francine: damage control. saudi arabia is reportedly preparing an explanation for the disappearance of the journalist. macronpresident emmanuel is announcing his fresh government. we are live in paris. earnings season gets into full sling. morgan stanley and goldman sachs will release figures this morning.

good morning, everyone. welcome to "bloomberg surveillance." i'm francine lacqua in london. these are your markets. nothing huge, but a little bit of a bounce back when it comes to european stocks. overall, there is a little bit of a mixed picture when it comes to global stocks. asia was dancing around without any clear direction. i guess investors are now waiting for the latest corporate earnings to figure out what is next in the markets. pound is what i'm looking at. 1.3183. there is quite a lot of talk about brexit. the deal could be delayed to a december meeting. also looking at crude oil. -- 71.26t 71.20 6 am currently. saudi arabia is looking into the disappearance of a washington post journalist. we are with our main guest. gideon rose.

globalup, the ubs management chief investment officer. let's get straight to taylor riggs with the bloomberg business flash. says he isald trump uncertain whether his administration will participate in the saudi investment conference. the follows the disappearance of journalist jamal khashoggi. treasury secretary steve mnuchin will decide by friday whether to attend the meeting in riyadh. several companies, including bloomberg, have in -- pulled out as media partners. ceo's has weighed in on the disappearance of jamal khashoggi. satya nadella said the reports are sad and counterproductive to the progress he hoped to see in the country.

>> i think it is a real step back. i was really hopeful for saudi arabia in terms of the opportunity for the citizens there, the women in saudi arabia, the businesses as reforms were being put in place. taylor: italy's ruling coalition has reached a last-minute agreement on the country's budget. the plan deliver some costly election promises, but risks they confrontation with brussels over eu rules. officials in brussels have a week to make an initial assessment of the draft. u.s. defense secretary james mattis downplayed tensions with beijing, saying washington is not out to contain china. he said america is cooperating on issues, including the united nations, but said there would be a time when they would step on each other's toes. consumer inflation

accelerated for a fourth month in september. cpi rose 2.5% from a year earlier according to data from the national bureau of statistics. this is all as food prices since february spurred by flood and animal disease. sweden's acting prime minister is getting the next chance to form a government. the social democratic leader has two weeks to sound out his colleagues after the opposition failed to find a coalition, but it will be a difficult task. last month, he led his party to its worst election results in a century. global news 24 hours per day on twitter intic toc on more than 120 countries, i'm taylor riggs, this is bloomberg. francine? francine: thank you. the damage control in saudi arabia continues. there are going to say that jamal khashoggi died during a botched interrogation, according

to cnn citing two unidentified sources. the u.s. secretary of state, mike pompeo, is in riyadh to meet with the saudi king, while treasury secretary steve mnuchin will decide by friday whether to attend a high-profile investment conference on friday. several companies including bloomberg have pulled out of the investment event as media partners. joining us is the reporter in the middle east. when are we expecting the investigation to actually end? we expecting to hear from the saudi authorities. , they saudi authorities did not shed any light on when the investigation is supposed to be finished, or what it may say. now, cnn is saying that this is the line they are planning to go with, that mr. jamal khashoggi

died in an interrogation that went wrong in the consulate. so far, we have not seen the government come out with that line yet. francine: we of course know that mike pompeo is heading to saudi. what is that to do? is it trying to bridge the difference between the two countries or something else? trying, mike pompeo is to go to meet with the king and after that he is going to head to turkey. he would be expected to be pushing the saudis to come up with a plausible explanation that could ease the firestorm brewing in d.c. over the disappearance and the possible killing of jamal khashoggi. basically, when we are looking at what trump floated yesterday, the theory of possible rouge killers, that was met with ridicule from various lawmakers, who have been angry with mr. trump for being soft on the

saudis. what would be the worst case scenario for these tensions between the u.s. and saudi? we have failed threats from saudi talking about possible implications from oil. would the saudi's actually turn off the taps to punish the u.s. for sanctions? >> well, this was a response from saudi a few days ago, that if there were any sanctions against them, they hinted that they would use oil as a weapon. don'tr, a lot of analysts believe the saudi's would be able to do that because of the dynamics in the oil markets this now and also because would cause even bigger problems for them. can maybe reduce production of oil, they can pull out their investments from the u.s.. meanwhile, the u.s. lawmakers, even if trump does not want to, u.s. lawmakers can basically impose sanctions on saudi arabia

and target certain officials, were also cut the military and weaponry they are sending to saudi arabia, which is sustaining the war in yemen. francine: thank you so much for the great reporting on the ground. our reporter in dubai. wti crude is trading just below $72 per barrel as traders assessed tensions between the u.s. and saudi arabia. as prices creep up, what impact would $100 oil actually have? joining us now is the global chief investment officer at ubs global. when you look at the price of oil, there seems to be a trend where you see global demand not being hurt by high oil prices. saudi arabia so far saying i'm just not seeing the demand for extra oil. where do you stand on where the oil price goes next? >> if you put the recent events in the broader mosaic context,

we do think that oil could spike because we have less supply because of sanctions against iran. we have some supply disruptions elsewhere. so that we would look longer-term now over the six-month keyword, where oil could go to $85 per barrel. we have been positioned into this situation with an overweight in canadian equities versus australian equities as canada benefits for meyer -- higher oil prices. francine: at some point, does it hurt demand in emerging markets? are the implications far and wide? mark: we think at $100 per barrel, we think you would get many questions about this at a time when it is difficult to assess all of the factors weighing on global equities and global growth. to $100 periked barrel, we expect that to have some effect on risk assets

short-term, but we don't think it would stay there. this is the correlation between european oil stocks and brent. is this more of an emerging markets story? mark: i think it is going to globally.cations i'm not sure you want to focus on the emerging markets. francine: you have saudi and u.s., you have europe dealing with brexit and the italian budget, are there separate risks that could merge into one big one for the world economy? it seems like everyone has read "the art of the deal" and no one wants to back down anymore. i think that is something investors are getting used to.

i think we see the core risk, what is going on with the inflation picture in the united states and what is that policy? francine: if you get inflation right and you do a little bit of an outlier call on the trade were having an impact, does it mean that the fed stops hiking or does not hike as much as is priced in? mark: i think for some time, we in the chief investment office have said that we thought the trade conflict probably would get worse before it got better. last week was the question from the president of the united states, has the fed gone loco? we think it is more of a mexican standoff.

if we are pursuing a rate policy , that is a concern that markets were starting to grapple with a little bit last week. francine: we will have much more on that, mark. he states with us and we will talk a little bit more about the fed. stay with "surveillance." we have an interview with jack lew. we will talk trade and the outlook for the dollar at 11:00 a.m. u.k. time. this is bloomberg. ♪ mberg. ♪

economics, finance, politics, this is "bloomberg surveillance." i'm francine lacqua. let's get straight to the bloomberg business flash with taylor riggs. allen, thel billionaire who cofounded microsoft with bill gates, has died. he was 65. according to a statement, he died from complications of non-hodgkin's lymphoma. itvo is slumping after informed authorities about an issue which resulted from materials degrading over time, adding that the cost to remedy the problem could be material. holdings has held talks examining about

potential deal for several position.king for a that is your bloomberg business flash. francine: thank you so much. let's get back to the markets. . mixed picture >> so, short rates, short stocks. i think we put in a cycle high in equities. that would be a big call. it feels that way. francine: are stocks looking vulnerable? mark is still with us. are they? mark: i was a volatile, but not

vulnerable. over the next six month period, equities can still go higher because we expect that earnings growth to start to come through now and that is what investors will focus on once again. francine: when does that change? in au look at u.s. stocks couple of years, i don't know whether it is 2020 that we need to be a little bit more cautious about the outlook, because the fed policy will really start biting if the economy is not strong enough. mark: i think that is right. as the anniversary of the tax cuts in 2019 and some of the fiscal stimulus starts to wear off, that is when it gets much harder to see how earnings growth alone can fight off a recession. we will see how that happens. over the next six months, that earnings growth is going to be strong. what is your take on treasuries? treasuriesink that

have had most of their run-up. we are not in this camp that it is going to keep running away from here. i think the focus has to be on both what is going on with the real rates, which we think, if you so what happened last week, when the equity markets started to selloff, then the 10-year started to come off too. it still acted as a stabilizer in portfolios. i think one of the things that investors are really grappling with is just how much the tariffs that have come on are going to start to show up in corporate earnings and that is why any comments that companies are seeing slowdowns in their forward guidance will be something the markets could react to. why do you think that treasury yields are cap? let me bring you over to my chart, which is looking at the treasury movement weighing on equities. i think there are a couple things. we haven't seen the inflation

if you yet very strongly look -- strongly. if you look at the rate differential to the united states, many places have much lower yields. we are positioned to be overweight in the u.s. 10-year and underweight in the japanese 10-year, so that of global inflation starts to come through, we have a little bit of a hedge. francine: mark, thank you so much. stays with us. up next, the u.s. big banks earning finale. divergent results from major rivals, we will take a look at what to expect from goldman sachs and morgan stanley. we also look at netflix. this is bloomberg. ♪

you are watching bloomberg surveillance. i'm francine lacqua in london. goldman sachs and morgan stanley are typically the finale when u.s. banks report quarterly earnings. but not this time. unusually divergent results from major rivals in recent days make it harder for investors to anticipate what the figures from goldman sachs and morgan stanley will look like. another major early earnings season release is netflix. what can we expect from earnings season? mark is still with us. looking for an

indication of the forecast for the future or how earnings are doing for this quarter? mark: both matter. we think earnings this quarter should be of year-over-year. the forward guidance and the impact of tariffs and the outlook for interest rates will .atter we like -- i think and those energy stocks or something we are focused on. francine: there has been a reshuffle in the french government. germany is not doing great. what do you do with europe at the region? mark: we are comfortable holding europe in that basket of global equities.

there are a couple factors speaking for europe right now. valuation disparity to the united states has grown. based on the alternatives you have in europe to bond, equities still a good and the data has not been that bad. you have to look through the political risk and look at the underlying fundamentals. francine: what worries you the most overall? is it china? we have not touched on china at all and it is 25 minutes into the show. not whatna is probably worries us most because they have tools to restimulated their economy. we think they will stabilize the growth in china. we think it is the fed policy around and onyx acted rise -- an unexpected rise in u.s. interest rates that has is most concerned. tom: thank you, mark --francine: thank you, mark. what is up next, what happened to jamal khashoggi?

saudi arabia is reportedly preparing an explanation, but president trump says it might be rogue killers. we will bring you the latest on that, plus a full roundup of what we are seeing on your markets. stocks are pretty much mixed. i'm looking at. pretty much a mixed picture across the global markets. this is investors trying to figure out the next phase of corporate earnings and for the development across a host of geopolitical issues, including what is happening in saudi arabia. the yen declining, dollar edging up. looking at u.s. treasuries. they will say something about china. this is bloomberg. ♪

francine: economics, finance, and politics, this is "bloomberg surveillance," i'm francine lacqua in london. let's check out what is trending on tic toc.

a group of teenagers are suing the u.s. government for not doing enough to combat climate change. brexit is back in full focus as theresa may strikes a conciliatory tone to lawmakers over the progress of talks. third-place, the u.s. budget deficit reached a success in your high. second place, trump floats the idea that rogue killers might be behind the disappearance of jamal khashoggi in turkey. chinese local governments could have 40 trillion in renminbi debt. we are also getting breaking news out of the u.k., so let's check in on pound. the u.k. june to august basic wage growth, this goes back to spending power, it goes back to inflation, it is coming in a little bit better than estimated. staying atyment rate

4% as forecast. on to france and emmanuel macron replacing his interior and agriculture ministers in a re-culture -- reshuffle of his government routine. the long expected french cabinet overhaul was set in motion by the resignation of the interior minister and had been postponed numerous times. joining us is our french correspondent. how significant are the changes and who are the new faces? that then argue changes are not that significant, given that we were expecting the interior minister to be replaced. it has been two weeks since he resigned. it has been two weeks of a lot of confusion in the media and among the french government. time, he to take his wanted to go against the tyranny of the now.

after two weeks, we have a new interior minister. is one of the most faithful allies of emmanuel macron. he used to be a spokesman during the presidential campaign. he has been heading his party. he is the most significant change. also coming in, you got this , she is dating the deputy .inance minister and to ministers were considered as less efficient than othersan, for coulter, macron is taking a right-wing mp and for , he was the head of

the socialists in the senate. this reshuffle is also the result of the fact that it was very hard for emmanuel macron to find a balance between men and women, right-wing and left-wing, civil society, and politicians. will it actually help with macron's popularity? >> it is not going to be an instant popularity boost because he lost a lot of popularity over the last three months. reforms, butuse of also because of this image he has among the french people. for example when he said a couple weeks ago that the french were complaining too much. haveatest call that we shows a slight rise in his popularity. it shows his approval rating to 33%. by four points

it is still very low. we will have to see whether this is enough, but these limited changes in the reshuffle shows that he wants to keep his pace of reform. next on the table, you have unemployment benefits and the pension reform. obviously, a very big test ahead for emmanuel macron. now let's get straight to the bloomberg first word news with taylor riggs. taylor: francine, donald trump says he has been searching about whether his administration will participate in the saudi investment conference following the disappearance of journalist jamal khashoggi. secretary steve mnuchin will decide by friday whether to attend. avril companies have pulled out as media partners, including bloomberg -- several companies have pulled out as media

partners, including bloomberg. mike pompeo has arrived in saudi arabia, where he will meet with the saudi president. satya nadella said the reports that the saudi government kidnapped and killed jamal khashoggi is counterproductive to the progress he helped to see in the country and sad. >> i think a real step back because i was very hopeful for saudi arabia in terms of the opportunity for the citizens , the women in saudi arabia and the small businesses, that the reforms were going to be put in place. taylor: the latest routing -- ruling coalition in italy has released a budget. it risks a confrontation with brussels over eu fiscal rules. officials in brussels have a week to make an initial assessment of the draft. u.s. defense secretary james mattis downplayed tensions with beijing, saying washington is not out to contain china. he also said america is cooperating on issues including

north korea in the united nations, but conceded there would be times they would step on each other's toes. china's consumer inflation accelerated for a fourth month in september. cpi rose 2.5% from a year earlier. according to data from the national bureau of statistics. this is all as food prices jump for the most in february spurred by flood an animal disease. sweden's acting prime minister is getting the next chance to form a government. the social democrat leader now has two weeks to sound out his colleagues after the opposition failed to find a coalition. it will be a difficult task. last month, he led his party to its worst election results in a century. global news 24 hours per day on air and that tic toc on twitter powered by more than 2700 journalists and analysts, this is bloomberg. francine: taylor, thank you so much.

of next, we took the business of fine dining with magnus nielsen, the head chef at one of the world's top restaurants. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i'm francine lacqua in london. let's get straight to the bloomberg business flash. taylor: francine, paul allen, the billionaire who cofounded microsoft with bill gates, has died. he was 65. according to a statement, he died in seattle from complications of non-hodgkin's lymphoma. bill gates said he was a true partner and a dear friend and personal computing would not have existed without him. slumping after

admission control setups issues resulting from materials to grading over time, adding that the cost to revenue the problem could be material. singapore state investment firm temasek holdings held talks with chinese authorities about acquiring a stake in anbenk insurance group. separate sources say the investment firm is not currently in active negotiations with anbang. british american tobacco said revenue from smoking alternatives will fall short of expectations this year. that may overshadow the company's forecast to beat its goal of high single-digit growth in adjusted earnings per share, but earnings growth should beat thetarget for growth as maker of lucky strikes gains market share. it is shaping up to be a big

year for global mergers, but that has not been enough to boost the bank of america investment bank. that drove overall investment banking revenue down about 18%. the hit film "crazy rich asians" will debut in china a month after topping box office sales in north america. warner bros. says the romantic comedy will screen in the world's to get cinema market starting november 30 after receiving a funeral -- approval from the company -- country's regulator. has acquiredians -- accumulated $230 million worldwide. printing? francine: taylor, thank you so much. saudi arabia is preparing to admit that missing journalist jamal khashoggi was killed in an interrogation that went wrong. that is at least according to cnn citing at least two

unidentified sources. president trump said he was assured by president -- king salman that the country had no involvement in jamal khashoggi's disappearance. president trump also floated the idea of rogue killers and said he is uncertain whether his administration will participate in the saudi investment conference. treasury secretary steve mnuchin will decide by friday whether to participate and a disclaimers, several companies including bloomberg, have pulled out of the future investment initiative event as media partners. more ont straight to the phone. florence, how are you expecting the authorities to handle this. when you think the report will be out in the you have any idea into whether what cnn is saying will be right? , i think thiscine

is neither the first nor the last very unfortunate botched attempt at controlling political dissidents in the world. it comes at a time where tolerance for this sort of thing is at an all-time low, i would say. think it will be sorted and it will be managed. however, it is likely to change the way people do things. including in the middle east, where this sort of thing is now not unusual. when a report will come out, i don't know. i suspect the report will come out and say this was an interrogation gone wrong. arabiahink that saudi will survive it. i think oil markets will survive it. relations andu.s.

saudi-turkish relations will also survive it. i think it is very unfortunate that this fine thinker has turned out to be a victim of events of this sort, but i think it will blow over. in aine: so, investors are wait and see mode pending the investigation's conclusion and pending the outcome of mike pompeo's visit. what is the best case scenario here? what can happen in the next 10 days to reassure investors, if anything? i think that the reality is that some investors will require more reassurance than even the best outcome out of this sort of situation. investors have to foryze this sort of event what it is worth. it is terrible for the person and for the family, but the reality is that these sorts of things happen the world. i'm not saying i agree with them happening.

that theyou and i know market actually has a short investors and up looking past these sorts of events. i'm taking a very long-term look here. i think, yes, the tremors have impacted the conference at the end of the month and you have seen that. bloomberg and other media organizations have pulled out, of course. not surprising. florence, do you think that this will derail saudi arabia's attempt to diversify the economy away from oil? arabia's attempt to diversify the economy away from oil is a decade-long process that has been underway , i decades and, to be honest think it is a decade-long process ahead of us. it is not going to be achieved in a matter of years. i think of you and i look at a

few months and a couple of years that it, we will see was one in a string of unfortunate events in the world. however, it is going to turn out to be one event that slow downsaudi arabia's diversification efforts, but not more than that. francine: thank you so much for joining us on the phone today, florence. the founder and chief economist at arabia monitor. we are getting breaking news out of munich. prosecutors in munich have imposed an 800 million euro fine on audi because of some of the diesel issues. this is according to a statement because of some of the diesel vehicles manufactured and distribution by audi and we have heard from audi themselves. they are accepting the fine and admitting responsibility. coming up, the business of fine dining. magnus nielsen, head chef at one ,f the world's top restaurants

joins us. this is bloomberg. ♪

francine: economics, finance,

and politics. this is "bloomberg surveillance." let's check in on what is going on with the markets. stocksre seeing euro with a 0.5% gain. you can see world bank across both of these markets looking very strong. despite that fairly choppy session, japan had a good momentum coming through. having a look at european stocks , doing well with the exception of volvo. you can see down by 5%. a component is wearing up faster than expected.

revenue from smoking alternatives will miss expectations this year and you by overng in italy up 3%. francine: think you so much. working from a tiny plot of land in a remote part of sweden, magnus nielsen has helped to transform how nordic cuisine is viewed across the world. placed 750 kilometers north of the swedish capital of stockholm, the restaurant has become a pilgrimage for foodies who must book months in advance to dine in a room that seats 24 guests. to on earth has he managed make this restaurant in a faraway land viable? in his latest book, the superstar chef tries to capture the heart of baking colter across scandinavia -- baking culture across scandinavia.

if you are not a baker, i'm a cook, not a bigger,, it still looks good. i remember doing it for years ago. at the time, it was amazing because you had a lot of reservations, but it is still going. magnus: i think that we are very fortunate. we are booked every single night. we are booked for the next half year. it pretty much books out immediately. thatnk the main reason for -- i think there are two. we have lots of regular guests who come back. 30% of our revenue comes from returning customers. and i actually also do these things. and writing the books and going out and meeting people. for a small restaurant, it actually makes ia difference. fourold me about a segment

years ago. francine: yes, he read the book. >> he actually came. it was wonderful. francine: you also did films, so people recognize you. they want to see how magness cooks. >> i think so. i think for a restaurant that is so small, we do 6000 guests a year. in the restaurant context, it is small. it makes a difference that you meet people and you talk to them. maybe they get interested in what you do. francine: do you think the fine dining experience because it is changing -- that it is changing because it is much more of an experience? magnus: i think it has changed a lot. you have the traditional fine dining restaurants of the past, but you have so many more experiential dining experiences that are not necessarily categorized as fine dining, but people are willing and prepared to travel and pay quite a bit. francine: it is amazing. there has been an explosion of nordic food and the popularity of it.

people come from china as well? where do people come from it? magnus: 30% of our customers are either american or british. 50% is swedish or scandinavian. the remaining 20% comes from the rest of the world. francine: how much do you think the -- about the actual business of the restaurant? do you personally do it or do you have someone doing it for you? magnus: no, i do it and i help with some of the administration. it is a small company. we are 50 employees, roughly. we have been very fortunate to have a really good partner on the business side. does not function, there would not be any room for my creative expression. francine: it is amazing, because you cross a little bit of both. you are the creative and also the business brain. what is next for you? magnus: this has been a giant project, it has been six years in the making. with the first book in the project coming out three years ago.

focused quite a lot on the restaurant the next couple years. francine: any pop-ups? this is the fashionable thing. people ask you, right? tonus: i generally prefer cook in my restaurant. i think it is usually stressful to go to someone else's place, someone else's home to cook. i always feel a come cheating people when i go somewhere else because it is impossible to create the same experience and even the people who come to the pop up realize that it is not going to be the same thing because it is in different circumstances. it tod that i still want be the same and it does not work. francine: great to get you on. magnus: thanks for having me. francine: the nordic book baking just out. joining us, it is an experience that i've heard many good things about, "bloomberg surveillance" continues in the next hour. tom keene joints me out of new york.

we will have all of your talk on the markets. we will go through treasuries. a little bit later, i'm really excited about the interview with the former treasury secretary of the united states of america, jack lew. exclusives for an conversation at 11:00 a.m. u.k. time. this is what i'm looking at overall. markets are on edge. markets will look at corporate earnings and are watching for any further developments across a host of geopolitical issues. the italian budget, brexit. we are also looking at saudi arabia. the yen declining. dollar edging up from close to a two-week low. we also hear from china and u.s. this is bloomberg. ♪

francine: damage control, saudi arabia's report late preparing

an explanation of journalist jamal khashoggi's disappearance. s governmentron' aims to fix sliding ratings. morgan stanley and goldman sachs release figures this morning. this is "bloomberg surveillance." i am francine lacqua in london. tom keene in new york. to jacobing to speak lew later on. tom: the tension really wraps up. i have a chart that shows the tension in the u.s.. disappearance, some say murder. it is a lot of different opinions. the president ramped up that yesterday. francine: it is not only a

u.s.-saudi arabia standoff, it is the u.s. and a lot of world leaders. here is taylor riggs. taylor: we are starting with that story. president trump says he is unsure if his administration will take part in a saudi investment conference following the disappearance of jamal khashoggi. the president told reporters that steve mnuchin will decide by friday whether or not to take part. cnn reports that the saudi's will admit that khashoggi died under interrogation. british prime minister theresa may and french president emmanuel macron are calling for cool heads to prevail in brexit talks. may told parliament that she does not believe the u.s. and eu are that far apart. macron has taken a hard line stance, but does he believe collective intelligence will work out?

leaders were hoping to have a deal by tomorrow. index roser price 2.5% in september from a year ago. that was in line with estimates. food prices rose the most since february. levelion at the factory rose less than the previous month. bill gates said personal computing would not have existed without paul allen. the billionaire cofounder of microsoft died yesterday from complications from non-hodgkin's lymphoma. he turned his microsoft state into a fortune valued at more than $26 billion. he was 65. 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 taylor riggs. this is bloomberg. tom: thanks so much. so much about paul allen was

courage, the courage of a kid in a dorm room in harvard, the courage to start this huge revolution that was personal computers. i just have one screen today. i love what i heard, an impasse. we have our futures up 65. churning across all. oil, we are watching the saudi knock on, the secretary of state in riyadh right now. francine: i have a similar data board to you. overall, it is a little wait and see in the markets. in europe, they are edging up. yields are moving sideways. investors are waiting for corporate earnings and the development across a host of geopolitical issues. back to the top story and u.s. secretary of state mike pompeo is in riyadh as saudi arabia

prepared to say that missing journalist jamal khashoggi died during an investigation and its embassy in istanbul. that is according to cnn. donald trump says king sl denies anyy knowledge. knowdent trump: he did not -- i don't want to get into his mind. it sounded to me like maybe these could have been a rogue killers. who knows? francine: looking at oil, wti is falling. let's get to our guest, john sfakianakis, director of economics research at the gulf research center foundation. you know saudi arabia like few people do. what will they say in the report? there is now an investigation. is it a serious investigation? of course it is a serious

investigation. i think the fact that the secretary of state is in riyadh and is in discussions with the king and the rest of saudi arabia is quite instrumental in defining what will happen next. i think data will be shared from both sides to see exactly what happened. then the next step forward. their relationship has to be maintained. it is a very important relationship. it cannot be dropped just because of this event. onncine: what does it mean how the international community will take this. how can saudi arabia actually ?espond to criticism john: it is not going to be easy. saudi arabia has always been criticized.

begins with a lot of shortcomings, a lot of handicaps. saudi arabia needs to explain to the world what has happened, the information it has come and work with the international community on the basis of goodwill and saudi arabia needs the world. the world needs saudi arabia. i understand there is the colonic courtesy and all that. in thes huge doubt western world about half the saudi's are taking. how important is any evidence the turks have? will they use that against saudi arabia? john: it remains to be seen. definitely the turks play an important role in this, especially as saudi arabia has entered into a new friendly face with the u.s.

that does alter the dimension. if the turks have the evidence they claim they have, that changes matters. is something that has not come as a direct order from the top leadership, that is a different matter that has to be discussed between the u.s. and saudi arabia internally. the u.s. will offer support if it has evidence of that road state-ness. have so much knowledge, how does mr. trump help? trusive or of unique beneift? john: president trump plays a strategic part in all this if the president of the u.s. comes out and says clearly they had

evidence for or against that will swing the debate way or the other. if president trump says we had roguence these are tru elements, that will change the opinion. i believe neither the crown prince or anyone else wants to in such an event culminating as a tool using oil to change things around the world. i do not believe saudi arabia wants to see this criticism culminate in something and went ment for russia or putin. francine: will this affect saudi arabia's attempt to diversify

from oil? john: there is no doubt that over the short term that saudi arabia needs to nip it in the bud, and if the conference does not happen next week, it can happen in two or three months when there is ample evidence for what happened to jamal khashoggi. saudi arabia needs the investment as well as the world needs a saudi arabia that is able part of the global community. francine: thank you so much. john sfakianakis, director of research at the gulf research center foundation. we're joined by stephen macklow-smith of jpmorgan asset management. when you look at the details that have emerged so far, as it had an impact on oil investment? it is difficult to know.

simply unclear at the moment. it is not something we can base any decisions at the moment. tom: getting us started on equity coverage is the idea where emerging markets are in the right now, is the idea of the recent pullback in him for his is still a danger? stephen: it depends on how far .he dollar rallies at the beginning of the year, people were underweight the dollar because it had fallen the previous 18 months. the dollar rally is something people had not expected. that has caused some disruption among emerging market currencies and economies. it depends how far the dollar rally goes. looking at positioning, people are long the dollar.

they can stay long in dollar because they are supported by positive carry. when the dollar is one of the top two carry currencies in the g10, it does fairly well. when you look at growth differentials between the us and the rest of the world narrowing, it does not change interest-rate policy. move, ande the dollar i can pressure emerging markets. tom: our discussion moving forward on markets, quite markets this morning. several companies, including bloomberg have pulled out of the future investment initiative in saudi arabia as media partners. up, gideon rose of foreign affairs magazine with an author in this months issue. his name is jacob lew, on america and economic statecraft. this is bloomberg. ♪ his is bloomberg. ♪

taylor: this is "bloomberg surveillance." i am taylor riggs. shares of the world's second-largest truck maker are falling today. uncovered a faulty commissions check in its truck. they say the cost to fix the problem could be material. adobe has given a bullish forecast for next year. the software maker says it's digital media products have traditionally grown faster than business software, and that trend is expected to end as the company is increasing its marketing in e-commerce products.

one of the prominent investors in digital currencies does not expect any big moves in the price of bitcoin until next year. we spoke with michael and novograd. >> you will see people get excited and the institutions coming in. 10,000 is a big level. i don't see us breaking 10,000 by the end of the year. institutions start coming in, you will see new highs. tom: thank you so much. one of the things we like to do on surveillance is go across asset. we do this now with adam cole of and stephen macklow-smith of jpmorgan. the basic idea of dollar ebbsgth, and send flows -- and flows. give me a total dollar review. stronger dollar?

is our central view. we are last convinced on some of the more exotic reasons on being stronger on dollar. it is driven principally by policy never -- divergence. the u.s. will be in favor of higher fed rates, and as long as those more exotic explanations don't play out, it is a conventional world where the dollar divergence he drives the dollar up. love getting just to the vanilla. give us the vanilla view on holding equities. what is the core reason, that vanilla ice cream view on why you should own equities? the basic view is there

is no reason to expect the cycle to turn anytime soon. we are starting to see a growing appetite for capital expenditure for companies. our sense is profits continue to grow from here. they give you a yield pickup against cash and fixed income over in europe. francine: what are we expecting for this earnings season? are we waiting to see what they will forecast or to see if the trade war is not hurting too much? signsn: there are a few that the trade war is starting to have a major impact. you are seeing a slight slowdown in chinese data. some european data has been soft. that is largely because of the introduction of new emissions standards in europe. i don't think you can necessarily draw any firm conclusions at the moment. what we know from talking to our

emerging markets team is a lot of emerging markets companies are talking about tariffs and trade war and enormous amount. we don't know if we will see if all through to the rest of the world. makeine: adam, what do you in the fallout in equity markets last week, pretty significant, and currencies held strong -- is it because they were catching up or that currencies will start behaving differently? i think there are a few reasons why fx did not move more. the principal reason is the move incurrencies is ambiguous what drove it. we are used to equities and bonds moving opposite. that is the risk on-risk off world we have been in the last 20 years. we are less used to wear equities and bonds both selloff. equities are selling off because

the rate at which you discount future earnings is rising. that was the early part of last week. that is not a risk on an environment. -- environment. seehave to look back to risk off in both major investments. you don't see the classic outperformance, and yet dollar strength broadly when equities selloff. that has made it more difficult for our markets to read even if we ended up in what looked like a more conventional move in risk appetite. call.elp me with the yen nuanced yenhas a call. adam: we are positive on the dollar generally, but particularly positive on the

dollar-yen. it is driven by japanese investors. that behavior is driven instantly by policy in the u.s. -- principally by policy in the u.s. ratee a high u.s. interest linking to what japanese investors do in the rest of the world. japanese investors are being given little choice now but to invest in u.s. treasuries on and unhedged basis. that drives yen underperformance. tom: thank you very much. headlines coming across the leadership, hsbc and credit suisse will not attend the saudi conference. mr. dimon and mr. schwartzman king yesterday. i should point out the bloomberg has pulled out as a media partner. we did that a few days ago.

coming up, the senate majority leader mr. mcconnell of kentucky. look for that in the 9:00 hour. this is bloomberg. ♪ is bloomberg. ♪

francine: this is "bloomberg surveillance." tom and francine from london and new york. geopolitics, what happens in the khashoggi case as we await news of what happened to the journalists.

geopolitics taking center stage together with corporate earnings. we are back with stephen macklow-smith at jpmorgan asset management. i asked who are required do in this little chart for you, which is looking at the treasury round and how that is impacting equities. stephen: i think now that yields have started to move up, the bond market is recognizing the attention of the fed is to raise rates in a systematic way. it is also reflective of the fact that the growth picture in the states looks to be healthy and inflation is under control. there is a recognition in the bond market of future prospects. higher,: does it go above 4%? stephen: there is no reason it should not in my view. there will be an appetite from investors of seeing that attractive yield pickup as adam cole was talking about relative to the rest of the world coming in. if we think about our long-term

equilibrium target, we think the 10 year yields trade in line with nominal tdp. we think that is a fair reflection of where we are. a little discount because of the possibility that we are getting toward the end of the cycle. you get about 3.5%. francine: he will come back. stephen macklow-smith a jpmorgan asset management stays with us. coming up, we have more on markets. stocks climbing. treasury yields moving higher. ofexpect the treasury the u.s. to come out with labeling on china and renminbi this is bloomberg. ♪ .

tom: good morning. "bloomberg surveillance" from london and new york. the former secretary of the treasury, jacob lew will join us

in the next hour. here is taylor riggs. taylor: u.s. defense secretary james mattis is downplaying tensions with beijing. he says the u.s. is not out to contain china. he said there would be times when they would step on each other's toes. canceled high-level security talks that were scheduled with mathis this month. -- mattis this month. tax cuts and spending increases boosted the deficit under president trump to $779 billion. spending rose more than 3% while revenue was up just 0.4%. wages in the u k are growing at their fastest pace in almost a decade. average earnings rose almost 3% in the three months ending in august. unemployment held at a 43 year low at 4%.

in brazil, far right presidential candidate gerald a largeo has built up lead against his leftist opponent. 51-40 leadt up against his opponent. 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 taylor riggs. this is bloomberg. francine: thank you so much. the brexit clock is ticking. european council president donald tusk said no deal is more likely than ever. french president emmanuel macron said cool heads will prevail. the british prime minister theresa may try to rally lawmakers behind her.

we wanted to talk to you for quite some time. u.k., focusing on the tory party, sometimes we forget to go to brussels and get with the europeans are thinking in all this. -- what the europeans are thinking in all this. is it time? >> everybody sees a crunch coming. we have a definite deadline next march in which we need to see something on paper, in writing. they don't feel quite that way. the eu feels their ratification process is easier than the u.k. ratification process is going to be. in that light, they probably feel easier about the time crunch that is happening now. francine: what is the likelihood of a breakthrough? they need to go through the deadlock by tomorrow evening. >> i think by tomorrow evening

it is very low. at this point, overall, the eu side seem to be saying it is about 50-50 to get a deal at all. by tomorrow at this point, it seems like they are too far apart. the irish issue and the whole future relationship outline, they have too much room to come together on that. they can hopebest for is to come out of that with some positive statements that they are moving closer to an agreement. not even that is assured at this point. geography.s some from brussels, what is the view of the irish sea? does brussels really care about some arbitrary line in the irish seaa? thing the eu cares

about is the internal market. that is the main issue they stress again and again. bigger than brexit is the integrity of the internal market. if the eu k were to come to the u.k. were to come to the eu with a solution that preserves the internal market, then the eu would be happy. they will need assurances that the single market will be protected. francine: thank you so much. jones hayden from our brussels bureau. stephen, how do you see this and game? -- end game? how is this priced in u.k. assets? stephen: so much of revenues are generated overseas that the

sterling dollar mechanism is the mechanism through which you are seeing dollar strength. seeing wages demonstrating that. you can read that as a boost consumer confidence because real incomes are rising. you can see it as a model pressure on margins in the domestic u.k. economy. economytion of the u.k. has been under pressure for several years. i think everyone can see a deal will be arrived at. francine: we don't have one yet. the more it is delayed, does sterling fall on the back of it? do investors think there is a good chance of crashing out? stephen: it is difficult to know because it is difficult to know how people are positioned and selling at the moment. if you are an fx trader, i would you mightuess that

think the bank of england's room to maneuver interest rates is relatively limited. you might launch a bid on sterling, but that is outside my realm of expertise. let's talk about the relative valuation of united kingdom multinational. where is the opportunity> -- opportunity? is there huge opportunity with them, or are you waiting on bigger opportunity in the future? stephen: there is some opportunity want to have clarity. equity markets do not like uncertainty. at the moment, there is uncertainty around the withdrawal agreement and future trading relationships. pending that, equity markets will require some sort of discount. to your point, the underlying aspects of u.k. multinationals look good. broadly speaking, the direction

of estimate revisions have been up this year. that means analysts are getting more confident. that is quite a signal in light of what seems to be a slight attenuation in the last few breaks around the world this year. there is a modest discount on valuation, modest discount on margins because of the sector composition of the stock market, which is heavy and resources. there is likely to be an opportunity once the uncertainty clears. francine: -- tom: stephen macklow-smith with us from jpmorgan. coming up at the 1:00 hour in new york on technology, software, process, ceo william mcdermott. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i am taylor riggs. more big names are pulling out of the saudi investment conference that has been dubbed davos in the desert. the latest are the ceos of credit suisse, hsbc, pressure growing on the saudi's following allegations that he killed a dissident journalist. bloomberg has pulled out of the future investment initiative event as media partners. volkswagen has agreed to settle and omissions case in germany by paying $927 million. it ends a long-running investigation into vw's tampering to circumvent emissions regulations.

makers are buying sandberg in a deal to increase its suite of communications tools. the company provides automated emails services. that is your bloomberg business flash. rulinge: italy's coalition has reached a last-minute agreement on the countries budget. it risks confrontation with brussels over eu fiscal rules. officials in brussels have a week to make an official assessment of the draft. we are joined by david powell. think is so much for coming on "bloomberg surveillance." will this be confrontational for brussels? >> could you were people that? that?eat

francine: i was asking whether this italian budget was confrontational with regards to brussels and eu rules. >> it is confrontational because it drastically changed the figures that were put in place by the previous government. the real issue is the widening of the structural deficit. that was going to go to 0.4%, 0.9% next year, and that would have put it in line with the under 0.5% brussels requires, but it widened now to 1.7%. that is what the confrontation is over, that structural deficit has widened and completely flouted the rules from brussels. what does that mean in terms of structural reform? are these handouts, or will these contribute to italian growth? >> they will certainly contribute to italian growth. there is going to be a fiscal

impulse, fiscal loosening. that is why the gdp forecast was revised up to about 1.5% next year. it is going to provide a temporary boost to growth. that will be felt in the labor market in more jobs available. francine: do you know what happens to the deficit next year? a concern from brussels is they will not cut the deficit in 2019 and 2020? , the: looking further out projection has diminished with some improvement. it is not the improvement brussels is looking for. when you run these numbers, the debt to gdp ratio marginally comes down, but not that much. that leaves italy vulnerable with this huge amount of debt to any unforeseen crises. banking crisis.

they would like to see some fiscal space, and we don't see that. many of these numbers, there is no improvement being made. tom: what does the calendar look like through october and into the end of the year? what are you and your team watching for in italy? david: the main thing we are watching for now is the reaction of the european union to this budget. it was just submitted. in one week's time, we should assessment.al that will be the focus coming up. how does the eu react? we kind of know how they will alreadyo.i. a -- react because of statements that have been released. tom: who is a power player? europe, no,ing to this is the way we are doing it. does someone in europe really have the power to say to italy this is the way it is going to be? >> certainly, italy is not

greece. it is a much larger economy, third-largest economy in europe. it probably cannot be pushed around by brussels in the same way and much smaller country can be. at the same time they have made these agreements, the eu has fairly drastic measures they could take if a country were to completely ignore the budget rules. they could impose fines. those are quite drastic. it is highly unlikely at this stage that they are going to be fined. more likely there will be some sort of compromise. power,ernment has some democratically elected, and it controls the italian treasury, which will make these decisions. francine: how worried are you about european growth and what we are seeing in germany may impact future structural reforms? beyond italy, the

growth outlook for europe has deteriorated a bit. that was always to be expected. we are not going to see the large growth rates from last year repeated. they aren't feeling from the crisis. growth is going to be closer to the trend moving forward. that is what we are experiencing now. in addition to that, there are risks coming from the emerging trade wars, the trouble in emerging markets. the ecb is watching all of that. none of that so far has been serious.

looking more probably, picture of european equities is profit growth this year and next. profit growth is in the process of recovering from the very underwhelming performance they have between 2010 and 2016. valuations look attractive. i think there is opportunity. francine: thank you very much, stephen macklow-smith and david powell. up, gideon rose, foreign affairs editor coming up in about 12 minutes. 12:00 in in new york, london. we will talk about saudi tensions with the rest of the world and the investigations ongoing in turkey and saudi arabia. in saudi arabia erasing a 4% drop. this is bloomberg. ♪ ♪

tom: good morning.

francine lacqua in london. i am tom keene in new york. we spend a lot of time on u.s. earnings. how about european earnings. stephen macklow-smith of jpmorgan asset management. the major complaint with the banks i hear our that american banks have not really moved in this market even though they are generating piles of cash. is the same true in europe? in europe you face a different issue depending on which country you are looking at. in europe, the issue is the holding of sovereign debt. in the context of the italian budget discussions, we are paying a lot of attention. there has been a pickup in credits resulting from the european banking union. the pickup in credit has slowed slightly this year. there are signs that that is turning more positive. you are seeing a recovery in

banking earnings and banking margins that are looking pretty healthy. tom: this chart is pretty compelling. european banks, u.s. banks. white and blue, underperforming european banks. there is a dividends difference. do you grab that fat dividend in europe or is that not enough to compensate for eu banking challenges? stephen: one of the interesting thing about european banking is that all european banks are not created equal. if you look at the five-year performance of european banking indexes in the states and europe and the fact is the disparity of performance is massive. you are running 45 or 48%. bottom performers were still up. in europe, you can measure total banking index plus five worst

performers -60. spread massive. massive stagflation opportunity for us. whether orbout not to own banks. it is which banks you on. francine: which ones do you own? stephen: we are slightly cautious about banks in italy. there is this? over whether they can continue to reduce npl's from what they have. some of the more stable savings markets, those look quite attractive. on a valuation basis some of the french banks are trading cheaply at the moment. francine: is this a opportunity for the banking stocks? will we have something cross-border? stephen: that is the hope. there is the chance for consolidation across market. you have seen some consolidation

in the german market. you have not seen any big cross-border deals going into the mortgages cross-border. in the future, if the capital is to work in the way in which it is anticipated, you will see that, but not in the next three to six months. tom: where are fund flows right now? where is institutional money moving within europe and outside europe. stephen: what we are seeing in the institutional market is people underweight europe. thistory in u.s. equities year is so compelling that people have been very happy to go with that. they have the benefit of a strengthening dollar. they have funded that by being underweight in europe. inple were more overweight emerging markets at the start of the year expecting that to continue. that has that worked for them.

people continued to take money out as well. valuations are much more attractive. when valuations become more attractive, risk premium rises. at some point it is in the press. quickly, multinational eu industrial companies. we look at the collapse of ge deal, are people running from industries in europe? stephen: i think people are waiting for clarity on the impacts of trade and tariffs. we should get that within the next trading season. tom: very good. stephen macklow-smith, appreciate it. we drive forward to american bank earnings today. morgan stanley and others reporting later this morning. we have a very special hour for you coming up. it is one thing to say that jack lew will join us, former secretary of the treasury. far more important, the

secretary will be joined by gideon rose. gideon rose of foreign affairs magazine leads with the constructive discourse on economics and international relations. together, jacob lew and gideon rose. we will do that next. let me tell you about the markets today. it is a little flat. i am looking at yen churning, yen weakness over the last couple days. writing and i are focused on saudi arabia. we will speak to secretary lew and mr. rose about all these events in saudi arabia and istanbul. please stay with us. from new york, from london, this is bloomberg. ♪ is bloomberg. ♪

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market, federal rates raised. how will markets react into 2019? trump lateral policy. my weight is a unilateral highway. jack lew and gideon rose in this hour. , on turkey,bia disappearance in the art of saving face. secretary pompeo is in riyadh. good morning, everyone. this is "bloomberg surveillance.". i'm tom keene. francine lacqua is in the headquarters in london. saudi arabia treated differently newspaper to newspaper in america. thecine: actually a lot of american papers have a narrative that saudi arabia is trying to come up with an explanation and that should be released shortly. havenk a lot of investors this in the back of their mind because of allegations coming to light.

they think it may hurt confidence in the region. overall, we had a surprising move in the last hour or so. the saudi stock exchange erased all of its losses. tom: you have seen leadership from standard chartered and hsc hscb pullout. taylor: mike pompeo is in saudi arabia with meetings over the disappearance of the journalist. the trump administration is still deciding whether to take saudin an upcoming investment conference. that has been thrown into turmoil. there are multiple reports that that hei's will admit died under interrogation. it is said that the saudi's head land to kidnap him from turkey. minister theresa may will address european leaders on brexit before their dinner tomorrow. talks wrote down over the

weekend and one eu official says things are trickier than expected. the stumbling block is what happens to the irish border after the split. china consumer inflation's up for the first month in a row. ined consumer index rose september. that was in line with estimates. prices rose the most since february. inflation rose last then the previous month. bill gates says personal computing would not have existed without paul allen. the billionaire cofounder of microsoft died yesterday from compilations of non-hodgkin's lymphoma. he stepped down from microsoft in 1983 for health reasons. in the past three decades, he turned his microsoft stake into a fortune, the you down more than $26 billion. paul allen was 65. a data check.to

a quieter day with an impasse in the markets with futures up. euro and oil signified what is out there. francine: this is what i am looking at. it is a data check to yours. markets taking a pause. stocks in europe higher. they are looking at corporate earnings and further development across the host of geopolitical issues. the different news, saudi arabia and the united states, diplomatic tensions front and center. kevin cirilli is in washington. what does the secretary of state hope to welcome push in react? kevin: to get to the bottom of what happened. the saudi's are saying this is part of an interrogation that had gone wrong. past couple of hours have been silent in terms of the results of their own investigation. there is an international investigation. in the u.s., lawmakers calling

on the administration to report back to them in some formal capacity to see what happened. the saudi's have said that if there were additional sanctions or any arms sales would be jeopardized, as they were relating torespond oil on their own. this comes at a time when you have had businesses drop out. steven mnuchin and is still committed to go. president trump told the secretary of state, get on the plane and fly to react and get to the bottom of this. a lot of people have now since dropped out of the investor conference. weomberg is a partner and have dropped out what can mike pompeo do on the ground? is the first country president trump visited when he became president. he went to saudi arabia and then he went to israel.

the shifting relationship in the middle east tween the saudi's and israelis and how they have been chinese for positive relationship comes at a time when the u.s. was involved in the iran arms deal. new relationship. on that front, this is a really significant challenge, not just for the trump administration that for u.s. foreign policy as a whole in the long term, as this is the first major test were a young charismatic king now faces the first international crisis of his administration. tom: thank you so much, kevin cirilli. this is a joy. gideon rose has been wonderful to stop by on a monthly basis to talk about foreign issues of fair magazine -- affairs magazine.

foreign affairs and he does it well with thoughtful reading with essays by secretary pompeo and also by the former treasury secretary treasury of the united states. that jacob lew and gideon rose can be here. ing a question. gideon, you have new article on authoritarian in saudi arabia. give us your opinion. gideon: this is not shocking. the saudi regime does not take this lightly, and they have gone after internal critics in many respects in the past. many regimes have done this in an unsavory way. when napoleon did something similar and got criticize for, his foreign minister famously

said, it was worse than a crime, it was a blunder because it made everybody upset. what the saudi's have done was not a crime only but a blunder. they have made everybody upset. the reality is this crisis will blow over. relations withak saudi arabia over it. the issue is getting past it for the diplomats. how that happens will be interesting. tom: for the diplomats, secretary mnuchin, willie it tend conference? the stories coming out of there are nothing but horrific that the journalist was murdered for reporting offends basic values. i have made it my business from advising my predecessor. i can say that when i was secretary and we had to make a decision about whether american

business people should attend a business conference in russia while russia was occupying crimea and moving in the eastern ukraine, i advised them not to go. mr. lou, how does it affect foreign relations? what kind of advice would you have taken on the next step for the u.s. and saudi arabia. jack: the issue is a very serious one. it has to be engaged directly. you have to understand what the s on the ground are. it is taken too long to get to a clear explanation of what happened and the stories only make it worse. the conversations that have been going on between secretary pompeo and the leaders in saudi arabia hopefully will provide

some more clear understanding. i am not sure will ever understand exactly what happened. havewill need to recognition that this kind of behavior is unacceptable. in the united states, we have, located relationships all over the world, but it has hav had a line that it been drawn in core values. will it hurt business? this is a complicated question of how to deal with allies that could have questionable morals. jack: the idea of using economic sanctions is what i wrote in the current issue of foreign affairs. i believe using economic leadership and power is an appropriate use of power and a powerful tool. the question is how you do it. you have the opportunity to

inflict pain, but the goal of using economic pressure is not just to cause pain, but to change policies. you have to articulate the policy, how it would be used to a comp a ship, and do it in a way where the united states is addressing the community. as a general model, using economic power uses care and show -- require's care and skill. with a walk-through of american history and sanction, but the criticisms of the trump let's bring up the article. president's administration is behaving as if the united states is immune to consequences. it goes on to say unilateral actions, and then he shifts. it will fall to congress and honest reckoning on the part of u.s. policymakers with the limits of american power.

gideon, can congress come to a diplomatic rescue? gideon: congress has lots of power and that some point has played a part in american foreign-policy. they're not doing now so much. tom: can they? gideon: people in washington can do anything if they choose to. tom: this is what you do when jack lew works with tip o'neill in massachusetts. the has to be a pragmatic view coming out of the midterm elections where if we are going to go to multilateral but some new lateral and what would you like to see, whatever the form of congress and senate is. the united states should work multilaterally when we can but reserve the right to work unilaterally when we need to.

the question is -- do we go around the world as we are with tariffs and acting a way that violates norms that we helped to define. withdrawing from the iran deal and leaving all of our allies in with countriesn like china and russia that cooperated with us objecting to what we are doing. that will happen in a few days when secondary sanctions kick in because the united states withdrew. the argument i make in the article is that there is a powerful tool you need to treat as a total of some limitation. it comes from the centrality of the dollar as the world's reserve currency. it is not a good thing when you see countries were going china to develop alternative payment systems to get around the dollar. this is not do you turn a switch and move away from the dollar, it is a decades long process. it is against ne u.s. national policy.

unilateralism is driving that process to speed up. reserving the right to use that on every issue. y just afghan the campaign promises? they didn't expect to follow what peoplethis is voted for them for. gideon: when you are elected, it is a contract with the people and how you exercise that power has to reflect the facts on the ground and strategic questions about how do you preserve u.s. influence. u.s. power over the long-term is a very serious consequence and something the american people don't want us to do. these are questions that require careful thought and careful analysis. tom asked can congress come to the rescue? congress is traditionally pushed

administrations. the idea that kind of leadership comes from congress is a bit backwards. we are not seeing the kind of careful leadership that we have seen in republican and democratic administrations in the past, which does not mean you don't use them, but you have to use them carefully. francine: if what you say is does the republican party not hold the trump administration to account? speak for the republican party, but i know ,ver my decades in public life there used to be a core in the republican party that we believe deeply in free trade. the thought it'd hands american influence and grew the economy. we now see a congress that is willing to step back when an administration puts in place like steel and aluminum tariffs on our closest allies, which is an attack on the corporate suppose of the atlantic alliance.

it does not make sense in terms of long-term national security. tom: we could keep this discussion going on all day. we welcome everyone on bloomberg and -- television and radio worldwide. you have a secretary of state occupied in riyadh with your lead article on iran. i love the subhead, and ran exposed. lew,you listen to jack gideon, is america exposed? to pick yourave fights. you cannot fight with everybody on everything. the united states is the most powerful in the world, and we can to play that leverage for our interests and values, but we cannot do everything. we have to pick and choose which fight you want. as they keepoblems fighting with everybody. iran and china and russia.

essentially, everybody else. that diminishes leverage. at some point, people wonder if this is a guy we want to play with or should we organize a game by ourselves without the united states. that is the danger down the road. new there is the idea of debt and new deficit, congressional budget office driving this conversation. we're fine art & reine ise guess thate and brain suggesting an economic slowdown and could get to your a $2 trillion deficit. troubling.s is very usually deficits go up when you are in a recession or in a war. we do not usually drive the

deficit out of control when we are in a period of sustained high growth. first of all borrowing requirements will keep growing. focus ons with all the trade deficit, when you have fiscal deficit, you borrow money from overseas and drie drive up the trade deficit. it has an effect on interest rates. it drives up not just treasury rates but all rates in the economy. third, we need to have fiscal capacity when the economy needs it. we are in the 10th year of a recovery will not grow forever. we will wish we had more fiscal stimulus. tom: your charm is that you worked in the legislative branch in the years and then executive. many of you don't know that secretary lew served in state for a while. debt does it was become an addictive process for the beltway?

you have an unusual situation. there is no loud chorus for fiscal responsibility. we blew a hole in any plan for fiscal balance. progressives are saying, two wereratic administrations fiscally responsible and what did they do? they followed by republican administrations that spent more than we had on tax cuts. i am worried that putting together in a coalition about fiscal responsibility is harder. tom: i would point out is that rose was on the council with his deficit knowledge over the years. francine: i like that charm, what i want to talk about dollar as a reserve currency. this is something you alluded to when we started the conversation. why does it not actually lose its appeal in less than 10 years

if the u.s. continues going the way it is? , i do nothe moment see an alternative out there. there were times when people thought either the euro or the yen or the r&b would emerge as a near-term alternative. if you look over the next five or 10 years, it is hard to imagine that it will be a process that is that quick. i am being very careful when i say this is a multi-decade process. the special position the united states has in the world because the dollar is the world reserve currency is one of the reasons we have the ability to have the most liquid bond market in the world and the reason we can exercise sanctions authority we exercise. a consequence for the united states to maintain that. if you turn up to speed on a movement away it is against the national interest. i am not predicting it will be in the next five or 10 years.

i think if there were an alternative, i might be in a position where i would be more concerned about it being quicker . it is pretty scary if you take what could be a 50 year process and accelerated by 10 to 20 years. francine: does china want to be that? do they fill that vacuum? jack: china wants to have it both ways. they want to be taken seriously as one of the two major economies. they wanted their currency to be accepted by the imf. they don't want their currency to be fully convertible and subject to all market pressures the way it world reserve currency would have to be. do they want that in the long-term? possibly. i think their conversations between chinese and europe looking at ways to alternatives to settling in dollars and going through things like swift. tom: one final question with

secretary lew. was democratic party distracted over the last 24 and the debate. to does your party get back what you lived a number of decades ago? jack: i hear a lot of discussion about where is the democratic party going? in a few weeks, on election day, we will see whether or not democrats win a majority in the house. the arithmetic is straightforward. if we win bet the majority, it will be because we picked up central seats and switch overs and you'll see a group of new faces and new moderates come to washington. where inot a moment

expects a broad bipartisan revival. i think it will be a breath of fresh air if we see some faces looking at how do we get things done and solved problems? that will start to become part of the debate about where is the democratic party going. tom: congratulation on your article in foreign affairs. jack: thank you for having me. tom: or is taylor riggs. taylor: blackrock reporting adjusted earnings for the third corning's ahead of the high analysts at $7.52. one of the most prominent investors in digital currencies doesn't expect big moves a bitcoin and till next year. he spoke to erik schatzker. >> you have to take out 6801st.

first. i don't see us breaking 10,000 by the end of the year, but in q1 or q2, could put in new highs. taylor: that is your "bloomberg business flash.". us. gideon rose is with do nuclear weapons matter? i will touch on that in a bit. you touch on this many times in a new issue. the bavarian elections -- i was thunderstruck by that distribution. we ended up with a barbell outcome over to the far right here to people called by that and they go to some form of aggressive is that the new america as well? gideon: it is hard to figure out foreign politics let alone american. there is a lot of passion and emotion going around. the established mainstream and all these countries have lost a lot of legitimacy and respect.

it is not creating dynamic leadership to the problems out there. the extremes are getting a lot more attraction. what is your reasoning for how america has handled extremes and culture wars before? i like the idea that this is a very long process that we have been to this before. there are cycles in american history or periods in which there are angels battling with each other. in the long run, things tend to work out in a higher plane, that there are a lot of problems and downturns. we're in for a long period of fights not over just america -- policies, but what the real priority should be. it will not get better after november but worse. francine: this is not a u.s. thing, is it? we see it with so, italy, across the world.

where does it end? gideon: this is one of the great challenges. in one sense, a lot of people are looking for collective leadership, but when they can't find good, collective leadership, they resort to opting out with outsiders who basically say, fill out these guys and give it to us and we can do something new and interesting. the challenge is, elect of time to ms. him of centrist policy makers is fueling the extremes. we need a collective leadership not just from the united states but major allies to show there is a global solution for some of the major problems. immigration and economic flows and debt crisis and the trade war right now. unless there is going to be collective solutions to some of the problems, the domestic turmoil will increase in various countries rather than decrease. tom: gideon rose with foreign

affairs. we always celebrate important essays. robert nardelli has been a good friend of the show. coming up, without question, my most important discussion with robert nardelli ever. we will talk to bob about industry process and the collapse of his general collector. that will be timely. please stay with us. from london and new york, this is "bloomberg surveillance." ♪

francine: this is "bloomberg surveillance.". we are talking geopolitics, but let's get to taylor riggs.

taylor: u.s. defense secretary james mattis is playing down tensions with regime. he said the u.s. is not out to contain china and was cooperating whenever possible. he said there would be times when they would "step on each other's toes." china canceled talks with him that were set for this month. the u.s. budget deficit has a six year high in donald trump's first full fiscal year. increases boosted the deficit to $779 billion. it was 17% wider than a year ago . spending rose 3% and revenue up with 4%. -- .4%. fastest inng for the a decade. average earnings rose more than 3% in august. that is below that precrisis average good unemployment held at a 43 year low of 4%. in brazil, far right presidential candidate has built

up a large lead over a leftist rival in the latest polls. the survey shows him with a 59-51 lead over the worker party candidate. the runoff election is a total 28. global news 24 hours a day, online and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. riggs.lor this is bloomberg. tom: thanks so much. gideon rose is with us who celebrates foreign affairs' new with with important essays mike pompeo and jacob lew. i have been waiting for this interview. mrs. robert nardelli. out of western university and land south of louisville at the k what was itpar like?

robert: it was amazing. the job market was tight then. offered to join ponderosa steakhouse. tom: there you go. and i wasgot a break a manufacturing engineer on the shop floor in building five. tom: you are boring and did power systems and the financial guys came in. what did the financial engineering guys get wrong as they show to the door? there were a lot of things. when i left and i had the honor of working with jeff welch, was a tremendous friend and mentor and i/o a lot to him and the opportunities at general electric going forward, home depot etc.. we lost the intensity that jack had and the accountability.

he talked about, let's have people with energy. tom: financial controls? a positive way. we had responsibility and accountability. we had operating views and attention to detail. ned in theat wa transition from jack to jeff. some of the cornerstones of general electric were gone, appliances on the way out, transportation, nbc universal. now we hear medical systems and health car sys than what i remer it is heartbreaking. francine: it's a different company, but a different environment. it is more difficult to run the company now than it was back then. is that fair? robert: i think it is a function

of who is leading the company and you have to have clarity of vision. you have to have mission direct responsibility and accountability. fallen out ofhave favor, not because they aren't effective, but we have lost leadership and attention to detail. we are being distracted. the project i am working on now, we have all read about good to great, we will take a look at great to gone. if you look at what happened to sears and kmart and general electric and toys "r" us. there is a plethora of companies, but connor to that, look at honeywell and what cody did leaving ge to run honeywell, a major conglomerate. you look at what was done at boeing. i don't think conglomerates are out of favor, it is leadership. francine: conglomerates are difficult to manage, especially when thing is moving to tech valuations and everything is

being automated and sold online. if he talked about industrial conglomerates, they are not being sold online. they are being sold as they always have been, business to business. what is lost there is the importance of either you innovate or you will evaporate. tom: you mentioned a conglomerate and what are the best practices that will be brought to ge to not make another conglomerate? robert: there and i worked together in receipt, wisconsin and he haswisconsin clear direction. they sold $1 billion of assets in a portfolio with 20 companies. he invested money in 20 experience.

that is what he did at danner. will bring clarity and frequency of communication to the people. i have to ask this question could wear down 35% in the ford motor company. four?ould you do at mullally was there and everything was wonderful and now it is tapered. instrumental in mortgaging everything, including the oval during the downturn in 2007 through 2009. they needed a ton of cash to weather the downturn. that had tremendous foresight and what they thought was going to happen. ford now needs to regroup. they have had to ceos. tom: are you available? robert: i am always available for you, tom. tom: we will do autos in a

minute. francine? francine: i had a good conversation with the current executive of four in new york and was it a mistake to cut down on the cars that were the american icons? robert: when i went to chrysler, we had a similar situation. the beautiful thing about it was that we were private and able to make decisions. we have four platforms where we lost between $500 in $600 on the hood. said let's discontinue those we can make them but the consumer does not want them. you have to have market focus and consumers have the poll the products. that is what we see with electric vehicles. a lot of technology, but consumers have to pull them. , youine: to be very clear need to make a car people want to buy. is it about lines?

what is it that people want to buy this one and not the other one? we tend to live in the past. when we were cutting platforms, i got questions from my operating people saying how am i going to cover my overhead? youid that is a challenge have to address. we can't continue to subsidize platforms that people aren't buying just to be able to absorb manufacturing overhead. we have to make clear decisions quickly and decisively. if you have platforms that are not selling and you put incentives to the dealer to take them, then you had to put incentives on them to move into the consumer. you have a black platform. tom: gideon rose is taking those on all this talk now. this goes to the heart of your work and also richard haass'. ofs is been the foundation foreign relations, to make foreign affairs go. are we losing that within mr. trump's criticism of globalism? gideon: what bogner delly said

about -- it is how you just put it. we have to study how to go from great to gone and that is from lack of leadership. the united states is at the top of the world but not exercising systemic leadership. is, that will create a cycle that will make it go from great to gone. kid,when nardelli was a there was a buick sign in shanghai. remember the big sign and you looked out of the grand hyatt? we have lost that projection. precedentpredecesso criticizing globalism. robert: i am not sure what his views are about. they have been trying to ask him

why he thinks this way about trade and he said he always has. tom: he got a from his father and it was from another time. robert: the economists all say what we are doing is on a fast track to disaster. on corporate focus tax reduction, repatriation of x and changes on cap taxes. corporate america has never been .tronger and more vibrant it is amazing how we have taken a second chair to all the external events impacting the economy. that is a great point. one of the challenges is to link up domestic economy to global economy. there is a juncture in which policy tools have been used to goose the american economy. it is not makeup international. francine: if you are a global

executive, dohief you listen to what the trump administration is saying and change supply chain? is it just noise? they think the gdp is around 3.7 p wear a full point higher than the government. three point seven. we are about a full point higher than the government. watch for supplier cost reduction. corporate america thinks we can handle a 10% tariff impact. if it gets to 20%, that is a whole new game for a lot of us. the supply chain issue, we can manage through and there will be relocation and repatriation of manufacturing jobs. we see that already with unemployment at record lows and capital reinvestment at record highs. innovation coming back to core industrial conglomerates. francine: gideon, what we saw with the nafta 2.0 agreement

with the u.s. was that it was tough talk and then they put something together that was not too dissimilar to the original nafta agreement. will we see more of that across the world? gideon: the answer is probably yes. be president style seems to throw weight around and try to get a better deal. sometimes he is not interested in getting a better deal but he just wants to blow things up. the challenge comes to try to figure out how he's getting a better deal and when his trash talking in order to lay the ground for undermining and blowing something appeared. everybody is guessing and will have to watch. tom: gideon rose and bob nardelli, we will continue this conversation. here is taylor riggs. volkswagen's unit has agreed to settle and emissions piece in germany by paying $927 million.

this ends a long-running investigation of tampering to emissions diesel regulations. the former ceo, robert sadler, has been in custody since june. shares of the world's second largest truck maker falling today. the faulty component and emissions control set up of trucks sold in the biggest market. the swedish company says the bet fix the problem "could material." more big names pulling out of the saudi investment conference that has bee. andlatest, credit suisse there are allegations the saudi's killed a journalist. includingmpanies, bloomberg, have pulled out of the event. the world's largest retailer expects sales growth in the decades with walmart drawing in

more digital customers in a tier four against amazon. would bee 3% and that fast-paced since 2008. that is your "bloomberg business flash.". we will fund to banks. we are pleased to bring you robert nardelli. gideon rose is with us from foreign affairs magazine. gideon, you really covered this over the recent issues is the art of technology. that is the mystery and the impact and effect of technology on our nation. gideon: we were talking about online sales versus retail sales. the way technology is rippling through the economy and society, it will only get more significant. whether or not the jobs that usually come in the second phase

have created destruction when the new stuff comes back, is that going to happen? we don't know. are lower-priced goods and products and will they bring benefit? essentially, we are going into more turmoil because of technology and that will compound the turmoil from geopolitics. i'm involved with tech companies right now. if you look at the traditional financial services, the entry-level positions of doing audits is gone. that will all be done by robots. i have seen the examples today where they are doing accounts payable and receivable and all the grunt work is automated. if you look at any business today, they are using artificial intelligence. we are getting smarter about marketing and advertising. tom: remember this sears and roebuck catalog.

image of a guitar i couldn't afford in the sears catalog a million years ago. that was totally out of reach. one.t: i have i had a band and that is what i played. tom: it was the cool guitar to have. sears crushed on a competition basis people are be no competition? to besaid there's going so few survivors along the way. is that where we are at? jack: if you look at what happened to kmart and sears, i was running home depot at the time when eddie lampert picked up kmart. i was concerned because they would be able to move the appliance business. to 10% from 2% to 3% market share with appliances by increasing floor space. they had a convoluted system.

one had incentives. tom: they had complexity. jack: they do not bring simple vacations and get involved day-to-day in the operations of sears. francine: we were talking about conglomerates and if we look at business cases, a lot of them don't think they were compared are the shareholders concerned and do they understand conglomerates? if things are too complicated, do you lose shareholder face? robert: if you talk about the individual shareholder, they voted from experience and patriotism by ge. you had passive investors. if you look at institutional investors, they became more challenged to become the complexity of general electric. they were not able to understand it or in the last six or seven years, they were not able to explain it and justify it. when jack was there, there was no doubt that ge capital was a

major competitive advantage. looking at recent financial hits that ge took, those may have happened, but they would have been absorbed by the conglomerate we had and other companies being able to help pitch in and offset the impact. question, with jack lew and robert nardelli, it has been hard for gideon to talk about the cover in the magazine. war.y cares about nuclear in there is that war, taboo. his distillate to? -- is there still a taboo? gideon: nobody cares about nuclear weapons until they are brought in as a mechanism and this is the most important thing pay what we tried to do in this issue was pressed the question a little bit. do they really matter and what way? one subway think about it, do we

care whether the north koreans can blow up seoul, tokyo, honolulu, and/or seattle? they blow up so for many years -- they have been able to blow up so for many years spirit with new technology they could blowup tokyo and honolulu and eventually seattle. does that make any difference? tom: what is the conclusion? gideon: our policy right now says we will go to war before the later stages of that play out. that is an interesting question. the situation has been stable for 60 or 70 years in the peninsula because they happen able to blow up the south and we have been able to block the north and it was a standoff. how much added capacity will change their threat? before anybody wants to go to war with nuclear, take a look carefully at why you think you should care that much about a marginal increase in nuclear

capability. there are good reasons but others will want to do it. --ncine: gideon, went to war breaks out, before you go to the nuclear level of -- if we get to it conflict with china, you can see conventional operations escalating to a they

feel compelled to use nukes and our weaponry. that could strengthen deterrence if you violate the firebreak but the question we should choose whether we want nukes to come .nto normal or not remember, you can steal some of our charts. go to gtv it will make a new one looking at saudi markets. this is bloomberg. ♪

tom: i'm tom keene. it's good to a chart. alison williams. jp up in blue. goldman sachs not so. does goldman want to be a bank? how is the whole banking thing going.

they have a bigger opportunity in traditional banking. they are already leaders in so many businesses. looking at the consumer market, the big opportunity is that it is all white space. the announcement, even though a few years ago about late in the cycle, there was a news report that they have lowered their targets. is james gorman the smartest on the block? andon: he is delivering moving to wealth business. there are executing on trading. worston williams' nightmare, morgan stanley earnings out as well put she cannot see them which is painful. nicely, $9.9 in billion versus an estimate of 9.6 billion. of 1.6 with a lift

billion dollars, estimate $1.3 billion. we will have more on this through the morning. alison: my guess will be it is on the equity side. ipo's doubling. goldman sachs and morgan stanley are both strong. tom: was a distinctive feature done five to six years ago? alison: the shift to wealth management. he improved the margins. tom: not only during wealth management, but not doing other things. alison: there is a lot of talk about moving away from trading, but trade has been booming. courtside has been every for a couple of years. tom: you do great earnings without a computer. you don't need one. thank you so much. bob nardelli, thank you as well. jonathan ferro will break this down on bloomberg surveillance

on radio in a bit. this is bloomberg. ♪

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bank ceos flee from saudi arabia. they are the latest to pull out of the initiative investment. europe,showdown with they stand firm to the 2.4% deficit, setting a collision course with the eu. david: i am david westin right here with alix steel. board, they exceeded expectations. this was not up or down. alix: it's a blue pass with estimates that $1.29 billion. i haven't seen the breakdown of the equity trading. overall trading was slightly above last year. the equities will stiff-armed morgan stanley. david: there is a goal for return on equity. alix: it's hard