francine: global stocks recover after today route. is china a currency manipulator? the treasury department is said to think not, but steven mnuchin can take otherwise. we talk trade war, global growth, and conditions with the finance minister of new zealand. ♪ francine: welcome to bloomberg surveillance. i'm francine lacqua in london. getting news out of the iea, cutting oil demand forecast. still seeing prices high. we did speak to the bureau

earlier on this week. coming up, we have another conversation about oil demand and what that means for traders whether oil should go to 100 barrels or not. 14, othere 81 of story is market sentiment in general. we saw a second day of route. today, things are setting a touch. looking at the stoxx 600, beginning from 0.8%. of it of a bounceback in asian. 10-year gilts stable at 3.17. also coming up, we'll bring you our interview with the u.k. chancellor. we'll talk pound and brexit. let's get straight to first word news with the sebastian salek. he won't fire fed chair jay powell. he blames "out of control central bank" for the selloff.

he claims he knows monetary policy better than powell and his team and says he's wrong. his advisor says larry kudlow is just having fun. never, never attacked the fed's plan or strategy. he has never interfered with that. he's giving his opinion. it's an informed opinion and frankly, i think people should listen to what the president is saying. but the fed is independent. we've always said that. sebastian: the treasury department advised steve mnuchin that china is not manipulating the you want. it would reverse the course of the trade war. although mnuchin could issue a different finding, it comes as the trump administration releases a closely watched report on foreign currencies. and turkey, the outcome of a

cord trauma could make a foregone conclusion. it could defuse the worst diplomatic crisis in decades between the u.s. and its nato ally. it could reduce chances of a rate hike a month after the benchmark in 24%. the uk's chancellor has underlined the importance of striking an agreement of leaving the eu. philip hammond spoke to bloomberg in bali. is atting a good deal vital part of our economic plan for the future. but britain's future has to be as a highway, high skilled economy. it cannot be any other way. that means raising productivity performance. our big challenge is productivity. that's a challenge, but the good news is we're quite a way behind our competitors. that's a reserve we can draw on to fuel economic growth.

sebastian: and the bank of england brexit assumption is looking doubtful. officials look for governor mark carney on new economic forecasts. premised are theresa may has yet to nail down an agreement in negotiations with the european union. they are basing their premise most likely needing rewriting. anksy artwork that shredded itself is said to be keeping the peace. it will be renamed lovers in the bin to reflect its changed state. he installed a shredder in case the work came up for auction. global news, 24 hours a day on air and at tic-toc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. i'm sebastian salek and this is bloomberg. francine: thank you.

let's get back to your markets. stocks in general have stayed robust recovery today. if we look at the boards and some of the scenes in the market, what i want to focus on his u.s. stocks. we bring you to european equities, their gains 0.5%, 0.6%. let me bring you to my bloomberg terminal. stocks overall actually stay robust recovery. strong data from china. and of a tumultuous week. this is my chart of the day, the s&p 500 dropping below the 200 day moving average. we talk about that more. for now, let's talk oil and expensive energy is back. the agency reduced its forecast for demand growth for this year by 110,000 barrels a day, blaming high oil prices but the weaker economic outlook.

joining us for an exclusive interview is neil atkinson, international agency. great to have you on the program. the report says the capacity is 2% of demand and shrinking fast. we also spoke to the bureau, telling us you're not thinking of tapping into your emergency reserves. these are alarming numbers. do they make you reconsider? neil: i think we should try a bit of context year. you said we revised doubt, which helps take a little heat out of the market. on the other side, what we have seen as we approach the onset of u.s. sanctions against iran, it has been a very large increase in supplies from other producers, led by saudi arabia, russia, iraq, the united states. there's plenty of oil in the market, but you're right to

point out that with the uncertainty after november, ongoing concerns about the situation in venezuela, we are running close to maximum capacity in the industry. we stand in our oil report this morning, it's flat-out. less likely to me prices will be supported at relatively high levels. francine: neil, 2019 could be different from this year, which may demand dropping. i'm looking at the return of oversupply in 2019. neil: that is possible, but again, as far as supply is concerned, we just have to wait and see what the final impact of the sanctions are, and what happens in venezuela, and whether other countries that still have such capacities, saudi arabia being less prominent, whether they increase output too. yes, 2019 is shaping up to

possibly be in a situation where supply is plentiful. but there's a lot that can happen between now and the beginning of the year. i think we'll hold fire on oversupply of 2019. francine: what is the discrepancy between what traders say the oil price will go, the fact opec is saying there's not enough demand? who is right? neil: i'm not a traitor. i've never been a trader. they live in a world of their own. we look at the fundamentals. at the moment, there is plentiful supply. and at the moment, we have seen a modest downgrade to demand growth. and we think the likelihood is that if we are to change our it'sd outlook for 2019, more likely to be the downside than the upside. we can't be sure about that. for the time being, we think the prices will remain supported

where they are because of the lack of square capacity. there will still be supply available to the market. the risk is if there's any other kind of emergency or special event that takes place, the market is exposed because there isn't enough capacity available from producers to help. francine: i appreciate your not a trader in the market, but what do they hope to hear to be richard in abu dhabi -- reassured in abu dhabi? neil: as producers are concerned, they will make available as many barrels as the customers wish to buy. that is a position stated regularly by saudi arabia. they will supply barrels to the maximum of their capacity. and that is the best they can do. that should be a message to traders that producers take seriously, maintaining stability of supply.

they also take seriously the fact it is not in anybody's interest for oil prices to rise to dangerously high levels. francine: if president trump unilaterally taps the strategic petroleum reserves, will that help things or make matters worse? neil: it would be an increase in supply. so in some respects, if we are looking for more supply, that is a contribution. of the united states strategic petroleum reserves is at a very high level. there are already sales taking place on the laws passed during the obama administration. there's already a limited drawdown taking place. it's a matter for the united states to decide if they will draw down the spr further, it belongs to them. they have the right to take that decision should they see fit. francine: thank you so much for joining us today, neil.

keep it right here on bloomberg surveillance, new zealand's finance minister joins us at 9:30 a.m. london time from the imf meetings in bali. all the focus is on china. this is bloomberg. ♪

francine: economics, finance, politics. this is bloomberg surveillance. i'm francine lacqua and london. the stocks are not taking their cue from yesterday's equities. stocks staging a robust recovery after the biggest selloff in global shares since february. the stock 600 index gained for the first time in three days, while the msci pacific asia

index was at the lowest level since 2013. futures were also higher. this is a temporary blip in the markets. always rate to see you -- great to see you. thanks for coming on. the kind of volatility we saw this week, was it an overdue correction? .hey did to correct by 4-5% volatility can come back without -- guest: we see the first time since february, but in the grand since the first time since february, but in the grand scheme of things we have a macro certainty, wider range of items going for risk premiums to be put back into the market. this is in line with what we've been seeing.

this is an escalation in trade, or becoming in clear focus is what we're missing this week. francine: are they looking at the wrong research? is sentiment fragile? you see equities going up. guest: i think the market was reflecting higher uncertainty as we've seen growth pretty robust this year. earnings have been robust, as well. we haven't seen the same performance and markets. that was already at play. i think the market will be susceptible to respond to trade conflict, especially one of china and u.s. are becoming center stage. there's a chance of readjustment. we think overall, there's a profit taking that's been happening. after this run that we've seen, hedge funds and others, let's take profit at this stage. we don't think this is

questioning the underlying story, but this is the environment we're in. s&p 500 dropping below the 200 day moving average. should we look below technicals? guest: we're looking at all the angles, but at the end of the day when he to watch, on the one end, the growth backdrop. which still maintains a solid track. the big question is how much of a change the trait knows will be making. one other aspect is the rate adjustment we've seen in the u.s., which is part of the story to some extent, maybe as a trigger. this weak movement is mostly a trade story. francine: is dollar still a haven? guest: dollar is still a haven. the dollar has an strengthened despite global risk off.

this is speaking to the fact this is not a pure risk off we're going through and the dollar is not a major barometer of what is happening. more of a sideshow. francine: when you look at research across the globe, are you focused on china and china regulation? is it how trade is viewed the u.s.? we put out this week a latest outlook and the focus is on trade. the reason why is the focus is because there's a story around supply chain and it's not only putting a tariff between the u.s. and china. firms will need to think about whether they need to readjust or not. we seeing taiwan and other places the last few days, the ramifications of that are not fully understood, and could be bigger than expected. we tried to put a bigger frame around this. again, we don't think this is the baseline yet, but this is a risk. francine: thank you so much.

jean stays with us. coming up, will steve mnuchin label china a currency manipulator? we'll discuss that next. and this is bloomberg. ♪

francine: this is bloomberg surveillance. i'm francine lacqua and london.

china's tencent music entertainment postpone the plans to go public amid a selloff. shares are higher today. for more than $250 billion have been wiped off market value since late january. with more on this, let's get to tim from taipei. how much of this massive drop is related to market turmoil? and how much is related to tencent? tim: it's kind of topping off a tough year for tencent shares. january andback in again in march, and then been downhill from there. a lot of that has been before the most recent selloff, but it exacerbated it and sliced a few percentage points off it. that's what it comes down to. it really preceded the selloff and has been exaggerated by it.

investors need to keep that in mind. francine: what will it take to bounceback? tim: well, at the end of the day, tencent a, is a profitable company. that can't be said for every tech company in the world. and it's a company basically in a pocket of one billion chinese people through its wechat chat ting app. it's got a lot going for it. the product is widely used. they're adding more functionality, funny new ways to get revenue streams. it will bounce back at some point. just whenever investors decide to get back into it. francine: does it have implications for others wanting ipo? or regions as a whole? we're talking specifically about the tencent music ipo, kind of like the chinese spotify, i think this

delay is not a big deal. they don't need the money. they don't need the money. they are not desperate for cash. there's every reason they will still ahead with the ipo. i don't think it will be delayed by a lot. delay means a few days, a few weeks, a few months. if i had to bet on it, it will still be ipo at the end of this year. francine: thanks very much. let's stay with asia in china not manipulating the schwan after bloomberg sources. it slid nearly 9% against the dollar in the last six months. the u.s. trade secretary expressed concern the fallen currency is devaluation. the report could ever an -- avert an escalation of the trade war. jean, if they're labeled a currency manipulator, does it make a difference in the

relationship of the two countries? guest: i don't think it changes the facts or the reality, whether or not they are doing it. i think it's a sign of escalation and the context of trade war. this would be the motivation for this to happen. i have a hard time seeing the impact. i would think it should be interpreted as escalation and what's been already affecting markets. francine: what is your take overall in china? we saw trying to identify the systemically important financial institutions, the regulation being changed, stimulus. do you worry that actually china is more worrisome than we think? aest: china is always dichotomy between the near-term outlook versus a more medium-term risk that has been building. we need to assess them both

together. in the near-term, we think growth has been accelerating, but it doesn't accelerate more than expected. it's in line with taking the steam out of the system. been responding to stimulus. from the near-term perspective, we don't think the growth backdrop is worrying but we'll need to see what happens the on the near-term. francine: thanks very much. new zealand's finance minister joins us from the imf in bali. this is bloomberg. ♪

francine: economics, finance, politics. this is "blooomberg surveillance." sebastian. repeatedtrump

criticism of policy of jerome powell. he says an out-of-control central bank and knows monetary policy better than powell and thinks what they are doing is wrong. his retards are a mark of change from recent policy. -- his remarks. >> his a strategy has never interfered with that. he has given his opinion and it is an informed opinion. friendly, i think people should listen to what the president is saying, but the fed is independent. steve mnuchin says china is not valuing the yuan. although he could issue different findings.

this comes as the trump to issue aion comes different report on foreign currencies. itself isat shredded said to be being kept by the museum. says heagram video installed a shredder in the the piece up in case ever came up for auction. global news, on air and at tictoc on twitter, powered by more than 2700 journalists in more than 120 countries. francine: thank you so much. let's go to bali where finance ministers and central bankers from around the world have gathered for the world bank annual meetings. be astain's future has to a highway type deal economy.

it cannot be any other way. the big challenges productivity. that is a challenge, but the good news is that we are quite away behind our principal competitors. that is a reserve we can draw on to fuel economic growth. >> could you possibly go the u.s. way were you reduced taxes or increase infrastructure spending? >> the issue for the u.k. economy at the moment is that it is operating at full capacity. our problem is on the supply side. we have to increase productivity of our economy. as we do that, demand should take care of itself with wages rising responsibly. there is a brexit negotiation and i have said and will continue to maintain that we will keep an appropriate fiscal

to,rve so that if we need we can intervene to support demand in the u.k. economy. haslinda: a comfortable with where the pound is now? if there is a deal you could to the upside of 17? philip: i have huge trust in the market. we have an independent central that sets monetary policy as a matter of principle. i don't comment on the level of the pound. francine: let's go back to bali hays is.leen guest.n: a very special grant robertson is the finance minister of new zealand. he joins us now to talk about some of the very big picture issues everyone has been discussing.

thank you so much for joining us. trade, we know that is probably the top of the list. what does this trade war mean for your country? what ideas, messages have been sharing? need a rules-based trading system, a multilateral approach is essential for a small country like museum. nobody wins -- new zealand. nobody wins from a trade war. what we are really calling for is an adherence to those roles. we need to strengthen the system. we are not seeking a huge impact at the moment from the tariff war, but if it expands and we see a greater level of tit-for-tat exchange, it will

have a serious impact on our quarters and economic growth in new zealand. if we took president trump's argument, we need fair trade as much as free-trade, is there anything about that argument that is important to new zealand and your exporters or economy, or would you be happy to leave the system as it is or was? grant: there are always opportunity to take the system. new zealand has had to go for periods of adjustment. ,e always need to make adjustments but ultimately, the rules-based system is what allows exporters from a small country like new zealand to compete well. we just want to be able to operate in a market with certainty unfairness.

-- and fairness. unfortunately, this tit-for-tat war is why to affect that. our ability to generate good what werelies on export, which relies on the global growth numbers. we have a number of domestic issues when he to make sure we are focused on. we look out for the world and we want to see global growth continue to be strong and solid. kathleen: the kiwi currency trading lower. is that a bad thing to have a weaker currency? grant: it's down in the mid-60's, somewhat argue is

probably a more sustainable position than where it is. it is still very strong against our other trading partners. australia, we are largely held up. it is a lot to do with the strength of the u.s. dollar, but we are not uncomfortable with where we are at the moment. we can to ensure we have strong fundamentals and our economy. we are running operating services. we are in a position where we are free from corruption. where peoplenomy generally see a currency that to be stable. kathleen: you are looking for a budget surplus through june of this year, about 2.4 million new zealand dollars. why are you giving back some of

that cash? some of that has to do with the timing of expenditure. that money is being spent now in the new financial year. some of it is the result of a higher tax take and a strong economy. we are spending more and investing significantly more in infrastructure, and we have increased social spending, but it is important to have a buffer in our economy as well. does the economy need any more stimulus in terms of infrastructure cuts? grant: the bank has it at the moment they do not know which direction they are going. . we will be disciplined about our spending, but there are areas we need to invest in. kathleen: thank you so much for joining us.

we will send it back to you. francine: thank you so much. kathleen joining us from the imf world bank meetings in indonesia. we started the conversation with you saying yet been focused on trade and what this means for the global economy. i know i asked you a million times, deflationary or inflationary? how difficult is it to judge how supply chains will change? which country moves most? was interesting to hear those comments. so far, they don't hear the exercising ae was rule-based system, which is exactly what is being questioned in this environment. we don't know what the rules are. as a result, i would been curious to see what is happening in new zealand. firms still me to make decisions.

the question is when will they start to make proactive decisions moving production in other directions are other places are just holding back? think we are seeing evidence of that, but it is not very material yet. whether it is inflationary or not, i think pullback from , by itself has to be inflationary. as we are putting more tariffs and barriers, we are increasing production costs. that, overall will be in inflationary pressure. the extent to which it is is still to be determined. francine: what does it mean for emerging markets? the fact that china could be or traderd looking could hit smaller countries with open economies. through your research, are you bullish order do they not have much going for them? jean: the emerging markets are

part of the global supply chain. thinkms of production, having the ability to really give production, where we have a lower cost to produce has been helping keeping costs low and producing globally. i think the em world has been benefiting from the. the em world is exposed to intensification in trade war's intentions. we think it is part of the reason why this year, e.m.'s have been underperforming. basically, this escalation in trade has been putting the spotlight on more vulnerable spots in the em world. it is an idiosyncratic story in a more tense world. with a goal of the stories about the qt and the fed being the cause, we don't think this is a big driver. if we can see trade being contained, we can see em

performing well for the rest of the year. francine: what are the signs that trade is contained? you could also have a trade war that lasts for 20 years. jean: i think no escalation will be already a good thing. gaining more clarity. we have seen the canada-mexico-u.s. taking in the direction in terms of reducing uncertainty. to the extent we see development appeasing. a trade war can escalate and can be there for a long time. it is the uncertainty factor that will start to dense global growth. francine: thank you so much. plenty coming up including the european commission's vice president. 12:00 p.m. u.k. time. we will ask him about italy and also brexit. we will look at italian bond

yields next. this is bloomberg. ♪

francine: hello, everyone. this is "blooomberg surveillance." the european central bank is in no rush to provide more clarity on how his policies will be tightened. when of the ecb's most outspoken hawks says he does not want new policy signals for the rest of the year to see whether the eurozone can withstand global stresses. monetary officials plan to phase out the policies over the year. still with us is jean from blackrock. when you look at euro policies,

is it italy or what the ecb does in terms of unwinding its policies? jean: and is more important for the european outlook. both are important, but i think the ecb is not likely to provide news.e or we just heard they were in no rush. i don't think this is so much about providing signals i think the current environment doesn't justify an adjustment to the policy stance. it is not about being quiet in terms of communication. i wouldn't expect that to change until well into next year. i think the outlook is in-line with the stance we are seeing. as a result, don't expect the ecb to be an important driver of markets. we have been survived by have a tendency of markets to try and see a hawk's desire of the ecb to move early, don't think that

is going to happen. what is more likely to be a driver or news element in europe, i think italy is more important. this has been since the election, a factor that has driven to more uncertainty in european outlook. francine: when you look at italy, are the markets reinterpreting? at the end of the day, it's kind leaders thatpulist have this very uncomfortable coalition that will decide. jean: absolutely. itm a market perspective, creates the fiscal framework in which italy is operating. it is unclear how we are going to see an escalation with the european commission. we have the parliamentary budgetary office in italy that has been making noise around this. we have uncertainty about the fiscal framework in germany.

we also have optimistic forecasts of growth for the next few years embedded in this plan. that is creating an environment that is more uncertain over the next couple of years for europe and italy. in the near term, with think a lot has been in the price. it is not like we expect that to be driving markets, but it is a concern. francine: we are just hearing from mario draghi. the -- is onthat the private sector to prepare brexit. kenya you never be over prepared for brexit? jean: i have a hard time thinking you can be over prepared. thinking about what plans a to be done, especially in the context where we don't have full clarity in that direction. there are scenarios it could be very risky.

i think it's difficult to see how we can over prepare for that. francine: what does that mean? should you look at worst case scenario because we are going to see more volatility? or do you mean a constitutional crisis in the u.k.? when need tohink think of situations where there is important market reaction. we have talked about impact on the sterling. first, there is a market reaction that can be important. for the u.k., that means room to maneuver. ed to be readye to respond. again, we think we are expecting a deal. we are hoping that eventually, we get other noise and it is not a worst-case scenario, but there are scenarios where it could be more rocky. we need to stress this along those lines. francine: overall, what is

pressing the markets? are they expecting a deal in the markets? we even heard chatter of the markets, in some cases expecting a second referendum which doesn't seem to be on the table. jean: these are binary outcomes and are difficult to say if the market is pricing of brexit risk. other.ither one or the think what we are seeing right now is more in line with a smooth transition. it is an old case scenario. i wouldn't expect that to be priced him as we get news that this is where we are heading for. francine: i know you have been following the imf and world bank. are we obama bit too optimistic -- are we and little bit too optimistic still?

alone, you could deal with, but together it could be a perfect storm. imf downgraded, they are taking that on board to some extent at the margin. i think for good reasons because our view is that the bank is solid. if we don't get into a full-blown trade war. we don't see a reason for the cycle to end immediately over the next year or two. i think that baseline scenario is completely reasonable. at the same time, if we were to see an escalation in trade, we would expect that the growth outlook would be positive. at the end of the day, it is a pretty solid backdrop right now. , if the trade can be contained, we can avoid a

slowdown that is significant. francine: thank you so much. stocks overall globally changing a little bit. somewhat even say a robust come out today as a strong day for china avoided the markets after a pretty tumultuous week. this is bloomberg. ♪

francine: economics, finance, politics. this is "blooomberg surveillance." i'm francine lacqua here in london. shares traded for the first time since bmw secured control over their joint venture. shares fell as much as 30% as several brokerages downgraded the carmaker. recommended sellings over what it calls an unfair deal. china's tencent music entertainment has postponed plans to go public.

it was expected to list the week of october 22 according to the financial times. the company and bankers have made the call not to proceed. that is the bloomberg business flash. francine: thank you so much. surveillance" continues in the next hour. tom keene joins me. the main questions we want to put to the commission vice president is italy. what happens if the italians start to fight the rules and brexit. this is bloomberg. ♪

francine: the selloff dwindles down.

global stocks rally. suggest a bounce back. is china a currency manipulator? the u.s. treasury department is set to think not, but secretary steven mnuchin could say otherwise. losses reached $250 billion since january. good morning. this is "bloomberg surveillance." i am francine lacqua in london. tom keene in new york. we look at the markets. after a tumultuous week, i would suggest there is a reprieve today. let's see what happens during the day. we had some news out of china giving a lift to the markets. tom: a little information flow does that. we saw that yesterday. we were -300 and came back nicely thursday morning, and then it just disappeared. i think there is a real tentativeness about what friday will bring as accounts settle to an october monday.

francine: let's get to the bloomberg first word news in london. this could be the day of reckoning for an american pastor at the sent of a diplomatic dispute. he has been detained for two years over his alleged involvement in the 2016 coup attempt. the u.s. has imposed sanctions on turkey over the detainment. u.s. treasury has said china is not manipulating the yuan. steve mnuchin's staff has not found evidence to do so. record $34 billion despite u.s. administration tariffs. washington and beijing have imposed tariffs on billions of dollars worth of goods. china might have rushed out

existing orders before tariffs took effect. more fallout from saudi journalist, billionaire richard talks with suspended the saudi wealth fund. the allegations are true, it would change the ability of anybody the west to do business with the government. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am sebastian salek. this is bloomberg. tom: thank you so much. let's go to a data check. it is not a bear market. nevertheless, so two days in a row. 173 with curvep 31.32ning from a level. we move on to the vix.

there is the doubt closing yesterday, down 500 points after down 800. en still showing strong yen. i put in renminbi to give francine happy. francine: i am always happy. we understand from our sources at treasury in the u.s., they manipulativenot its currency. we will see what steve mnuchin has to say. from chinae ratdata seems to be bouying markets after a tumultuous week. we spoke to the iea. tom: it will be interesting to see brexit with sterling. where are we in the correction market? we are nowhere near bear market. we are nowhere near the correction of february. for the same level of angst, you

can do this on a log chart, 2015 angst and 2016 angst. that is where we are now. we have not seen a bear market in ages. francine: we have not seen one in ages. that is something to keep an eye on. the italian bond market is kind of always in a bear market. i love this chart. thank you to hillary clark. we are also looking at technical levels. let's talk more about the markets in the week that was in the week that will be next week. let's bring in gene frieda, pimco global strategist. when you look at the market correction, was it overdue? does that mean we will see a little more volatility, or does it mean something ugly could happen anytime? >> i think a lot of people

thought it was overdue with the extent to which the u.s. was overdoing everyone else. we got a clear catalyst. from that perspective, i think the resilience of the market after the powell speech was a little surprising. it took a few days, and finally the market keeled ouver. as a functions up of the fed getting into more hawkish territory. francine: do you agree? stocks areu.s. overvalued. overall, just overvalued is the way i would describe the equity market. tom: patrick, i have been dying to talk to you. the basic theme of the last 48 hours is from the pros they have not seen the debt market break. the high-yield action looks pretty solid. do you buy the idea of distressed debt is an indicator

of equity solidity? patrick: i'm not so sure. i think distressed debt is an indicator of economic strength. i have no doubts about the u.s. economy. i think it will be driven well by late cycle fiscal stimulus. i am not concerned about earnings rapidly deteriorating. it is just that we are priced to perfection. you rarely get perfection for an extended period. we have had perfection with tax and my concern is more on equities. wage growth is moving higher. a lot of things have been tailwinds. i think they run into headwinds in the coming months. pimco owns half the bonds in asia and europe. the main theme is remain calm

and carry on. should we remain calm? what is the reality of pimco? are you going to cash? i think i sent tom: on this program a couple of months ago -- tom:we wrote it down. we know that. gene: that's good. we are at a point in the cycle where bond market volatility is still reasonably underpriced. it is a point in the cycle where that should start to pick up. policye to see convergence between the u.s. and the rest of the world. that creates policy uncertainty. to francine's point, china, there is a lot of uncertainty in china right now. you are seeing the currency becoming a little more unhinged, which we think it should in slowing growth environment. vola is the most important suppression story in the world. aat is telling us to be

little more careful and everything. francine: what do you mean by unstuck? could it all go horribly wrong? gene: you never know until after the fact. the time to be worried if you have a leverage problem is when you are actually dealing with it. that is what china is trying to do. behind this trade dispute is china trying to manage a gradual deleveraging process, meaning weaker currency and letting pressure out everywhere. the fed cycle makes that more challenging because ultimately china wants to be easing into this. instead they have to focus more on fiscal policy. i think china also has an intention to make the currency over time.le from that perspective, it is to be difficult for it to avoid being a bad unstuck. francine: what is your take on? patrick: they will be facing

volatility in the long term. they have tried to avoid that. china has wanted to create an orderly move. rising or falling against the dollar as it suits them. it gets unhinged at some point against a backdrop of higher rates in the u.s.. if you get a slower economy in china, that is when he will see real volatility there. tom: we have seen a rationalization that the equity markets are linked to china. we have seen china weakness in the yuan and no manipulation by the government. do the equity markets in the u.s. hinge on china growth and china action? patrick: i think that is one verbal. i don't think it is the most important variable. i think it would become the most important variable if you actually started to see the chinese economy becoming unstuck. so far they are managing it pretty well. from that perspective, i would

say china is a risk factor, but i don't think it has been the key driver of this selloff. tom: thank you so much. gene frieda and patrick armstrong. a good conversation this hour. coming up, bloomberg daybreak, important voice in europe and for the baltic states. will this some process join us -- well this dombrowski us will join us. stay with us. this is bloomberg. ♪ is bloomberg. ♪

>> this is "bloomberg surveillance." i am sebastian salek. lloyd bank has selected blackrock to manage index strategy.

a $143he start of billion portfolio currently managed by standard life aberdeen. they will also pursue a partnership with blackrock in risk management. picked goldman sachs as a lead underwriter in what is expected to be the largest ipo ever. the mobile operator begins marketing the sale next month. sales would begin on the tokyo stock exchange next month. bloomberg has learned that the company swiss court could fetch more than $3 billion. after racking up assets selling off $3 billion in assets. francine: thank you very much. the royal wedding. tom:

renminbi. i talk about the royal wedding to keep tom happy. images for those of you. for those of you listening on radio, it was the place that megan and harry got married. it is windsor castle. it is historic. another star-studded royal wedding. this time it is princess you jenn -- eugeni. the heritage up last night with a scotch in my hand. the duchess. there is massive interbreeding going back to eight generations. francine: i know that you asked me what about prince george. the only thing i know is he will be a page point. we are waiting for the darling images of the page boys and page

girls. tom: francine lacqua is england. getting the effect on trade or the markets, maybe it is a separate discussion. patrick armstrong from plurimi wealth and gene frieda from pimco as well. have we seen trade of facts? -- effects? seenmco, have you actually tangible trade effects? think we have seen very little in the actual macroeconomic data. i think it is part of what has been affecting markets this year, affecting currencies, confidence. if you were to ask me relative to the start of the are what has happened to emerging markets, had you not had this trade uncertainty, i think you would have seen far better performance from a growth standpoint and equity as income standpoint. yes, it has had effects.

patrick, it simply comes down to the back and forth and acrimony as well. it seems tangible. what is the outcome of the next step of a trade war. if we get further tariffs, what will that do? terrorists are essentially a tax on the consumer. tom: thank you. patrick: you have higher oil consumption and higher prices. that is a tax on consumers. the u.s. is the consumer of the world. they see that from tariffs from exporting countries. that hurts their profit margins and growth. different countries feel it differently. it is a tax if you are a consumer. maybe a volume headwind if you are a producer. francine: is it really a trade war, or is it just talk of a trade war? gene: it is getting close to a trade war. i still say it is not a trade war yet. we should remember these numbers

came out pre-tariffs. people were buying in advance of the tariffs. i think that is giving the market a false boost right now. francine: you think the fed will look at numbers looking at trade erasing impact and therefore delay hiking? know. i think the fed is behind the curve already. two years ago when yellen had to hike against the backdrop, the house is in a very different environment right now. unemployment is down below 4%. i think the u.s. can look at its own economy right now. it does not have to worry about unsettling the rest of the world. it has enough economic momentum. we are not near a crisis point like we were two years ago. francine: do you agree? patrick: i agree with a lot of

that. to the extent that tariffs are coming into effect, it does increase inflationary risk. unfortunately it is stagfla tionary risk. it does not make the fence life any easier. it does add to this notion that there is more risking them in the bond market. we saw term premiums move last week. we think they need to move more. there is a lot of uncertainty. francine: a lot of uncertainty that will play out how in the market? will we be more fixated on six months? gene: we talked briefly about credit and high-yield. i would say the same thing about credit that patrick said about equities. we think high-yield and credit are overvalued. we want to be cautious with those. a point inu are at the cycle where you should see volatility go up. that is bad for credit. on the emerging markets side,

that is where you see a lot of these risks better discounted. that does not mean em is cheap, it is just better discounted for the risk at hand. tom: gene, what do you do on a friday? do you sit in cash? is there something you can do with cash at pimco? gene: i think you get paid quite dated fixed in short- income. for taking very little duration risk, you can be in very liquid instruments. recognizeat, we also that this trade war so far is a phony war in a certain sense. it could get very ugly. trump may turn on a dime and we could get a trade deal. global growth is actually pretty strong another we want to look for things we think are

discounting a more extreme negative trade scenario like him longing markets and be those things. francine: thank you both. gene frieda of pimco, patrick armstrong of plurimi wealth staying with us. bloomberg users can interact with the charts shown using gtv . tom has some pretty cool charts. he sometimes breaks into dance and song when he shows his charts. i am showing the 200 day moving averages. you can use them on gtv . this is bloomberg. ♪ s bloomberg. ♪

francine: this is "bloomberg surveillance." eugeni is tying the knot in windsor today. anding quite like meghan harry's wedding, but they are expected to make a guest appearance. tom: very good. there it is, once more coverage from windsor as we move on. right now with patrick armstrong and gene frieda, we need to look at the vix and volatility. let's frame it to february. we remember the mass blowup in february. vix.gliness out to a 40 gene frieda, up a little bit.

how does pimco use volatility? do you use the vix, or is that beneath pimco to even consider? gene: you may know that we tend to be bond investors more than equity investors. we do not actively use the vix. i think we find, to harp on bonds a little bit, we find the bond market is a wellspring for volatility. nextink this move in the emanates inm -- vix the move in the move. this is multi-decade lows being way out of whack. that is going to start to feed the equity market with more volatility. tom: how do you take advantage volatility?" patrick: it is a great hedge for

us because we are long german volatility. there is a lot going on in the german banks. it was priced a month ago, implied volatility was very low. it is not going to double. that is et where you see the s getting blown out of the water. francine: thank you both. gene frieda of pimco and patrick armstrong of plurimi wealth both stay with us. coming up next, global director of research, raffaella tenconi. that is 6:30 in new york. this is bloomberg. ♪ bloomberg. ♪

tom: good morning, everyone. francine lacqua in london, i'm tom keene in new york. turning to the bloomberg futures up 24, dow futures up 124.

we have a nice bounce. we had that yesterday morning. we will move forward to bank earnings. we look for jpmorgan, mr. dimon on the market call. there will be a discussion there . turn to the issue of saudi arabia and turkey. speak to marty schenker in our next hour. in this hour, we take a broader champion, with his decades of review of the international relations. mentioned in the new york times today is so true. these are two forceful powers in turkey and saudi arabia and on a wide set of issues, they do not agree. the muslim brotherhood, what is the distinction between the muslim brotherhood and mr. erdogan?

for saudi arabia, they are a terrorist organization and a security threat. they are the enemy. he saw themhe one, as rising up in the arab spring them asrdogan, he saw rising up in the arab spring and as the vehicle for spreading influence across the middle east. -- it did not work out that way. they remain on either side of a lot of the issues and for example, the blockade that saudi arabia imposed on qatar, turkey lined up with cutter on that. there is a fabulous book about the arab spring, about the disappointments. there is no sense of arab spring here.

this for of autumn is saudi arabia given the turkish economic tensions and given the need for the royal family saudi arabia to establish power? what is the present tension? these are somewhat different stories. hashe turkish case, erdogan consolidated power effectively in theown hands and process, dismantling a hope for democracy in the middle east. at the same time, the economy is in freefall and he has to find ways of dealing with that and he is working a difficult dynamic, blaming the u.s., the west in general for conspiring. his economy is dependent on western finance. in saudi, you have a new crown prince who is trying to reform the economy.

his heavy-handed tactics, for putple, a year ago when he a bunch of the wealthiest businessmen in the country under arrest and shook them down for billions of dollars in order to get their freedom, that does not work so well before you're trying to do is develop a western program. tom: a level of upper in the united states. these leaders, do they listen to the outside world or are they alone in their own space? marc: that is a good question. oversimplified answer is it

is more the latter then it would have been years ago. cases, today in turkey, you have the american pastor, america -- andrew bahnsen -- andrew bronson. sparsebeen on trial on evidence for conspiring to bring down the government. that the turkish government is willing to bring that kind of case against an american citizen and not worry about the consequences. the saudi case, similarly. they are crushing dissent at home. that is nothing new. to take a dissident living abroad and who is writing columns for "the washington post" shows a disregard for what the u.s. and the west thinks

that would not have been there a couple of years ago. tom: thank you so much. marty schenker will discuss this with us here. mark champion of bloomberg news. the bloomberg media is among organizations sponsoring an event in saudi arabia in the coming weeks. we are monitoring the situation. this is "bloomberg."

francine: this is bloomberg surveillance. francine and tom in london and new york are at -- new york. here is sebastian salak. sebastian: the price tag for hurricane michael could be $25 billion.

the storm devastated towns in florida. disaster modeler said private insurance could get hit with up to pen billion dollars in claims. that will not be covered by insurance. partner is no longer being considered as the next ambassador to the united nations. she plans to stay. president trump called powell twice about the job. nikki haley is leaving at the end of the year. the international energy association is cutting forecast for oil demand this year because of threats to global growth. it warns dwindling supplies will keep prices high. it says expensive energy is back. oil climb to a four-year high in london last week. the chancellor says reaching a brexit deal with the european union would improve the economic outlook. he spoke to bloomberg at the imf meeting in indonesia. >> getting a good deal is a

vital part of our economic plan for the future. has to be as an economy. that means raising our productivity performance. our challenge is productivity. are a wayews is we behind our competitors and that is a reserved we can draw on to fuel growth. sebastian: global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm sebastian salek. this is "bloomberg." thank you. the italian parliament has voted in favor of the fiscal outline which includes a higher target for 2019. this has not settled markets and has been criticized by the european union. joining us now is raffaella temconi. still with us is gene frieda and patrick on strong. great to have you.

what are we expecting today? we have in speaking to matteo salvini. do you worry about what is in the budget? raffaella: good morning. i think the biggest issue is more the fact that the italian government does not seem to be what is itsaining growth model and how it is going to go about it. e.u.ensions between the and italian government are here as we get into the european elections next year. although the parliament has there arehe budget, institutions that will criticize it and demand adjustment. i would not take off the table a downward reduction in the deficit will take place. are people underestimating the tension between the five star and the

liga? this is an uneasy coalition. it is almost impossible to come up with a budget given what they want. it is an italian marriage so it is fiery. francine: i am in one. tom: i am not going there. francine: will it end in early elections? raffaella: absolutely not in 2019 and 2020. both parties coexist well. they share the fact they believe in politics from the bottom. they share a view they both need to broaden their voter base, one south, one north. there is not any real viable alternative. tensions i think the

is largely intentional to show the parties are distinct. tom: good morning from new york. . love your work you have got to go out to analyze debate act 88. there is a phrase which is fabulous. what are european of values? francine lives them every day. well, european values thewritten the treaty or interpretation of voters because we survey a lot of voters so we get their views. european values are democracy, social boppers, and peace. -- social buffers, and peace. there is a disconnect between socialters understand

boppers and democracy. buffers and democracy. they complain that they have , they associate the european union as short-term with fiscal policy. tom: someone was with us the other day who was brilliant on the fascism of europe. us about the sense of fascism and authoritarianism we are seeing. is it tangible or is it just a moment? i think there is a growing trend that is not going to stop soon in favor of nontraditional parties. recently published a study that showed there is a 50-50 chance that in the next european election, you will see the status quo continuing or a

complete change in the results. salvini leaving the next european party. in countries like germany, where , there is as great steady rise for the nontraditional parties. i do not think you can turn around that with any of the policies on the play. francine: are you buying unds?-term b patrick: we buy it when it is yielding 3.1%, 3.2%. are you adding to it? i think our view would be that to use the marriage metaphor, well that is intact, we do not want to be in the house. francine: what would make you change that?

elections, would that make you more easy with the currency situation? gene: the market would like this notion of a center-right government. i do not think we would feel confident it changes the dynamics or solves the debt sustainable very -- debt sustainability problem. persist and it turns into a collision at some point. until you have that, it is hard to see why should get excited about italian debt. themes has been the collision unilever faced and theirean values domicile in the netherlands. has it been a good week for the city? did we reaffirm you need to do business in the city of london? is always going to be a hub for finance in europe.

the question is, how much it diminishes. it will always be a focal point for europe. tom: to come back to your good work on europe, what are you watching? to get briefed into october and into the end of the year. what are you watching, what authority, what institution? i think it is worth keeping an eye on secondary the italians will have minor elections in october, where salvini is trying to run. it will be good to see how the parties fair. there are german elections twice. it will be interesting to see how the greens perform. localo have polish elections which could be interesting because eastern europe is a part of this. the critical element is to see

how the groups in the european parliament will rearrange themselves. where macron will go and where eastern europe will side on this debate. first salvini to secure the next european parliament, he will need a party in germany and he will need eastern europe. moment, eastern europe is skeptical but everything is up for sale. i'm sure there can be a deal struck. tom: is that the name of your next book, francine, everything is up for sale? francine: it sounds like what surveillance is about. i am kidding. is work tois there be done in brussels if they are going to convince the electorate that europe is benefiting them. i do not know whether that is priced in the markets. is there a communication problem from brussels?

there is public discord about what europe is giving to the general populations on immigration and tax. euro inare still pro- every country, even in italy. 60% of the people in the people in italy want to remain part of the euro. there is support for the objectives and what is being achieved with the union, facing issues from populists on the left and right. are you buying periphery bonds at all? i mentioned greece -- do you like spain or portugal? gene: we have preferred spain over italy. in an environment where we have seen no contagion risk, it makes us more cautious. we are neutral on the periphery overall, underweight italy, overweight spain.

we do not feel comfortable some or else in the periphery. francine: when you look at the decision brussels has to take, italy and other distractions going to mean that brexit is going to be a second priority? raffaella: brexit is a bigger issue right now. definitely, italy will remain a difficult child. it will continue to take a fair amount of attention but brexit is a bigger issue. francine: thank you very much. raffaella temconi, gene frieda, patrick armstrong. coming up, the former chief economist of the italian treasury at 8:30 new york. this is bloomberg. ♪

francine: this is bloomberg surveillance.

tom and francine from london and new york. tencent, theabout giant has been hit by a record-breaking selloff that has wiped out $250 billion of its market value since january. the losing streak might be over as its shares ever is in up to a percent today. -- up to a percent today. -- up to a percent today. how much of a concern is the recent market turmoil? the market turmoil is clearly being carried over into tencent and is a proxy. growth story for many years because of people optimistic about china, the middle class getting their hands on technology. , tencent is in the firing line. francine: what needs to happen

for the share price to recover? will it bounce back? we have seen it recover today. it was up last time i saw. times forwardt 20 earnings which is what its peers trade. google trades above it. what it is doing and the reason for skepticism is it is spending a lot on diversification. free cash flow's dipping a bit. in the long-term, the hope is that pays it off -- that pays off. tom: let me bring up a chart. tom two dollars a share up $200 plus a share. it has come right down on the moving average and reinvented itself. yesterday saidds

once again, tencent has to reinvent themselves. if they look for that if, what is the new life going to be? -- what is the new like going to be? alex: tencent is one of the big , which is theeo response to tesla. they have yet to have a car selling. electric cars is a new platform through which it could pump its services. it thinks that as well by the amount of money it is spending audit. tom: do we know the auditing of tencent? is there a transparency of management? look, they report exhaustive earnings. we have got the full numbers.

i am not a forensic accountant so it is not for me to say. i think we will have good clarity on where they are heading. tom: alex webb, thank you so much. coming up, what have we got? the markets, the recovery, futures up 24. we have got bank earnings, mr. diamond will report. the balance at sheet of jpmorgan, go police the headline data -- go beneath the headline data. the conversation today on cash flow. you must listen to david earl. this is bloomberg. ♪

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"all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. tom: this morning, a bid to equities. the nasdaq touches a correction.

the dow down 1400 points. it is halfway there. the global elite set remain calm and carry on in this hour. the chancellor of the exchequer. she does not believe in shooting stars but she believes in shoes and cars. amhin the oval office, i told it is kanye. this is bloomberg surveillance live. dazzled at my quoting of flashing lights and shooting stars. kanye with the president yesterday. tom: i am dazzled at your headlines, dazzled at your singing. if you look at european equities, i am looking at stocks staging a recovery this friday. with the china story, one of our

top things we are looking at. tom: right now, you need a news briefing. sebastian salek with our news. sebastian: in turkey, this could be the day of reckoning for the american pastor at the center of a dispute. andrew brunson has been detained two years over his involvement in a coup attempt. he appears in court today and the u.s. has imposed sanctions over the matter that rocks turkey's economy and damaged relations between the two countries. the u.s. treasury department staff has told steven mnuchin that china is not manipulating the yuan. president trump has pressured mnuchin to declare china a currency manipulator. the staff has not found grounds to do so. if mnuchin agrees, that would avert an escalation of the trade war. china's trade surplus with the u.s. rose to a record $34 billion despite tariffs. exports increased by 13%. washington and beijing have imposed tariffs on goods. china may have rushed out existing orders before the

existing tariffs took effect. more fallout from the disappearance of jamal khashoggi. richard branson has suspended talks with the sovereign wealth fund about investing in virgin group space companies. if accusations that the saudi's are behind the disappearance are true it would change the ability , of anyone in the west to do business with the government. global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm sebastian salek. this is "bloomberg." tom: thank you. bonds, currencies, commodities, a lift to the market. dow futures up 177, the curve flattening with that risk off feel. there are interesting nuances. we will get to the remnimbi. the euro churning. 24 comes back, 22.5

a. -- 22.58. yen strength over the past three days. this is below the radar by china today. yuan weaker this got the zeitgeist last night about 7:00 p.m. in the morning in china where china is saying we are going to run our currency. think by speaking to industry experts and people on the trading floor that this followed our report that said u.s. staff concluded china is not manipulating its exchange rate. it is a different matter to whether secretary mnuchin then says they did. i am looking at stocks overall. we are seeing this broad recovery. we did have strong trade data

from china. a gave the markets the buoyancy it needed after a tumultuous week or -- week. tom: we have shown this chart two days in a row, correction to the bear market. in february, we did touch a correction. -ish.d get the dow 22000 we are nowhere near a correction. i did want to come back here to 2015, the last time we had angst. , incine: i like your chart like the fact we brought it longer-term. this is more short-term but it goes to the same narrative you are trying to portray. the first time we are seeing a gain in three days in europe. on are seeing pressure industrial metals and the s&p 500 dropping below the 200 day moving average.

i would suggest looking at technicals as well. tom: very good. let us continue our coverage. we are looking at turkey, saudi arabia, we have a perfect gentleman to speak to on the andnalism of mr. khashoggi the impact on the meetings in saudi arabia. martin schenker is bloomberg's chief content officer. the journalism fronts, many people are monitoring. bloomberg is monitoring the situation, translate that. looking ateans we're how the saudis respond to these calls for transparency. we are participating in the conference. we will monitor the situation and see if it changes. that aat i noticed is decision is being made by business people and that involves bloomberg and the

terminals. i notice james dimon has to make a decision. blackstone has to make a decision. sir richard branston made a decision. have learnedwe about how executives are choosing. marty: it is interesting. issueis the short-term and the visibility surrounding the murder of a journalist or at least the disappearance of a journalist and the longer-term issues about doing business in saudi arabia. you have to figure out a way to balance that. in that these days of instant media and social media, the or over this case has made it a difficult decision for businessman to participate or do you worry about the long-term relationships? tom: there is also the

relationship with turkey. two strong-minded governments, authoritarian leaders. this is a moment where they are clashing. marty: it is fascinating how the turkish government is giving the saudi arabian leadership room to become transparent by dripping out information on this case, day after day. is a report that there is audio and video. tom: we have seen that reporting here in the last 18 hours. i want to go back to one more question and this goes to marty schenker. i was at a dinner with you about journalists getting murder. folks, let me get this straight. me, not real journalist. shanker, real journalist.

this is serious stuff. it has been a bad year for journalism. marty: it has. borders, thehout board on which i said, it points out there have been more murders this year than all of last year. it is serious. are freedomat all of expression. tom: marty schenker, thank you so much. he is our chief content officer. the future investment initiative is what we're speaking about in saudi arabia. media is among organizations sponsoring the event and we are monitoring the situation. this is "bloomberg." ♪

sebastian: this is bloomberg surveillance. i'm sebastian salek. lloyds bank has selected blackrock to manage $40 billion of assets and index strategies. it is part of a $143 billion portfolio currently managed by standard life aberdeen. lloyds will pursue a strategic partnership with blackrock investment technology group. softbank has picked banks including goldman sachs and nomura as lead underwriters for what is likely to be the largest ipo ever. softbank's wireless business plans to sell $27 billion of shares. the mobile operator begins marketing the sale next month. shares will be listed on the tokyo stock exchange december 19. hna is in talks to sell its airport cargo handling company to brookfield. the company swissport could fetch more than $3 billion. hna is selling off assets after racking up billions in debt from a global buying spree.

that is the business flash. tom: thanks. the financial times noticing there is a new project. labs,l be advising spring this is something no one is surprised by. he tells the financial times it is an obvious place to take an analog industry and digitize it. talk mr. diamond will about that today on the jpmorgan call. cohn looking at blockchain. trying of a year has it been? has it been a good year or a struggle? >> frustrating, frustrating.

this has not been a year for fundamental analysis. and itnomy is good should be driving earnings which have been good this year. the market pe is going to be flat because rates are going up. the future dollar value goes down when that happens. we would think you want companies that are straight he -- steady growers. it is more revenue than earnings. the gap between the russell growth and value have widened. ?om: do you have a why david: part of it is index funds. aboutrgest companies, half of them, are not good at cash flow. amazon is breakeven cash flow. netflix loses money. those two are up somewhere between 50% and 75%.

money they make a lot of in 10 years, it is not worth that much. value stocksside, are at the cheapest ever invaluable is not what you think. semiconductors are one of the whichst groups and banks, we are about to talk about, have remained cheap even in the face of us profitability ever. bank of america has had its best profitability in history and has treaded water. look at theen you financials, who is going to win and lose? does it depend on volatility? david: not so much. you create value by generating cash. bank that needs access to reserves, jpmorgan is going to buy back a lot of stock this year, over 5% of outstanding. bank of america, the same. spent $16erica has

billion in cash paying penalties. it comes to shareholders. tom: i want to say why this is so important. wrote a book on shareholder yield. if you have the money, what do you do with it? is it normal to buy back stock? have we morphed into something new? david: the good companies of think of it as a discipline. you grow when you can. of good growth is a return on invested capital is higher than your cost of capital. 6%, you need at 15% return. if you just say i'm going to grow for growth strength, you may never get money back. 70.lways by a dollar for $. phrases, theo take

discovery of price, looking for price discovery. the other is this new religion of scale. we have got to build revenues but we want to discover price. discuss that. thed: what has happened is market has gone to a momentum focus. have exacerbated this because they are market cap waited. amazon is the second largest stock in the market. every time you buy in the etf, you are making a bet these large companies, regardless of valuation, regardless of value creation, are going to go up. the activists goes, there is an opportunity. the gap between companies we think are creating value and those big companies keeps widening. we are seeing more value. tom: it is going to end.

we had the conversation 20 years ago but this time is different. how is this going to end? david: istria's -- interest rates are going up. think of tesla, how are they going to raise money? tom: tesla is not a value stock. it is a friday question. what is in a bubble right now? is there something you would sell? david: basically, number one would be netflix as well as a large stock. -- as far as large stocks. they can grow revenues because they are underpricing. they are losing $4 billion of cash. they have to raise money every six months or they run out. even the markets of this year, people have been happy to lend the money. that may end.

the second thing is you're going to see price discovery come back. you will see private equity, strategic buyers, by some cheaper stocks in a sector rotation. we have seen that this week. does that continue? it is the first week that by has outperformed growth in a long time. -- that value has outperformed growth in a long time. francine: does it continue? david: it begins to. we believe up, which they will, it does change the dynamics in the market. you're going to want companies that can grow earnings at a steady pace profitably player the discounted value of those dollars 10 years from now is lower. that is going to be the difference this year. tom: david pearl with us as we look at use of cash, an important theme as we look at the markets. the courage to stay in the

markets. maybe we will have the courage to look at banks. the value of the bank of america is one example. kenneth leon will join us. stay with us, worldwide. this is "bloomberg." ♪

tom: bloomberg surveillance. francine lacqua in london. i'm tom keene in new york.

we digress away from the markets. terry haines, the senior political strategist, head of midterm analysis. line onyour general these exciting midterms? the midterms result in divided government in washington. is, itu're going to get is becoming more political consensus, is that there is a likelihood that what you get is a democratic majority house with a tying majority, tiny. senate that isn more republican than it was. what you get is a return of the divided government scenario that characterize the last few years of the obama administration. tom: is gridlock good for president trump? >> gridlock is good for markets.

the interesting thing about trump is i look at trump as running a coalition government with republicans. he is able to outreach to democrats. what you're going to hear about after the election is him trying to work with democrats on them for structure. you are going to get a lot of buzz on that. what will happen in the next two years is markets get driven by political buzz but not a lot happens. francine: what do people vote on in midterms? is it their economic situation? is it the trump base giving their support? what do they vote on? sure, i think the biggest difference between the united states and european parliamentary democracies is that the elections here are more

localized. this midterm is all 435 members of the house and one third of the senate. in these elections are more like last -- these elections are more localized. to think it is about trump for or against. the joke is, people hate congress but love their congressman. there is that. what they vote on is economics, different social issues. they vote on the conditions of their pocketbook and there is the spice here, is pro-or anti-trump. they got more interesting with the kavanaugh confirmation. thecine: kanye west goes to white house and says the trump had makes him feel like superman. does that translate into votes? >> i do think that does.

my view of celebrity endorsements, whether it be kanye west tort taylor swift -- west or taylor swift, it may translate into votes but it also translates into antipathy. thinkare people who taylor swift is excellent for having done what she has done but there are a lot of people who are disappointed. tom: terry haines, with an update there, 20 plus days to the election, getting down to it. let me tell you about tv . you can see us streaming at your terminal. sound on, sound off, we do not care. this is "bloomberg." ♪

comcast business built the nation's largest gig-speed network. then went beyond. beyond chasing down network problems. to knowing when and where there's an issue. beyond network complexity. to a zero-touch, one-box world. optimizing performance and budget. beyond having questions. to getting answers. "activecore, how's my network?" "all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. tom: good morning, everyone. francine lacqua in london. i'm tom keene in new york. we're watching the markets, futures up 22. they have been stable. francine: they have.

i am looking at the rebound after the falling out of bed we saw yesterday. things seem to be stabilizing. everything can change. let us get to first word news. here is sebastian salak. the price tag for hurricane michael could be $25 billion. the storm devastated towns in the florida panhandle. a disaster modeler said private insurers will get hit with up to 10 billion dollars in claims. about half the damage would be covered by insurance. daimler powell is no longer being considered the next u.s. ambassador to the united nations. president trump powell twice about the job. nikki haley is leaving at the end of the year. the international energy association is cutting forecast for will demand this year because of threats to global growth. it warns dwindling supplies will

keep prices high. the iea says expensive energy is back. oil climbed to a four-year high in london last week. global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm sebastian salek. this is "bloomberg." thank you. financeo to work ministers and bankers have gathered for the imf annual meetings. philip hammond has underlined importance of-- rising productivity ahead of britain leaving the e.u. britain's future has to be as an economic -- the big challenges productivity. we ared news is that quite a way behind our competitors. that is a reserve we can draw on to fuel economic growth as we

find the key to unlock that challenge. way,uld you go at the u.s. -- could you go the u.s. way? >> the issue for the economy is it is operating at full capacity. our problem is not on the demand side. it is on the supply side. we have do increase productivity and as we do that, demand should take care of itself, wages rise in response to higher productivity performance. because ofncertainty the brexit negotiations. i have said and i will continue to maintain we will keep an appropriate fiscal reserve so we can we need to, support demand in the u.k. >> are you comfortable where the pound is right now? if there is a deal, we could see the upside. in the market to

effectively price all assets, including currencies. we have an independent central bank that sets monetary policy. i do comment on the level of the pound. -- i do not comment on the level of the pound. francine: that was philip hammond at the imf world bank meetings. joining us now is the person who writes the brexit bulletin. i encourage everyone to sign up for it. today, you sum it up nicely. theresa may needs more support at home to sign a compromise deal. >> that is right. edging hear is they are toward a deal but there is no final text. there are wrinkles to be ironed out. the main wrinkle is over the

irish border and the issue is causing theresa may the most heat at home. they have got major concerns about the compromise on the table. interesting to here philip hammond saying if there is a deal, that buffer he is keeping an reserve could be spent and that does seem to be a message, do not fight theresa may on this. let us get this done. it is in everyone's interests. francine: when you talk about , they prop up theresa may, would they pull out? if they pull mean out? so, they have had harsh words for theresa may in recent days. the leader was in brussels.

, or thetion consideration has been that foster would support may because the alternative would be a jeremy corbyn government. there is no way that the northern ireland would support a jeremy corbyn government. there have been commentators have put on the table that the labor position on brexit is more palatable because it would keep the u.k. together. it would not risk regulatory borders. that is in the mix. for anyone who has watched, do not underestimate the dup. in december last year, theresa may did call their bluff. yes, we could see that reputed. there are other things they could do to keep them on side.

the resolve should not be underestimated. tom: is there a brexit fatigue? day after day, we are going through this. the calendar is moving on to eight moments. across the united kingdom, is there a brexit fatigue? >> not him bloomberg. -- not in bloomberg. it is something lawmakers are thinking about as a way to vote. one of the things is, what do my constituents want? what a lot want is for this thing to be done. some of the other issues which have been neglected can be dealt with. that is an lawmakers minds on both sides. tom: thank you. we have got more coming up. we have david pearl with us.

jpmorgan as well. on radio, your morning briefing post to both -- coats -- coast to coast. new york, boston, washington, digital worldwide. this is bloomberg. ♪

sebastian: i'm sebastian salek. let us get the business flash. was spreading misinformation in the u.s.. most of those were american base. they could come under fire for allowing foreign interference in u.s. elections.

business planning software and a plants has raised $263 million in its ipo. top ofwere priced at the the marketing range and plan to compete against oracle your the stock begins trading today. bloomberg has learned that the u.s. is investigating whether broadcom and ca technologies were a victim of a stock manipulation scheme. the probe has to do with a memo about -- broadcom says the memo is fake. that is a business flash. tom: thank you. we are awaiting jpmorgan earnings. we will speak with david pearl. earliers you mentioned are minting money and not moving. they are treading water. david: the market has gone up and they have been flat this

year and that is because their valuation keeps going down. it is not because of profits. the market is looking elsewhere. it has been a growth oriented market. these banks are going to grow in the single digits. the return can be double because of return of capital. if you add that up, it looks great. am: whether it is a bank or food stock, you have got a single digit performer with single-digit rope. -- growth. and is the dividend to 3% here is a cash we know they're going to deploy to shareholders. what kind of number is that? david: if you look at the market at the beginning of the year, the u.s. gdp is going to grow 2.5% to 3%. the banks are growing faster. they are the biggest beneficiary of the tax cuts. n cash on cashdimo

january 1? david: definitely. responsible, that is what we were trying to get at. there are not going to grow if they do not have a high return. they are going to pay us back. plan,s a big part of the by that. when you add that to dividends growth, you are talking double-digit growth. francine, let us remind ourselves of this. this chart is important. jpmorgan excellence of . a reverse split, bank of america with a slope up, normalized back to 2007. wells fargo doing great until their province. this is how lonely jpmorgan is, outperforming. francine: i imagine a lot will

depend on the trading. of what we will see and what shares will do but about the ipo in the pipeline. tencent, they may be postponing their ipo. if the market does not believe they are going to go through, these banks will suffer. right, david? david: for this quarter, that may be the case. this is not going to be the biggest investment banking quarter. we know what the deal flow is. it is that the margins are increasing from these major banks. as rates go up and net interest margin increases, that is what is driving it. consumer banking strong because consumer credit has stayed strong. it is not about loan growth. it is the fact that loan growth has been steady. it is more profitable for banks.

this will not be a blog quarter based on investment banking revenue. that is known. the other thing is the banks are more domestic. a lot of concerns in the market crested with the china trade issues, not going to be a big deal here. this is a great area. it has been one of the cheapest areas of the market. when i say cheap, it is a low valuation with good earnings growth. francine: what do you think we will hear from jamie dimon? he is a celebrity in the banking world and made waves when he commented on the president. think everyone on the coast has a particular political point of view. there is no question that the policies of the administration has been pro business, particularly for banks.

has been the biggest driver of growth and you can see that by capital .equirements it has been beneficial and allow them to continue to increase profits. tom: david pearl with us. we await jpmorgan first big bank earnings. a.m.s out at 8:00 within jpmorgan is the dividend growth rate. can they get the apple like growth rate? david: i think they are going to manage this carefully. it is going to increase at a slow rate. you increase your dividend small amounts every year and when you back thess cash, buy stock and that is what they are doing. tom: within this is mergers and acquisitions. assume we do see combinations. david: we do and it is not going

to be in the realm of large banks. they are going to be able to because you can go to a higher anunt before you get to be important bank to the government. first small and mid-cap, it is fantastic. we own a lot of midrange banks, under the $10 million range. tom: wells fargo was in the other day. he was strong on the management changes. does management make that much difference in a big bank? these things are aircraft carriers. david: management does matter, no doubt. invest in a company, we are hiring that management to run our investment. it does matter.

a large company takes a long time to churn. , a lot ofwith citi their business is outside the u.s. in emerging markets is where we are concerned. not thet the plan, management, it is harder to execute. francine: for all of you joining us on radio and across tv, we thank you for your loyalty as we await the jpmorgan figures. we are going through some of the numbers we could get. citigroup and wells fargo also reporting third-quarter results later. what will they say on mortgages in the u.s. david: mortgages are going to be slowing. re-fis are down. everyone who needed to refinance their mortgages done. that is not a big driver for these banks.

big is not going to be that a contributor this quarter. the market has decided that home-building is over. that is not true. the cities,n particularly on the coast. in the rest of the country, starter homes are booming because millennials have jobs. francine: we are getting the figures. jpmorgan third-quarter earnings $2.34.re coming in thaat it does look like it is in the high-end of estimates. i am waiting for them to drip feed. we have the report as a whole. results are coming out. kudos to jpmorgan. i have been critical of their distribution. i have got a printout with net income.

david, we will go to you before we go to canada fly in. i am seeing -- kenneth lion. equity,ing return on 31%. 12%,ge loan balances up just like you say, you generate cash when you do that. it is profitable because you're not getting interest in your checking account. is positive for them. they're keeping your money and lending it out at a profit. i'm not concerned about this quarter. they are doing the right thing. this is the highest quality bank. it is selling at a premium to other banks. that is why we think bank of america is more interesting. francine: let me jump in. we are getting more breaking news as the earnings are coming up.

the investment bank is a touch below estimates. if you look at fixed sales and trading revenue, shy of estimates. $2.96timates were around billion. the earnings-per-share seem to be on the higher side and equity trading revenue seems to be the big beat. of $1.4lion instead billion. on's i love to see mr. dim comments. for those of you up never seen his conference call, he gets fired appeared -- fired up. he mentions a smart regulatory policy and a competitive corporate tax system. that from james dimon. speaking of toasters, he goes on ourention they just opened

first branch in washington, d.c. maybe the president will go down and set up a christmas club account. francine: may be, i am not sure. i am sure someone is going to ask. maybe you on the conference call later. equity sales better than estimated. you look atnce, if net income, it is up 24%. tom: let me go all ratios on you. tangible book, up 3%. $55.68. i am doing a double two times book. can a value animal like you buy it? david: we do own it in some friends. bill priest likes this kind of company. it is not there is not an upside. there is more upside. is citigroup a better value

five years out? but we are long-term worried about the near-term because of a emerging market. america is bank of the one we hold more of because it is domestic. they have improved profitability every quarter and it is state -- it is trading at a deeper discount. is awhat is so important lot of people say a bank is a bank. a guy like you -- david: they have different strategies. a will be a national bank. tom: what is wells fargo strategy? david: they have to get out from under litigation risk. there under risk of more lawsuits. -- they are under risk of more lawsuits. accounting in banks is complex. they do not have free cash flow.

hadells case, they have not normal clean quarters in a long time. there is an adjustment. tom: let us do this. we are so happy to have david pearl with us. joining us is kenneth leon. your first perspective on this earnings report. , withh: i think it is jpmorgan we are getting quality results. it is the weakness of the year. investors are going to be interested in what management has to say about quarter for in 2019 from the perspective of what they are doing to manage the bank and the market forces. mr. dimon and his

art $2.1 the needle trillion. -- our $2.1 trillion. they need both sides of the equation to work for growth. one side is the non-and crist income side which is the activity related to loans and capital markets. the other is having volume or velocity on net interest income. be jpmorgan, that tends to less regional banks. they are important. if you're going to have a beat expectation, you need these to work. dropping around 10% due to weakness in rates and financing.

-- should we worry? the reasonam not and is the third quarter is quirky for investment banking and trading. you rely heavily on the month of september. we have low market volatility until this week, low investor activity. it is one the you do not want to see down 15%, 20%. equity trading is up single digits. you can focus on other parts of the bank to grow. i do not believe for the sizable banks it is that much of a factor. it is one of the areas last quarter where bank of america got her. you just want to get through the quarter. tom: thank you so much for a quick analysis. 8:00e bank earnings out at a.m.

do they have applelike cash? is there cash so substantial they have that cushion? david: not the same way. it is regulated. you have to get an ok to return capital and it has been limited this year. apple has $200 billion overseas and the tax law has encouraged them to bring it back and give it back to shareholders. tom: david pearl, thank you, kenneth leon, thank you. earnings,on banking coming up. this is "bloomberg." ♪

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good and bad for the quarter. investment banking revenue missing estimates. wells fargo on deck. the week that was, selloffs take a break. investors find their markets, $2.2 trillion on thursday as the s&p closes below technical levels. finds chinay staff does not manipulate currency. welcome to "bloomberg daybreak," on friday, october 12. david westin is sleeping in today. missing bank earnings. i love. >> i love it. we get to hear from jamie dimon in a while and the question is, is he the answer to arresting the stock drop? is a good thing financials are down 6% over the last five. you had disappointing ficc,