major banks here are very much, the government has

ownership stakes in them. as you mentioned, there is very much a direct line to party officials. really, you see it across china's economy. it is a question of politics and economy entered find here very much. they see it as part of their political oversight of the country is to ensure political stability. that is a lot more hands-on and what we are used to seeing. futures we the great had was in the u.s. financial crisis. of belief in auditing, that you could count the beans of the banks. do we trust the auditing of these banks, particularly on the balance sheet? one way to look at it is we trust the policymakers and authorities in china don't want a massive financial crisis.

the extent that they are in there and looking at the data and they are trying to get a firm handle on the balance sheet of these banks, i think it is very much in their interest to make sure the situation is in hand. francine: thank you so much. now to bali where the imf has there are still risks linked to financial conditions being ignored. we are seeing live pictures. what they have been saying is that basically investors have been underestimating the risk of financial shock. with a that no, let's get straight to daniel, the senior at --ment strategist how do you match the two? imf, is a warning from the but then china taking steps to

identify their systemically important banks. daniel: we have global risks here we can talk about. the issues with china and the banks is something that has been on investors minds for a long time. part of the story this year has been the deleveraging efforts by the chinese government to try and deal with these problems in the banks. i think this is another step along that path for them to try to get control of the issues. the imf is talking about is the other big picture which is the reduction in liquidity and potential for yields to rise because of that, and clearly have global repercussions if it does, let alone adding the high-risk of inflation in the u.s. that is the other threat out there for global markets. francine: what is the market ignoring our mispricing? that it is can argue currently priced at this moment,

just a tail risk that we could have an increase in real yields or the inflation spike. if you think inflation is going to come, that is certainly mispriced. the market is not expecting it. it hasn't priced it in. that is something that would be a big tainted that turns out to be wrong. in: one of these percolating the last couple of days has been the real yield term structure of the bond market where real yields have popped up. halfway we seen a real yield apansion that has permanence, real yield gain that has permanence? daniel: i would think so. we know that real yields are below long-run averages at this point. you know we are rising, we are still below what you would think in a normal world. thatnk that is the reason even if equity markets have taken a bit of a step back, if you look at the sector performance, particularly in the

u.s., the negative performance has been concentrated in tech. a lot of the other sectors over the last week or so have actually had positive returns. i think it is higher real yields. that is a reflection of good growth in the u.s. and helping equities as opposed to something we would be more concerned if the inflation were rising. tom: one of our themes this morning as a look at prices of politics. coming up, jeffrey currie will join us. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." softbank is in talks to take a majority stake in weaver. the japanese company is likely to invest several billion dollars on top of the $4.4 billion softbank and its division fund put in last year. wework has been seeking funds. according to the wall street journal, the struggling retailer could file later this week. a hedge controlled by fund manager who is rescue the company in the past by making debt payments. he is said to be pushing for a broader restructuring now. chrysler is close to selling its car parts unit to a japanese company owned by kkr.

fiat and kkr are now negotiating. a deal could be announced this month. that is your bloomberg business flash. francine: thank you so much. british and eu officials are discussing a brexit compromise that could see the u.k. remain temporarily in the eu customs regime. the biggest sticking point remains how to avoid customs infrastructure on the irish border. mean the u.k. agreed to a backstop. intense talks over the next five days may produce a provisional deal by monday. john, i am looking at google pages on you. how is business? john: pretty good. at the whole, a great time to sell things, not buy them. francine: what does that mean for what you're looking to sell?

john: we are selling anything that we think the values are high. francine: give me names. i've got several that are going through. people are buying companies i really had prices -- high prices. does your selling depend on the outcome for brexit or not? john: brexit is a difficult subject for some companies. you just know what is going to happen. you don't know what is good to happen this week. you are just saying that in five days there could be a switch and northern ireland. it is an incredibly difficult subject that is being badly handled. it does mean that people aren't investing easily. tom: one of the great issues

with all of the tensions of leave and remain is the idea of the u.k. getting the pic see dust of ownership. everybody wants to be like silicon valley. can london and the u.k. compete? john: the u.k. is competing, but it is nothing as successful as the u.s. big venture deals. we have a decent technology base, good life sciences space, a reasonable entrepreneurial culture, the best tax breaks on earth. from the factaway that there is an immense amount of talent in the u.s. what do you need from the universities? what do you need to take u.k. entrepreneurship and innovation

to the next level? john: we need to improve the way we do it. believe it or not, u.k. universities generate more spinouts companies than u.s. ones. they don't generate anything like as many successful ones. they tend to do too small whereas the u.s. tends tissue shoot for bigger numbers and with more professional teams. that is something we are trying to educate them to do. the market for venture capitalism and the u.k. is pretty hot. we just a to get the intelligence to get the information out of the universities and into the market. what john is talking about is some of the educational talents that lead to better research and ideas in life and science. do we understand the implication therexit as opposed to canada plus or norway plus? what are we looking at in terms of what this economy will be in 18 months? daniel: the short answer is, no,

we don't. flexible. the low tax rates and flexible labor laws and regulation. the economy will be able to adjust. i think it is that flexibility that ultimately will allow the u.k. to succeed. francine: what is your take on pound? i not investing in the u.k. at the moment or do you need to make a call on cable, and i give you an idea of where we need to be invested? isiel: i agree that cable important. we are still cautiously optimistic. we do come to some kind of agreement that would suggest that cable is attractive. tom: thank you so much. john with a smart conversation on the u.k. and united states.on

distinctions of the multilateral world , an important interview. roberto, look for that today. this is bloomberg. ♪

surveillance"g from london and new york.

there may be happy talks with trump, or the red sox defeating kees, buts -- the yan there is happy talks of private equities. . everybody is going to go home rich john has been one of the scathing critics of the industry looking for intelligent returns that drive forward innovation and capitalism. he joins us today with daniel morris. i want to jump back into this again. the prime minister pushes against that and is looking for a nostalgic england from another time. have you get her vision? vision, i think

that may have been the case some time ago. i think now she is just in an unholy mess. she is people at the right and at the left. the problem is if she is trying to put a solution, was goes in between the groups and neither group once it -- wants it. that, are the american private equity firms advantaged because they're not distracted by this? carlyle, blackstone and the others, are those companies advantaged because they don't have a brexit distraction? john: possibly a slight one. private equity is doing pretty well in the u.k. at the moment. it is reasonably active, it has good returns. raising money is very easy just as it is in the united states. the market is getting bigger and bigger.i don't think brexit is having much impact at all . tom: what does it signaled that

there is money up? everywhere i talk in private equity and nonpublic money, there is a ton of money laying around. how does that change what you do day-to-day saying no to so many transactions? tedious makes it very because i am forever saying no. we did 14 new deals in six months last year, this year, one. prices are high and significant -- competition a significant. regulation is an opportunity on brexit. the u.k. has a wall of regulation which they enforce far more than the united states or friends or somebody else would enforce. europe, weout of lose the massive eu weight of regulation. that represents both an opportunity and a threat. if we cut up too much regulation, we lose trade.

if we cut up some regulation, we increase trade. intelligence applied there could do quite a lot of good for the economy. francine: john and daniel stay with us. coming up, the former governor of hong kong. we will ask him about china and world trade, and of course globalization. that is at 6:30 a.m. in new york. that is in an hour. this is bloomberg. ♪

tom: good morning, "bloomberg surveillance." lacqua,w, francine trending across the atlantic. always trending.

these are our stories trending across the bloomberg universe. we will head to twitter to find out more. on bloomberg.com, evidence of fact supermicro hardware has been found in the network of a major u.s. communications company. here are some of our most read stories on the bloomberg. in third-place, donald trump said he is considering dean of hope for u.n. envoy. and a cloud computing division of amazon has signed a new deal with customers worth a combined $1 billion will stopuber is sounding up investors on $1.5 billion bond sale. let's get straight to the first word news with taylor riggs. taylor: hurricane michael is likely to slam into the florida panhandle today with 130 mile stormur wind and a killer surge. overnight, the national hurricane center upgraded

michael turner category 4 storm. it has gone even stronger. roughly 375,000 people living along the gulf of mexico coast have been told to evacuate. the hurricane has cut oil production in the gulf by 40%. there is to evidence that technology hardware bound for the u.s. has been tampered with in china. a major u.s. telecommunications company discovered manipulated hardware from super micro computer in its network and removed it. last week bloomberg businessweek reported chinese spies had ordered subcontractors to plant malicious chips and supermicro server motherboards. president trump does not expect to meet with north korea kim jong-un until next month's elections. the president told reporters his campaign schedule prevents the second summit for now. still, he says the administration has made incredible progress in negotiations over north korea's nuclear weapons. president trump says he is

considering goldman sachs partner dena powell to be the next u.s. ambassador to the united nations. she would replace nikki haley who is leaving at the end of the year. how was the president's deputy security advisor before returning to goldman last january. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more 120 countries. i am taylor riggs. this is bloomberg. now to emerging markets, the rand gain the most intrigues after south africa's dishdent pointed a formal former governor as finance minister. he takes over to explore budget updates and faces tough challenges ahead, including convincing investors the government can curb debt and root out corruption. the imf meeting, kathleen hays asked the current central bank governor whether the appointment will be enough to reassure investors.

>> a minister who was involved in framing the architecture of a democratic south africa, and not only that from where we're -- ing at the central bank, >> now that he has been this very important seat and you know him well, what impact you think he can have? minister -- we are .esponsible the constitution says we must consultation within the south african rebels and the finance minister.

at least we will be having some been at the central bank for 10 years and three months, and we're looking forward to it. >> this has been a bit of an issue, central-bank independence. i have to say the united states is the same thing. the treasury secretary and head of the federal reserve meet often. it is common to have the kind of relationship. central bank chief, do you have any concern that the finance minister -- you would say he, too, is a firm supporter of central-bank independence in south africa? >> i don't have to make that assumption. he is an advocate of central banking. i would expect them do continue on that trend to defend and protect the independence. francine: that was the south african reserve bank governor speaking to our very own kathleen hays at the imf

meetings. hurricane michael is poised to make landfall in florida today. above $74 a barrel as the storm was upgraded to a category 4. it is expected to bring upwards of 15 billion dollars in damages. yesterday, in an interview with bloomberg, warned the oil market is enduring a red zone. joining us now is jeffrey currie . and still with us, dan morris. ago inyou a couple weeks new york. thank you for sticking around, dam. we have this interview saying oil may be in the red zone. what does that mean? is it starting to hurt the world economy? why is opec not doing more? >> there's a mismatch between financial flows in the physical market. the red zone is in the forward curve. it is in the future prices were you see substantial hedging. bona fide hedging by both

consumers and investors in the back end of the curve. the shape of the curve tells you about the fundamentals. it is not in a red zone. fundamentally today, this market is relatively well supplied. fear.g to the question is the market is trying to price an unknown decline in iranian supplies against an unknown capability of opec to increase. what do we know thus far? andntories built in august september, given the high-frequency data which is consist did -- i would say the back and of the forward curve is pricing an unknown red zone. i think it is a little premature at this point to be getting that concern. francine: when opec tells us saying, they're going to sell, there just isn't that increase demand. they are right? >> when you look at the front end of the forward curve, it is not that type. we're not saying we want to short oil, but we didn't the calls for $100 oil at this point

are not justified yet. tom: what is the mystery right now, jeff currie? you're going to write a 25 page report coming of a team of five young people helping you. what is the mystery in petroleum, hydrocarbons, upstream, downstream? what is the thing you just don't know right now? look at what i have been doing over and over for the past i would say two months, it is the reverse of what we did in the 2000's, meaning month after month, we take up let's say u.s. demand by 100,000 barrels per day will step take china andem down by 250 thousand barrels per day, and we see the dollar getting stronger. what happened in the 2000? the exact opposite. we took demand down in u.s. substantially in the took up the dollar gotm weaker. what was the dynamic playing is you had to make room for strong chinese demand growth.

we look at it today, you can't really make the same parallel assessment between u.s. and china. is theuck with what market trying to price at the margin right now and i go back to what is the u.s. really short? it a short labor. what we sing and commodities space right now? big victories by labor for the first time in decades. we see it in chile. it is happening over and over in the commodity space, particularly in the emerging markets. that is the one i am focused on about, why are we seen this exact reverse pattern of what we saw in the 2000's? francine: what are we seeing the reversal? are the markets misjudging that? >> i think in terms of putting a finger on where the markets are misjudged, there's a believe that, hey, let's say you have a percent interest rate in emerging markets -- 8% interest rate in emerging markets.

what we see in commodities space, i think the em is been long cycle, old economy. old economy.le and what we're seeing as you look at the returns on the commodity project in the em and they are 20%. this is the bull story. at a 20% return, the dollar gets stronger, drives down the cost of these, you're still not in the -- getting the capital to flow. i think issues around the carbon's asia and, trade wars, nobody wants long cycle projects in the emerging markets. oilcine: back to specifically, hurricane michael, do we have any estimate how much that will be taking off the market? and if uranium sanctions are deeper than five, good saudi arabia come in and supply the market or will we cap and reserves because they don't have enough for quality oil? >> first, let's talk about

hurricane michael. there's the question wasson production versus loss and demand. in terms of thinking about loss in production, the hurricane is going to force shutting down about 40% of the gulf of mexico, which is a couple marilynne barrels over a couple of days -- million barrels over a couple of days. no permanent damage concern. the other concern is what kind of damage to demand? potentially taking out refiners or consumption of petrochemicals another touch of facilities in the gulf coast. our estimate would be about 100,000 barrels per day. now, itpoint right probably favors being a little bearish as opposed to bullish. -- does morris, in the the idea of free money, the answer that money is free, build, build, build, are we anywhere near a legitimate rate that precludes investment? >> i don't think so. if you look at m&a activity, clearly, it has been very busy

this year. you would expect it to continue, even with rising rates. we still know that in absolute terms, the heels are quite low historical averages. when you look at what is happening in america right now, capex is increasing and i think that is much more to do about the expected returns. tom: do you have a dollar called? does jeff currie have a dollar called? in we don't see much more appreciation but the sharp depreciation we expected earlier this year has been toned down somewhat. tom: very good. jeff currie and daniel morris. coming up later, ian roper taylor on energy, trading.

look for that. this is "bloomberg." ♪

francine: this is "bloomberg surveillance." we were talking about oil and some of the dollar dynamics. we do have opec meeting with allies i think at the end of november. there seems to be a lot of anxiousness in the market that oil will go to 100. jeffrey currie of goldman sachs pushing back a little against the saying, look, at the moment, the calls are 100 dollars oil is not justified yet. we are back with jeffrey currie of goldman sachs and daniel morris of bnp. jeffrey, we were talking about china,'s china strength.

identify and 50 of them a systemic financial institutions against or make sure they have a good handle on the situation. this plays into iron ore, copper usage. >> there are two ways they can stimulate the chinese economy. one is through traditional monetary policy. the second is through infrastructure spending. when you think about the constraints on both of those abilities to stimulate, one thing they're worried about is creating the housing bubble. when they pull on the monetary policy lever, because you don't have free flow of capital between in and out of china, the capital bounces back, goes into the housing property market and you create a problem. the problem is to go around that loop and go outside of it and use the infrastructure lever. intothey do that, they run constraints.

close to one point five dollars julian. the ability to substantially increase it -- in terms of our view on metals, one thing that has been going on because of the higher cost of funding as well --the tariffs, these stocks copper come all of the metals, we have seen physical go up and they're going to have to reach the physical markets. francine: what is your take? >> the constraints they think china is facing right now. there are concerns about the currency not 100 create the situation. if the whole plan over the last year or so has been the deleveraging and fixing the problem from the previous credit booms, it doesn't make a whole lot of sense to launch a whole another want to support the economy. i think they're facing constraints. they are trying to figure out how to also the impact of growth

from the trade tensions with the u.s. i think that is good in the sense it does open up the possibility for a deal between trump and china because the chinese do want to get something or the economy is growing again. tom: jeff, was the commodity-china boom a loss? around 2008, was it a one-off? .> no where i am beginning to believe is because of the outsourcing of the old economy, the em space is the global old economy. because we overbilled the old economy in the 2000's and are swimming in excess capacity, it is pretty hard to turn to the old economy as an engine of growth. it does not mean it won't be an engine of growth in the next cycle looking into 2020. eventually, no investment in the old economy capacity will create the need to reinvest in that

space for that long cycle space. that is what is going to create the upside in the economy. some think we're on it today. i don't think we are there. it is a 2022, 2023 type of story particularly in markets like copper. we're going to need the old economy again, it is just going to take time. tom: dan morris, when you look at this assessment of the excess, which is so rare and what we see, it is going to take time. how do we get out of the next commodity cycle? within the clearing of the financial debris of the next 10 years, how do you get to her after inflation, commodity valuations actually lift? that happens, you start to worry about a recession in the u.s. in terms of global demand, that is probably going to be the next big change. that certainly is not going to drive a lot of commodity events. it does seem it will be a while.

we may have to get to a recession before we get to that point. francine: gold? >> it goes back to that question i was asking earlier about what we are seeing today across commodities. it is very peculiar in gold innocence for the first time ever, we have seen gold denominated in cny, separating from gold and dollar and going much higher. i like to say, you don't want gold pricing in your backyard. if it is pricing in your backyard, you got a problem. the market in which old is pricing right now is against cny for the first time, which is an indication people are pretty concerned about what is going on in china. francine: jeff and dan, thank you so much. jeffrey currie and then morris. of demg news out holdings. alex friedman is said to be holding informal talks with potential buyers. this goes back to one of the themes we've been following closely, which is as a

management getting together to be bigger to service their clients better. also in the wake of falling fees. this is "bloomberg." ♪

good morning, everyone, "bloomberg surveillance." from london and our studios in new york. there is a tweet out in a headline that michael bloomberg is registering as a democrat as the was a 2020 bid. mr. bloomberg's majority owner parent of bloomberg news. we will have much more on this no doubt through the day. as to bloomberg registering as a democrat, wayne towards 2020 as well. francine, this has been i would suggest widely anticipated as the midterm election is only 27 days away. francine: i would say, first of all, to those interested, look at my bloomberg's tweets and he is basically saying, he lays out some of the key points he wanted to put through. let's get back to jeff currie. he is the head honcho when it comes to commodities and goldman sachs.

makes us smarter when we look at the price of oil and copper. at some of the things we've been talking about, jeff, is there something mispriced on the market the echo -- market the echo is there something, i don't know if it is the smaller things? >> the entire metals complex. we like to call the metals complex a value play this point. outright copper is short. the underlying fundamentals don't support that positioning. as a result, you have seen prices across the commodity complex on the mental side dig into cost support, which is why we call them a value play. in contrast, you look at energy. that is where the length is. it is strange in a sense you have a lot of links in oil right th in oil right now. they are fading the november 12

,eadline on sanctions on russia which i think is probably a mismatch between the two. francine: things we basically use in these, how much is demand for that to increase? is that overvalued or undervalued? >> when you look at the battery technologies, and i'll would argue the best play in the liquidity is in nickel. when we think about bbs and batteries, nickel is trading shy of 13,000. we see it going to 18,000, really driven by these technologies. the thing with nickel versus one of the smaller markets come it is scalable. the chinese are developing technologies. the one negative is there was news last week of this technology that can take the fairest grade nickel and turn it into battery. tom: thank you so much, jeff currie. there seem to be so many themes

today in over the last truth of alternative investments that are challenged. centered out of london. to be a potential informal talks with potential buyers, rather, looking at possible sale of the company as well. much more on that as well. whatever wonderful our for you on politics and on asia. we will do that next. lord patten will join us and we are thrilled to bring you sebastian mallaby. stay with us. this is "bloomberg." ♪

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the lady from south carolina exits. the man at 1600 pennsylvania avenue as an opportunity to reshape trump foreign policy. christopher patten and sebastian mallaby in this hour. good morning, i am tom keene. just another story percolating is gam. help our global audience with this lending story. what is -- london story. what is gam? it is have based here and have based in europe. wonderland -- we understand that it is holding informal talks with potential buyers for all of the business or parts of the business as it explores options to stabilize.

there are two stories, one is the theme which is do you need bigger asset managers but the other one is specific to gam after they had to suspend one of their star fund managers. tom: let's get scale on the news of the day with our "first word news." taylor: forecasters are doubling down on their warning about hurricane michael. the national hurricane center said the hurricane had turned into a life-threatening category four storm bearing down on the florida panhandle. officials say the hurricane has gotten even stronger. people along the gulf of mexico coast have been told to evacuate. hurricane has cut gulf oil production by 40%. investors may be

underestimating the risk of a financial shock that could send tremors through the global economy. the fun says that asset evaluation appears to be high in some markets, especially in the u.s. the imf describes investors as complacent. in china, policymakers plan major expansions of so-called too big to fail rules. regulators led by the central bank will name at least 50 of the country's biggest lenders, insurers and brokerages as systematic financial institutions. they will have to put aside more capital. president trump stepped up his criticism of the federal reserve and interest rates. he said the central bank is moving too quickly with rate hikes and he dismissed concerns about inflation. the fed has raised rates three times this year under jerome powell, who was appointed by the president. global news, 24 hours a day, on air and at tick toc on twitter, powered by over 2700 journalists and analysts in more than 120

countries. this is bloomberg. tom: thanks so much. equities, bonds, currencies, commodities. futures negative four. euro does nothing and oil churning as well. haveve -- a great day to jeff currie with us of goldman sachs in the last hour. francine: he says we should not be looking at $100 oil just yet. there is quite a lot of talk on treasuries. traders looking for a fresh round of data. lower.n equities turned that is hitting u.s. futures as well. tom: let us bring in kevin cirilli. i want to get to ambassador

haley but i like this idea with the elections coming up of dropping in on one geography you are an expert on. we did florida yesterday. missouri is close isn't it? get so close?ri kevin: it is remarkable to watch how those polls have tightened. mccaskill is going to be ingrained in the 2018 cycle. is more nuanced because on the issue of trade and justice capital, we touched on this howerday, in particular for exactly these issues are more nuanced in these red states because there are many centrist democrats who would want to see him. tom: let me go to a beautiful

essay of the many thoughts off of ambassador haley resigning. it sometimes seems as though ambassador haley's overreaching goal was to maintain credibility with the never traverse who populate the ranks of the republican foreign-policy elite. i love this phrase, that awkward synthesis. is there any appetite for a return to more traditional statecraft in the gop? does the president want a replacement in the u.n. who has that awkward synthesis? kevin: that is what we don't know. the name we have heard immediately is the current ambassador to germany. line in be more in terms of the views of ambassador haley and secretary of state mike pompeo. the question becomes whether or

not the president will pick someone with more of a rhetorical side -- style that is akin to his brash style. ambassadorship as somebody with a lot of options in terms of her political future, whether that be in 2024 or a return to the administration. foreign: talk about how policy changes with nikki haley leaving. kevin: she was very much in lockstep with the administration but from her arguing of leaving the iran nuclear disarmament deal or by bolstering relationships with israel, we shall -- we saw she was someone who was not afraid to but heads with the administration. she stood up to the palestinians when they literally told her to shut up and she released a

statement that she would not quote, unquote, shut up. the president says he will name a successor within the next two to three weeks. tom: kevin cirilli, our chief washington correspondent. cameron crise joins us from bloomberg. also looking forward to a conversation with sebastian mallaby and lord patten. sebastian mallaby, the council on foreign relations, he has put together an extraordinary set of on chairmaning one greenspan but writing as well in the atlantic and other journals. congratulations. -- amazing idea of trying to kickstart development in africa.

not by fixing the whole country but by having one city that would really work. tom: in your article, what is in chadt is you bring jones of stanford who is really a hybrid of old growth and new growth. where are we on discovering how we do economic growth? sebastian: it is no clinton's that -- did some of his seminal work in the middle of silicon valley, and a place where ideas and technological change really matter. they regard the whole of economics as a backward looking silly finance. you look at data in the past and extrapolate to the future and say it will roughly be the same. that is not really predicting anything. tom: you open your article with henry's line from the early

history of mythology. the glue that makes all of this go in sebastian mallaby's world is money costs nothing. are we at an inflection point where all of a sudden, money goes back to having a traditional cost or is it still going to be free money? cameron: certainly in the united states and for anyone who is borrowing in the united states currency, money does have value now. why emerging markets and vulnerable emerging markets have struggled so much. they have taken on this dollar debt when the perception was that dollar borrowing costs would be low. they did not project the past and the future -- they did projective past into the future but as we have found, the fed is normalizing rates slowly and

when you start having to pay a positive rate of interest, it can squeeze in the most vulnerable are squeezed first and hardest. meanine: what does that for the dollar from here? do you expect volatility from emerging markets, contagion if the dollar continues going higher? cameron: i did not catch that. francine: though the dollar go higher from here and how does it hurt emerging markets? cameron: over the next few months, the dollar probably will continue to rise, not only as the fed keeps putting rates up end of the year coming, we are seeing some dollar liquidity squeeze in the foreign-exchange stock market. that will be more pain for em in the next few months.

we are going to approach some sort of inflection point, maybe a year from now if and as the begins its long and slow normalization process. the u.s. rate cycle is going to start coming to a close war will be on the horizon. the u.s. economy will be losing some of the fiscal tailwind from the tax cuts. got this, current accounts say the deficit is going to widen. there is an argument to be made that the dollar does strengthen in the near term, starting a year from now, we may be looking the long- looking at cycle of the dollar start to reverse into the next decade. francine: thank you so much, and sebastian

mallaby of the council on foreign relations. both are staying with us. coming up, robert azevedo, the wto director general. we will talk to him about warnings from the imf and emerging markets. this is bloomberg. ♪

taylor: this is bloomberg surveillance. -- bank is in talks to take a majority stake in -- which rents and stores -- which rents office space. a $4.4 billionof the bank put in last year. we were at has been seeking more funds and $35 billion valuation. sears reportedly hired an

advisory firm to prepare a bankruptcy filing. according to the wall street journal, the retailer could file legal this week -- legal -- later this week. fiat chrysler is close to selling its carpark producer to a japanese company. bidcompany has raised its and they are now negotiating a valuation of more than $6.3 billion including debt. a deal could be announced this month. that is your bloomberg business flash. tom: thank you so much. always a celebration of bloomberg on the economy on bloomberg surveillance over the nobel prize in economics. sebastian mallaby, a strolling article in the atlantic on one of the winners this year.

sebastian mala be -- sebastian mallaby,, it is the modern populism we see in germany and frankly in the united kingdom, this new populism is not benefiting a lot of people. if it is a gilded age, how do we get less gilded within our growth? sebastian: it is a paradox that emphasizedat paul that technological change accelerates growth but it accelerates dislocation. they see a world in which lucky people who win have job security, they have some kind of share options, a sticking capitalism and a lot of people don't have any of that and that is creating this populist backlash. i think they are two sides of the same going. tom: let's go to a quote we have

from sebastian mallaby. i want to suggest once again, you are way out front on what the zeitgeist will be weeks and months away. where is the old models predicted growth would slow as population expansion put stress on resources, and as new investment and skills capital yields diminishing returns, a window opened into a sunnier worldview, a larger number of affluent people means more ideas , so prosperity and population expansion might cause growth to speed up. donald trump did not get elected on that paragraph did he? sebastian: this is the manifesto of urban cosmopolitan ideas. it is not the manifesto of the left behind kind of more rule communities. tom: what do you do with these people? you spent a career thinking about this.

on chairmanbooks greenspan has been acutely aware of this maldistribution. what do we do to get back from this gilded age? sebastian: you need new policies to address the sense of exclusion from many people. can you continue with a 1990's playbook with billable the earned income tax credit? that is not enough. do you want to move to a whole different thing you cut off migration, where you disrupt global trade, that is the sort of one populist answer or do you want to get creative with things -- invent new politics, universal income, but then you have a third thing which is to actually go back to the old ideas, a state tax that really

bites and you get to dinner -- you get into generational ability. you preserve a sense of hope among people who did not grow up with it. doing more of what we did before, but with a lot more bigger and determination -- vigor and determination might be the best way forward. francine: sebastian mallaby, let's bring in one of the most eloquent people when it comes to globalism, the government which is selling $3 billion of debt. act whilealancing ensuring the -- economy has enough credit to withstand a trade war. let's go to lord christopher patten. former eu commissioner for external affairs. . could go on

when you look at the biggest concerns out there, china is one of them. they are trying to figure out the 50 institutions that are systemically at risk. how do you see that evolving? do you worry about shadow banking in china? christopher: i worry about a lot of things in china, not least of all how china is affected by president trump ticket policies. president trump has some real grouses as to japanese and eu business leaders. andain worry is about china what is going to happen to china over the next few years and secondly, growing debt and thirdly, i think china's real difficulty in avoiding the middle income trap where chinese leaders have been talking about this for years. given the extent to which

president g jinping -- xi jinping has rolled back reforms -- i think turning the party into a real block to further progress. while i hope for the best in china, i think that this is a the for real caution in caution is increased by the fact that there is all the evidence of a growing trade war between the united states and china. francine: how long do you think that trade war would last? could it last 20 years or would it escalate and died down? christopher: i hope -- and die down? christopher: i hope not. dear strategists call it the -- trap the idea that the biggest kid on the block always wants to knock down the up-and-coming kid and i think that is the basis for an american policy and god help all of us, i think china

needs to be brought into the mobile system of economic and political governments -- governance but it cannot do so on its own turns -- own terms. i was part of the team that negotiated china's membership with the wto and the idea that the chinese keep their word is for the birds. it is more difficult to invest in china than in this for the chinese to invest here. when i was in northern mallaby,a, sebastian virtually everything he said i agree with, he was talking about building california and people were repeating that old store that there were just go sorts of american companies, those that are being hacked by china and those that know there are being -- that know they are being hacked by china. tom: we are thrilled to have you

here with mr. melody -- with mr. mallaby this morning. with sebastian mallaby's nostalgic view that hong kong is the model, not a model but the model to drive forward constructive growth in the so-called third world. thatis the pixie dust britain brought to hong kong that can allow for separate cities or separate geographies in these troubled countries? 'sw do we export chris patten hong kong to madagascar are? sebastian: it was the hong kong of a population, the majority of whom were refugees from coming is him in china. -- from communism in china. chinese hard work and entrepreneurialism.

open economics and open politics. that is what created the success story in hong kong plus something else which a think sebastian was eluding -- which i think sebastian was eluding to. thesed to talk about relationship between cities and growth and she thought one of the reasons for growth was the clutter in the city. i thought that was one reason why i preferred hong kong to singapore. i am not so keen on social engineering. the fact that there was not industrial policy in hong kong and the fact that industrial policy was about low tax, investing in education, not least in higher education, those things mattered. people talked about the economic miracle in asia, what they did not look at was education of women, political stability and improved primary health care.

all of those things mattered to growth. tom: this goes over to one of your themes, sebastian which is the rules and the search for rules. president xi is doing the same isn't it? it is not the same rules when lord patten went to hong kong. he is growing expensive private sector and it is a tougher place if you want to agree with the rulers. a profound question about what that means and whether it works has to do with artificial intelligence. taught for a long decisions are good for generating good decisions and growth but in a world where artificial intelligence comes in and the key to making network is , maybeized data pools centralized systems and planners have a better chance of doing well.

that is what we are looking at with china. they in terms of implementation of ai science are speeding ahead because they have bigger data sets concentrated in a few hands. tom: this is very important, sebastian mallaby touching on the must read article. writingy kissinger about this idea of artificial intelligence within international relations. francine: we will get back to sebastian mallaby and rest for patten. -- and christopher patten. -- could send tremors through the global economy. the fun says that asset valuations appear to be relatively high in some markets, especially in the u.s. with the wtoali director general, roberto azevedo. call it. clouds surrounding

this meeting in -- call it duck clouds surrounding this meeting in bali. there is an overconfidence and complacency in the market that could be underpricing risk and of course the other issue is trade, especially the prolonged trade war between the u.s. and china. let's discuss trade with roberto azevedo. is there a sense that constructive conversations are happening that there could be a light at the end of the tunnel anytime soon given that the u.s. did strike a deal with mexico, with canada? roberto: i think the fact that that deal was struck is constructive and there is a possibility of coming to agreements but all signs have to be in a position to negotiate that. they have to want the deal. have withis effort we

trade tensions out there and the u.s. and china players, you have to look at the bilateral conversations. i am not sure it is going very far but there are other efforts. the u.s. has been expressing concerns but also china and other members. that conversation as it is not fully bilateral, could offer potential to reduce trade tensions. haslinda: you talked about your willingness to mediate. have you managed to get through with the sides? roberto: getting this conversation started was important. i have had several conversations with global leaders on both sides of the atlantic and the pacific. i think the fact that these leaders now are engaged in this conversation, they all want to find a solution and they all could be athe wto

place where this conversation could happen. that conversation is beginning to take place, not with all wto members. some are talking about this. this is something that gives me reason for optimism. u.s. and the particular, president trump said the wto has to take action on what it terms as disruptive trade practices if it wants to stay relevant. your thoughts on how you can respond? roberto: what the u.s. is saying is essentially the disciplines we have today, the rules we have today, they don't capture some types of distorted measures that are put in place by others. they mention intellectual property rights, industrial subsidies, a whole bunch of things. they think that the wto has to reform, that the rules have to change and be adaptive to capture those things like state

owned enterprises. others have things they would like to discuss, too. that is the kind of conversation that is beginning at this point. some within the wto have said there has been some kind of bullying by president trump on the wto and has called on members to be united against president trump. how do you view those comments? roberto: we have to begin to change the dynamics of the conversation between confrontation and switch it from confrontation to cooperation. we already had a number of countermeasures. a country poses some measure that somebody else poses another one and there is a response to that and a response to that. this is a never-ending domino effect and i don't like that. the way to move now is to get into a situation where we are talking to each other rather than at each other. we are beginning to see the contours of that conversation.

haslinda: you have gone from seven judges to three and some are saying you cannot afford to lose one more or that is the end of the whole process. andhas it been so difficult is the u.s. putting pressure on the choices of judges? roberto: the u.s. has been complaining about the work of the appellate body for some time. this administration more forcefully. they are blocking the appointment of replacements. by the end of next year, we will go down to two appellate body members. at that point in time, it will not be enough to hear any appeals. if you have a dispute and it reaches the appeal level, it stops right there. there is no adoption of the reform would essentially paralyzes the system. this is something that members are still discussing. there is no light at the end of the tunnel.

members are talking about alternatives or what we do. haslinda: is this a crisis? roberto: absolutely. there is no doubt about that but i don't think members are crossing their arms and waiting for that crisis to happen. they are already discussing how to fix it. haslinda: we have been talking about how that could be a prolonged trade -- how there could be a prolonged trade war between china and the u.s. what are your thoughts? yourif you have to rethink growth projections again? roberto: it escalates, yes absolutely. speculative. lookedomists at the wto at the full-blown trade war and in a situation like that, 17.5%

of trade would disappear. in terms of global gdp growth, 1.9% -- 1.9 percentage points would come down. with a full-blown trade war, it would come down 2.1% on average. the u.s. and china would be heavily affected by that. it is difficult to tell because it depends on the degree of the measures and how widespread they are. it is a bit speculative but what is important is there will be an impact. it will hurt everybody. haslinda: roberto azevedo, thank you so much for your insights. the wto director-general joining us in bali. tom: haslinda, thank you very much from the imf meetings. i was in hong kong the day of the collapse of the wto and is -- it is an honor to have with

us, sebastian mallaby of the council on foreign relations and with francine lacqua, christopher lord patten. it is the death of multilateralism and the ascent of some form of neil mercantilism -- of neo-mercantilism. -- the impact of the secretary-general has just talked about of a trade war will be felt above all by those people who voted for president trump in the american election and those who are fueling with their political support much of the growth of populism. the sad fact is that those who were appealed to you by populist are those who will most suffer from populism. i think we should say that pretty loud and clear.

if you talk about hong kong, a danger for hong kong is that if china continues to treat hong kong as if it was simply another chinese city, then america and others will start to treat hong kong economically the same way and that would be a pretty good disaster because i don't want to see hong kong sucked into the trade war between america and china. tom: sebastian, what is is there just an assumption that lord patten has that china will just outweigh to waitpresident -- out this president? sebastian: i think china thinks it has a trump problem and possibly a united states problem.

this phenomenon is that this phenomenon of globalization is not going to go away, it might speed up because we're going to see a whole wave of white-collar dislocation as artificial intelligence -- imagine you can translate people from chinese and english perfectly with the machine? chinese service workers are present in u.s. service sector jobs and they can communicate with these machines, that is a huge new wave of dislocation. some people will win and some wille will lose and it produce the politics of extended confrontation with china. francine: lord patten, if the u.s. is languishing its status as the leader of globalization, who will take over, china? china has its own set of

domestic problems, so will it be someone else? christopher: one of the interesting things about china's reaction to his difficulties with president trump and increasingly its difficulties with japan and the eu on some of the same issues, it is interesting that one of china's reactions has been to start to take political control of some of the private sector that is left in china. we know already that president has rolled back a lot of attempts to reform the state enterprises and to strengthen the private sector which had begun under his predecessors but it shows in my view the limited ing's likely jinp success. joint ventures and joint ownership into what is existing in the private sector in china and that is not going to help china to grow or to become a

global champion of free trade. free trade is largely driven by private enterprise. is that a role that the eu can try and fill? christopher: it should be a role that the eu should try and fill. francine: but it is dealing with brexit. christopher: it has been. we can now see the makings of some sort of ticked down the road settlement on brexit for the time being which would enable the european union to concentrate on things which in the long-term will have more effect on europe, like being a champion as the biggest trade block and the world, of free trade around the world. one of the ways in which trump has misplayed his hand is he should have been working with europe and japan on some of these issues. i think americans are starting to do it they have come late to the party. tom: this is a fascinating point

from lord patten, the idea of a reaffirmation. are we going to go back to first or with your thoughts on artificial intelligence, it sounded like dr. kissinger in june,, going on to something new that is different? what is interesting that is happening in europe and the u.s. and china is that the tech sector has gotten too big for its boots and the leader of the tech sector which has goingd enormous power is to be the object for more government regulation and interference. alibaba and 10 zen in china are being pushed around -- tencent in china are being pushed around. we have to look at a couple of players who know that. smallerve thought that

chinese tech companies would be the test as to whether you are going to see an absorption by the state of the private sector. tom: lord patten, we have time for one more observation. can you give us a state of your conservative party? good lord, do you want a disaster movie? you what is happening and it is basically what bloomberg has been reporting. i think there will probably be a deal between the eu and the u.k. on withdrawal. tom: i don't care about that. is the going to be a deal between prime minister may, mr. johnson and the other eight factions of your conservative party? christopher: i wish it was mined in the sense that it agreed with me because if it was, we would not be leaving the european union which is a piece of a --

which is a piece of egregious self harm. these people are ideologues. they combined in sort of a numbskull nativism with some pretty bizarre roles -- ideas about the roles that britain could play in the world. it puts us more the position of norway than canada. the idea that canada is the solution to the uk's problems or a deal like ukraine, those are both crazy notions. i hope we will get something like norway each leave us worse off than we are now and with these enthusiastic hardline brexiteers having to explain to people in the future whether taxes have gone up on public spending has gone down because britain is not growing as fast. it is a pretty awful situation and it is because of the extent to which the conservative party has been consumed by this issue over the years, this notion that we can defend the 19th century

concept of sovereignty which nobody can. defends him what kind of deal prime minister may gets with the eu that also look at a deal she can get through parliament. what is the likelihood of a constitutional crisis hitting the u.k. in the next several months? sebastian: what the conservative party internal factions are going to have to determine his which did they prefer, to vote against the deal that theresa may brings back from brussels which could trigger another election which the labour party might win and they don't want that, or to get reluctantly behind theresa may and that the deal go through and that is much more likely. the idea of a disruptive cliff edge kind of brexit, i am putting it at less than 5%. the thing i really worry about is that sooner or later, we could have a labour party government which would be the most left-wing government in

memory, arguably more so the than 1945 -- more so to 51. special new funds and siphoning off money to the government, nationalization of not just the water sector or the rail sector, 10% of all companies with more than 250 employees. this is radical stuff, very destabilizing. very good. sebastian mallaby, thank you so much with the council on foreign relations. and lord patten, thank you so much for joining us. ian taylor is someone in fashion who is simply worshiped. he bailed out one of the iconic names of british industry, harris tweed. he did that in his spare time. his of the time his handling energy and the energy group

vitol. >> good morning. we are at the oil and money conference where executive policymakers and analysts speak frankly with what is happening in oil and i am export -- i am excited to be joined by vitol chairman ian taylor. -- said the markets are entering a red zone. how severe of a supply squeeze are we heading for? ian: we don't have a supply squeeze. there is plenty of oil around, even today. i think it is right with the saudi's have said, they have enough oil to supply the world. but we have is more of a fear factor. -- what we have is more of a fear factor.

to my mind, we don't have a supply squeeze at all. we heard from a lot of your competitors about price prediction. where do you see brent january 1, 2019? ian: it is hard to see us getting over these fears in a few months, but i would not be surprised if it were five dollars, $10 lower by then. >> lower than we are now? that is quite contrary and. ian: -- contrarian. ian: come on. right now in the second. >> how much do you see coming off the market with the sanctions in less than a month? ian: the reigning exports of crude oil -- iranian exports of

crude oil, we will be surprised. i am afraid is it -- it is a major change for iran. >> do you expect the u.s. to offer any waivers? ian: yes, but not many. >> president donald trump has said that opec is whipping up the rest of the world. do you think so or how much do you think the saudi's can go higher? ian: i have to be careful here because the president is his own man and i am looking forward to his morning tweet. opec is trying to produce whatever they can and that is why i am negative on the price. also emerging markets are struggling with the increased price. we will see a little bit less. >> this morning i was looking at

the price of oil, and it is pretty extraordinary. are we going to see demand destruction? ian: no doubt about it. we have lots of businesses. >> what worries you more? is it a tweet from the united states or is it trade wars? day,at the end of the policy can return and the actual trade and demand does worry me. obviously trade wars are a big concern. you had a pretty exciting panel in there and you were talking about the oil majors. they are putting money in renewables, things like that. what do you make of it? -- theyy obviously seem

want to be a bit closer to the consumer. these are difficult areas and are probably areas where we fear to tread but we do not have the skill set. >> do you think they can make money out of it? ian: that is a very good question. you better ask them, not me. i am not sure they can. >> the opec and friends deal ends this year. your profitability declined this year. what you make of this deal ending? -- what do you make of this deal ending? to stress,important we see a continuation of cooperation at certain levels. these meetings they have been having are not going to stop. that is relatively good. been almosthave more volatile than we would

like. withng companies do well trade and real volatility, we are not so good at. -- -- politics is a bigger factor and slightly more unpredictable and the answer is probably yes. iran hitsanctions on in less than a month. will you buy iranian crude? ian: absolutely not. >> thank you so much for your time. that was chairman of vitol, ian taylor. they trade 7 million barrels of oil a day. by could make up the likes of u.k., germany, and france together in terms of demand. tom: thank you so much. let us do a single best chart in the most busy day.

a follow-up -- i thought we would do a chart based off the interviews of last couple of days. the headline numbers of the media don't tell the story. this chart need some explanation -- needs some explanation. down at the bottom, china in red, japan in white, the united states. this is per capita gdp growth over a good 40 years and interestingly, i have set it in swiss francs to evil -- to equalize it. sebastian mallaby, you know we have an asia ascendant. , behind ao far behind relatively flat and recovering united states. the way that day after day, we overweight the day -- the asian ascent. sebastian: it may have some way

to go, but surely that is the big story. tom: the growth story. sebastian: and to that extent, it is not a mistake, it is a thing that is going to challenge geopolitics and it is disruptive markets. when you talk about emerging markets, i am not worried about argentina or turkey being contagious. i am worried at the chinese leadership decides the right way out of the growth trap right now might be to devalue the currency because that will immediately have a knock on effect. tom: would you suggest they reaffirmation of the communist -- thender president reaffirmation of the communist party under president xi? he needs that growth to provide domestic tranquility. sebastian: exactly. the trade war has hit him at a time when growth by -- tom: president trump hit him?

you view it as credit, putting sanctions on china has had an effect. they were already growing at the low-end of what they regarded as acceptable. now they're going to have to choose between either re-leveraging which they don't want to do because they just spent a whole year or so trying to do the opposite, or devaluing their currency to get more exports. it is an amazing fact that the chinese currency or plus has gone from around 10% of gdp, it is now like .3%. tom: japan went through this were all of a sudden, a big surplus down. sebastian: it would not be crazy for china to say to itself, we can afford to a value -- to devalue and grow more from exports but that would just spread the chinese growth problem to other countries that trade with china and rely on

china as an engine of growth and export market for them. that is how you get emerging-market contagion. you are not going to get it from argentina. francine: sebastian mallaby, who has the most to lose if the trade war escalates or just last at the levels for 20 years? sebastian: i think china is fundamentally a more brutal political system. you have this authoritarian experiment they are doubling down on. you have unknown levels of dissatisfaction in the middle class and obvious dissatisfaction in western china. all sorts of friction and tension. it seems to me that they legitimacy of the regime in china is fundamentally bound up with keeping the growth rate up. how can they continue to keep it up? they have tried in august balances in terms of an export surplus in the past. more recently, they have done it

with dangerous leverage. you cannot run those strategies for ever. i think china is the big variable to watching the world which has reduced poverty by us punishing amounts in the last 20 years but has the potential to go wrong. amounts in theng last 20 years but has the potential to go wrong. i think geopolitically and economically, this is the big story to watch in the next 10 years. francine: how much would that hit the emerging markets? i'm not talking about commodities but the fact that if they need to stimulate internally, they're going to take -- they're going to cut trade. sebastian: in the current environment where the fed is tightening, the dollar is strong. you would expect lots of emerging-market prices.

1992, the start of the years long latin america debt crisis. turkey has an extremely crazy populist leadership, which is in trouble and argentina which inherited problems from previous extremely crazy populist leadership. the rest of the emerging world has kind of whether it this and hasstayed markedly well -- kind of weathered this remarkably well. chinese devaluation would not be ok and then you would see contagion. tom: what is your scale of the valuation? -- of the valuation -- of devaluation? sebastian: i think something more than 5% is going to ripple through.

i can do that. this has been wonderful. thank you so much with your comments on lord patten as well. we need to tell you about something that is really come up quickly. isricane michael -- suddenly on the panhandle in the gulf of mexico as well. please stay with us. we will do some hurricane updates. this is bloomberg. ♪

>> dangerous hurricane michael.

the storm beryl's towards florida and could cause $16 billion in damage. deal.k. in eu close to a officials trying to find a compromise for the u.k. to stay in the customs union as the clock ticks towards the next deadline. correlation breakdown. investors sell equities and bonds -- in bonds. david: welcome to bloomberg daybreak. the big news is hurricane michael. we look at some satellite pictures. alix: unreal. david: it is all about to 4 now. it is moving very fast. if you look at my terminal, the path is pretty much unchanged from yesterday. it is supposed to hit the panhandle of florida about 1:00 this afternoon, but then it moves to georgia and off of norfolk. alix: