francine: the u.s. treasury avoids labeling china a currency manipulator and chinese stocks continue falling. debate, showing majorities favor going beyond neutral. trade tensions are cited as a considerable downside risk. and theresa may is set to consider a longer brexit transition, but eu leaders decided not to call a november summit. we are live in brussels. ♪ hello everyone and welcome.

these are your markets. we are seeing the stoxx 600 gaining some 0.6%, a lot of focus on china. things putins, some in place by the u.s. administration to make sure there are less chinese goods coming into the u.s.. looking at the 10 year yield after we heard the fed could go means neutral, what that is that investors are trying to figure out exactly how many hikes we will get here. the u.s. 10 year yield is 3.21. all eyes on brussels and theresa may with the possible extension. at can see the pound dollar 1.3 113. coming up, we have a good lineup of guests. we will speak to paul donovan from eds. and later on, we are joined by deutsche bank's chief economist.

first, straight to bloomberg first word news. here in london is juliette saly. >> president trump and his top diplomats cautioned against putting the u.s.-saudi relationship at risk over the disappearance of jamal khashoggi. the ceo of siemens says he is is torn on whether to go to the davos in the desert event in the kingdom. according to a bloomberg source, deutsche bank's christian sewing has not made up his mind either. several companies, including bloomberg, have pulled out of the future investment initiative event as media partners. theresa may is considering a plan to extend the brexit transition. bloomberg sources say the u.k. prime minister wants to keep britain bound to eu rules for 21 months after exit day. the move could potentially break the impasse of that eurosceptics in may's conservative party are speaking in brussels, she struck an upbeat tone on negotiations. onwe have made good progress

agreements and future partnerships. on the withdrawal agreement, there are issues remain. everybody, the backstop is what would come in place to ensure there will be no hard order if the future relationship is not in place by the end of the implication perio d. federal officials have stepped into a debate about how high to push interest rates. isy say the eventual rule above the interest rate. it came in notes to the most recent economic rejection, accompanying the minutes of the september meeting. japan's exports unexpectedly fell in september, the first drop in more than two years as natural disasters disrupted economic activity. a continued gain in imports was spurred by higher energy prices. global news, 24 hours a day on air and on twitter, powered by more than 2700

journalists and analysts in more than 120 countries. this is bloomberg. thank you so much. we are keeping on top of everything in china and saudi arabia, but also looking at what is happening in brussels. a lot of the focus when eu leaders meet, and you are looking at live pictures. you can see the austrian chancellor. the focus will be on brexit. a lot of focus will also be on italy. if you look at the brexit story, european leaders were very polite some may last night, but their verdict was clear, which is that theresa may have to consider a new way to break the border deadlock. so we are looking at donald tusk, who inflamed, i guess, some of the anti-european sentiment here in the u.k. by instagramming something about a -- cak onfternoon to

to china. e and afternoon tea gone wrong. despite the concession, the yuan remains of the administration's watchlist. the currency hit its lowest levels since 2017 after the release of the report. meanwhile, the trade war has turned to mail. -- donald trump is thinking of pulling out of a treaty with china. u.s. officials said the administration soft to receive -- revise the treaty but was rebuffed by other nations. joining us for more on all of this is joe schneider, bloomberg's senior international editor in hong kong. what has been in the response from the treasury department report? a sickly stopsrt

just short of labeling china a currency manipulator. they said it did not meet the requirements to be called a manipulator, but it was not a favorable report and said that, basically, the u.s. would be keeping a particular eye on currency. yuan to weaken to its lowest level in some time. and there is real concern now about whether it could hit that psychological level of seven, which would be the lowest in the decade. have seen a market implications, but we have not heard officially from china. but about the measure you mentioned about the postal agreement, china has said it would retaliate on any kind of tariffs or trade actions. so we may see something on the other side on that. francine: what kind of retaliation could we be getting? is unclear what china could do at this point.

but in this trade war, we have seen back and forth each time the u.s. has acted and the -- and china has come back with retaliation. there are no new talks scheduled, so it is anticipated that we will not see the level of the trade war lower. but had that report come back with china labeled as a currency manipulator, we probably would have seen an escalation. so right now, a tempering of things, but that report stopped just short of that label. francine: thanks so much. jodi schneider, senior international editor in hong kong. so how is the trade war affecting trade? joining us now are our guests thank you, the a-team we have on today. talk to me about china. the fact that they were not

called a currency manipulator. does it counterbalance the trade rhetoric? >> i think it would have made a big difference if they had labeled them a currency minute later because the base case was that they would not, as your report indicated, china did not meet the requirement. that would have been a major ratcheting up of tensions, so it is good news. clearly, the report is written in a way to keep maximum pressure on china. theakes clear that treasurer is not happy and says china is not doing enough to prevent its currency from depreciating and should do more. but i would say this is in line with the base case, a no escalation scenario. and now we are waiting to see how this pans out. forward, it is still the

case that, in response to further tariffs, it would not be a natural for the yuan to depreciate and it is probably not very healthy to have a fixation around that threshold, which is completely meaningless, economically. francine: paul? the tensions in trade do seem to be expanding a little bit. not only have we got this pointed report on china, just under a third of the report was china china china. but we have also got rising tensions with the eu, the two sides having a temper tantrum over negotiations. risk is that trade is coming back onto the agenda again. that the u.s.ing market, at least until last week, had not properly factored in. now we are starting to see more and more of the taxing of u.s. companies and consumers coming on.

francine: what does it mean? what does it mean that the u.s. is now ratcheting that up? is that significant? and goes to the heart of hurting some of what they do, retail. paul: it hurts the consumer directly. that is the person who really pays. now anything an american bonds will cost them more money. it is also a visible tax. that is changing the game, somewhat. a lot of the taxes they have put in have been hidden, but this becomes a lot more visible. if you are directly seeing your posting and packaging rate go up, that is a problem. how does it hurt china? because affects their market, but in europe, entirely unaffected china's market in canada and mexico, unaffected. impact forre of a the american consumer them

china. are we still worried about debt? not just the feedback loop but shadow banking. the chinese authorities have this delicate balance to strike between offsetting the chilling impact of the trade war and not losing sight of longer-term goals of ensuring financial stability and deleveraging the economy. they are doing this by saying, ok, we are no longer aiming to reduce deleveraging the economy. but, if the pressure in the headwind from trade becomes stronger, it will be an increasingly difficult balancing act, and that is where the exchange rate comes in. that is an additional variable they can play with. i would say the good news is they are not losing sight of this objective, but they are going to move more slowly. that's probably good news.

francine: what does that mean overall? paul: probably further downward pressures. isabelle: unless we come to a resolution of the trade issues. but if i can read out on something paul said, until last week or so, the market assumption was that trade issues outside of u.s. china are now under control, unlikely to see further escalation,. at the kind of news we got in recent days is really challenging that assumption. had seen our gauge of market attention to global trade tension go down significantly. there is a risk that this will go back up and we will see additional risk premiums . francine: paul? paul: i will take a different stance. i think they will take a different ance.

having the dollar depreciated is one thing, but to devaluation against all currencies, that raises risk for china. been portrayed itself as them being bullied by the united states, and china does not have a problem with anybody else. nobody does, it is only the u.s.. 1930's, it is a very bilateral u.s. versus the world situation. exports isat china imported from somewhere else first. so you would have to get a big shift to have a meaningful impact to offset the taxes trump is putting on u.s. consumers. francine: thank you both. up next, the great rate debate. look at thetailed fomc minutes and what it means for the markets. this is bloomberg.

♪ francine: economics, finance,

politics, this is "bloomberg: surveillance. " officials have stepped into a debate over interest rates and feature a move about the so-called neutral rate. this comes in note to the most recent economic projections, accompanying the minutes of the september meeting. recently, the fed has come under criticism, take a listen at how trump has to scrapped -- describe the jay powell. fed. biggest threat is the the fed is raising rates too fast. i don't speak to them, but i'm not happy does it is too fast.

i think the fed is far too stringent and they are making a mistake. and it's not right. and despite that, we are doing very well. but it is not necessary, in my opinion and i think i know about it better than they do, believe me. i think the fed is making a mistake. two tight. i think the fed has gone crazy. you can say it's a lot of safety, it is a lot of safety, a lot of margins. but i think they have gone crazy. a person who, hopefully, will do a fantastic job. and i have somebody very specific in mind. i think everybody will be very impressed. francine: so what's next for central banks and how is it moving markets? our guests are still with us. hall, the markets seem to be freaked out about the rate path.

what did you take of the rates yesterday? it is saying clearly that there is no risk of recession, the risk is overheating. you do not run a restrictive policy unless there is a risk. apart from that, they are saying it is hike fall, hike fall, hike fall, why are you questioning this? that was a consistent part of the minutes. but i think what the market forgets is that the fed is not sitting there in a vacuum without access to a bloomberg terminal, the fed knows what it is doing. if they are raising rates, there is a reason. and that will be because the economy requires it. i do not think we should be scared about what they are protecting, it is a signal you have got an economy at full employment with normal inflation and a deficit financed tax cut that has not helped stability. of course the fed will carry on. , when theysabelle

say they need to raise rates and the market falls out of bed a little bit, is it because they not used tong or thinking it will be a more normal monetary policy? now, there is a debate about how strong is the u.s. economy going to be, looking forward. the fed is saying it is quite confident the economy is strong, and if anything, the risks are tilted to the upside. a lot of people in the markets bee doubt that they will strong enough for the fed to continue hiking. i think that is the note of the debate. the markets freaked out a little suggested thel fed was far from neutral. but what was interesting was there was nothing to suggest

that this was a widely held view , and if anything, there was a broad range of views of exactly how far above neutral we would go. . in that sense, not a lot of new news. francine: talk to me about this chart, looking at neutral as a concept and not a number. do we look at it as a range? one of the problems we got with this concept of neutrality is central banks do not operate on monetary policy alone. what is neutral is a question for quantitative policy, and to some extent, for regulatory policy. with a fed balance sheet that is 20% of gdp and limited liquidity demand is a very different from neutral with a fed balance sheet that is 20% of gdp and strong liquidity demand. it is all about the balance of

liquidity. and i think there is too much of session about what is the number. economists should not give numbers, in my view. we should be nice and they come vague, it is-- and ranges. the market could spend less time worrying about precise points. it is a range and a concept, we will know it when we get there. tell would bewill getting to neutral at the markets should stop panicking. francine: we will get back to this idea shortly. both stay withle us. we had quite a lot of earnings, especially tech. we had numbers from europe's biggest tech company, raising projections for the year on what it says is accelerating momentum. with earnings season underway, tech will be closely watched for

any signs of impact from trade war. thisector has outperformed year, but following a selloff last week, a stocks have a lot to prove as they struggle to come back -- climbed back. let's get the details from our reporter. all, shares are down. what are analysts worried about? down thisshares are morning. the company did raise its forecast, but analysts, nevertheless, question some of the cloud growth and were not happy with the operating profit and how margins developed. stefan: so that was sort of the negative side from the analysts. francine: what our trade tensions, but also, how is brexit impacting business? stefan: it is interesting. most companies would say that these issues, trade tensions and

brexit, would affect the company negatively. we areand fees says that stronger because of those things. we can benefit from trade tensions and brexit because we give companies tools and services to better maneuver these issues and to come out of those issues more resilient. said earlier how he feels that s&p can benefit from those trends. francine: thanks so much. bloomberg's tech reporter in berlin. if theing to ask you markets are crazy on the fact, but i have to ask you about tech. our markets too lazy because they have just been guided? isabelle: i don't think markets are lazy. i think they are trying to figure out what to do next. has been about

getting it right for a long time and expecting the fed to deliver less than you did. -- it did. the gap is not huge. our expectation is around three rate hikes over the next 12 months. the on that, things get more uncertain. has done ahe fed good job of closing that gap between its initial signaling and market expectations without dramatic repricing. sure, we had a correction in recent weeks, but i think the reality is as paul was saying, neither the market nor the fed knows exactly what is neutral or how strong the economy is going forward. keep somed to uncertainty and focus on every data point available. francine: will they be worried about escalating trade tensions? paul: i think they should be concerned.

a sales tax, which is what a tariff is, is, in the short-term, inflationary. but what trump is doing is raising taxes on the u.s. consumer. if you are raising taxes inherently, that is disinflationary. but it needs to be larger than what we are seeing. the fed is focusing attention on this. ,f you look at the beige book the discussions of the fed, it is a topic of focus. but it is not enough to derail the current tightening position. and let's are under, the u.s. is a relatively closed economy. less important than what the small business sector is doing, which is not engaged in trade, and small business is doing rather well. francine: talk to me about earnings overall. it depends on the sector, but tech is surprising analysts on the upside. of focus onlot

earnings. we are only a few days into the season, but i think we are of theing a pattern previous quarters where markets take good news for granted. and react really badly to any signs of bad news or walls. are not willing to extrapolate far into the future the earnings growth. so far, the numbers we have seen confirm the economy in the u.s. and globally is in great shape. hopefully, that will continue to be the case. francine: thanks so much. both stay with us. coming up right here, we will have plenty more on brexit. we also speak about what is happening in saudi. this is bloomberg. ♪

francine: economics, finance, politics. this is "bloomberg surveillance ."

it's high time for canada. lining up ine been canada to buy weed for the first time. luxury brands are never's about china. -- nervous about china. our most read stories, in third place, theresa may is said to consider a longer transition period to break the brexit deadlock. of u.s. treasury stops short declaring china a currency manipulator. over thel backlash murder of a saudi journalist puts the country to defend its own pnts. -- prince. economists we have spoken to were looking at a 0.4% drop, it is actually 0.8%.

we will talk brexit and the u.k. economy next. let's get straight to bloomberg first for news. --o -- word news. juliette: president trump plans thatll out of a treaty since chinese packages to american consumers. hasu.s. treasury department stopped short of declaring china a currency manipulator in its semiannual fx report. steven mnuchin said his department would watch the yuan closely after its recent slide. tradermer u.s. deputy ambassador told bloomberg that tensions between the two countries are still high. >> i don't think anyone expected china to be named, particularly given the strict criteria in the

statute for naming any country. that doesn't mean there is no trade tensions between the u.s. and china. in some ways, china dots of a lit with this report. juliette: officials have stepped deeper into a debate over how high to push interest rates. a majority favor a temporary move about the neutral rates. the views became amidst recent projections. global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm juliette saly. this is bloomberg. state,e: as secretary of mike pompeo returns from his trip to saudi arabia and turkey, donald trump has warned about putting the u.s. at risk over the journalist crisis. >> saudi arabia has been a very

important ally of us in the middle east. we are stopping iran. dealok away the ridiculous made by the previous $150istration, which was billion and $1.8 billion in cash. meanwhile, major companies registered for the davos in the desert conference attending.on several companies have pulled out including bloomberg is media partners. what do we know about where the investigation is? there are a lot of media reports that weres to mbs present when the journalist vanished.when will we hear saudi arabia come up with an explanation ? >> we still do not have a

timeline. far, there is no transparency on how this investigation is being carried out, how it is being carried out, what parameters are therefore it. none of that has come out from the saudi side so far. we are literally in the dark. francine: what would be the worst case scenario for saudi arabia? a lot of chief executives have pulled out of the conference, including some finance ministers. does it put at risk for an direct investment in the country? ways.: it does in many foreign investment in the country was already dwindling. last year, it dropped by over 80%. there were hopes when he talked to bloomberg couple of weeks ago, he had hopes and said this will recover. it still will be below the 2016

level. this conference is becoming a headache for a lot of international ceos and business leaders because you are looking at a situation where the company is having to weigh whether to go now and risk their reputation, are basically risk being cut out of business. so far, a lot of them are leaving, but we are also finding havehat many of them senior executives planning to attend. the conference took out the names of the attendees to avoid putting pressure on them. as far as we know, they are still planning to hold it next week. to me about the economic relationship between the u.s. and saudi arabia. what would happen if the u.s. were to actually cancel the arms deal are whether they would put sanctions?

b: it does definitely mean a lot for saudi arabia because canceling arms, for saudi arabia to change and buy arms from russia or china won't be easy. a lot of their systems are american and they would have to make a lot of investments to integrate those systems. it won't be an easy option for them. that would definitely hinder them. analysts tommy this at hinder -- tell me this would hinder their efforts in the war in yemen and so on. there's a lot riding on this to containing iran to many other issues aside from investment and just economics. francine: thank you so much. let's get back to our guest .ost, paul donovan

when you look at the saudi fallout, there are a number of -- what would be the biggest fallout? is a direct foreign investment, money that comes from the kingdom elsewhere or the price of oil? >> from the standpoint of global markets, the key question is, should we be worried about the global supply of oil? best case was whereby to get the iranian oil out of the market. that, we't be sure of could see another leg up in the oil price. that matters because we are now the price range where it is really beginning to hurt, particularly a member of emerging markets that are importers. i would say there are questions

in terms of economic impact for saudi arabia and potential headwinds to its plan to diversify its economy. very country specific. the concern for global markets is, can my be assured there is going to be enough oil supply in the next 3-6 months or not? that could be very destabilizing. we are not there yet, but something to watch. francine: let me bring you to my chart which shows the reliance of the u.s. to saudi arabia in --de, which has been billed has dwindled because of show producers coming back on. producers coming back on. saudione of the issues in , is that saudi would be acting unilaterally. there wouldn't be an opec deal, own.uld be saudi on its

the loss of volume for saudi arabia would not be compensated by the rise in the price. in other words, saudi oil revenues would go down. the kingdom very much needs those oil revenues. we are not in the 1970's. they have enormous spending commitments. they have been spending the last overselling -- selling down oil prices. if they were to lose oil revenues, saudi arabia would be facing rather tough choices. i think there are economic arguments against too aggressive action withrd -- regards to oil prices. that is not going to be the main concern. i suspect, if there is a process of sanctions, it will be diplomatic and qualified diplomatic retaliation rather than oil or assets. francine: thank you both. isabelle and paul stay with us.

coming up, will she are once she. theresa may says she does not brexit transition period. we are live in brussels to figure it out. this is bloomberg. ♪

francine: this is our weekly brexit show live from our london headquarters. theresa may says she does not expect to extend the brexit transition period. the move could break the deadlock on talks which has stalled on the issue of the irish border. we are working with the

european union to deal with this issue of ensuring that if there is a gap between the end of the implantation. period in the future of the relationship, we want to ensure there is no hard border between northern ireland and ireland. francine: let's take a look at the headlines in the british papers. the right wing daily mail says that the description of any transition period is in limbo. for more on all of this, let's get straight to maria who joins us from brussels. why wouldn't a transition period actually help theresa may? this morning, i want to point out that we did hear from theresa may who has said this is

an idea that could be considered for only a few months, and it may not have to be used at all. it confirms the story that we when crewsay night said this had been openly debated. does it solve the irish backstop problem? it does not. european leaders have made a very clear, it gets you time, that we still need a backstop. -- in to be an operation operation by the time the u.k. leaves the european union. what this is shows you is that theresa may is willing to make tough decisions to make sure she gets this trade deal. political speaking, this is a tough decision in london. brexiteers already argue the plan is doomed to fail and will not tell you we have to stick closer to the european union, perhaps paying billions of pounds into the european union and still get no say. this shows that theresa may is willing to make decisions to make sure this trade deal takes

place. francine: thank you so much. joining us for the very latest on this is henry newman, isabelle and paul. welcome to the program. when you look at what is going on behind the scenes. a transition period that is extended would allow some kind of technology to deal with the irish border, wouldn't it? henry: maybe. the only route is a backstop that can't be resolved. the ironic position we are now in its because we can't come up with an answer on an insurance policy. we are in a position where we make it to no deal and the irish border may become harder. we are stuck in this loop. back in theying summer, you agree to a backstop.

i think theresa may is in a total bind. eu leaders are saying she didn't turn up with any new ideas last night. that is true, but i don't think there are any new ideas. i think they need to soften. i don't see a way through other than the eu accepting that they are asking the impossible from the u.k. they are asking them to divide up their territory. francine: but then the u.k. voted for brexit. grandthey did but in the tradition of every european agreement, this will be a last-minute deal. the point is, this is not the last minute. francine: that would be a big concession for the eu to back

down. paul: but it is the one area where they have to. if you are going to avoid a hard exit, this is the choice. this is something that is not perhaps appreciated in europe. territorialnt to integrity. european borders have shifted quite a bit in recent years. u.k. has not changed since the 1920's. this is a bit more payment in the u.k. -- vehement in the u.k. it doesn't seem like the market is making it this way, i think there is an understanding that we are in the. -- in the period of maximum noise. it is likely to stay that way until we get closer to the real deadline. there has been a number of artificial deadlines. the mood music from last night it was on theent

side.ve there have been rumors if things went wrong, the november summit would go ahead with a focus on how do we do a no guilt brexit that hasn't been in the script? our baseline scenario remains overwhelmingly that there will be a deal with some concessions on both sides. clearly, this idea of having annexed a year or two to resolve the unresolvable can probably help reach a deal in due course. theresa may will face tremendous difficulty getting any deal at all from parliament, given the different unreconciled apple -- and reconcilable differences. it is not surprising that we are where we are and markets are taking it in a quite relaxed way. francine: what is the chance of a no deal at this point?

henry: i think high. trying to be optimistic and say it is overwhelmingly likely the eu will recognize that it is impossible. a deal is in both side's interest. it would be a political and strategic disaster for europe. it would mean that relationships had broken down across the continent. how can we cooperate on security and foreign policy, let alone on trade and everything else? with anuldn't agree insurance policy to avoid the hardening of the border, that would make it difficult for the u.k. to continue cooperating on foreign policy. do u.k. could weather a separation. it is a small, but material impact on our growth overall in a 13 your period. i think the disruption would be

profound. at the end of a 2.5 year negotiation period, both sides couldn't come up with -- what we have seen yet again is the prime minister is given 15 or 20 minutes to make her case. this is the first european council meeting since june. they had an informal council meeting, that they're not giving her the time -- francine: i'm sure there are phone calls. they must be. channels. henry: of course they are happening. if the eu is really serious about coming to an agreement, they need to work out a way through a compromise. that is what all negotiations ultimately require. the eu'position is on unsustainable.

they are saying that part of the u.k. must be in the single market. another there are 50 ways that brexit could be dealt with, so 50 ways for the pound to go. what is your base case? paul: the base case is that we will get a deal at the last minute. in the near term, you're going to get all of this noise. we are in the peak noise period. the markets are somewhat a new to that, but i think it does give you some downside. there was an interesting report from the bank of england which suggested that the current account deficit and the u.k. is largely being funded by investors using accumulated wealth to finance the deficit. that perhaps might lessen some of the pressure on sterling u.k. investors tend to understand u.k. politics better than foreign investors do. francine: thank you so much.

up next, we will take a look at what markets are doing and europe.we also have a little bit of movement on treasury . this is bloomberg. ♪

francine: economics, finance, politics. this is "bloomberg surveillance ." let's check in on the markets. this by losses coming through in asian markets, we are seeing pretty good buying and his european markets. the stoxx 600 index rising. italian assets in focus as we hear the finance minister is scheduled to meet with the eu commission in rome. we are hearing the eu may reject italy's budget plan. the u.s. a seeing good moves coming in from health-care stocks in europe. earnings season very much in season. the frontrunner on the cac 40. it is something most since july 27 after it strong third-quarter sales. several upgrades. erickson also doing very well. it has pushed into 5g.

unilever coming under a bit of pressure. this as investors worry about the future of the company, still looking for the ceo. you did see a summer boost in ice cream sales. much.ne: thank you so "bloomberg surveillance." continues a next hour. tom keene joins me out of new york. withll also be speaking david. we will ask him about italian bonds and the italian budget. this is bloomberg. ♪

comcast business built the nation's largest gig-speed network. then went beyond. beyond chasing down network problems. to knowing when and where there's an issue. beyond network complexity. to a zero-touch, one-box world. optimizing performance and budget. beyond having questions. to getting answers. "activecore, how's my network?" "all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. francine: the u.s. treasury of calling china manipulator.

the great debate. trade tensions are cited as a considerable downside risk. theresa may is said to consider a longer brexit transition, but eu leaders decide not to call in november summit. this is "bloomberg surveillance ." markets.t the fed and there is a little bit of movement on renminbi on the back of china not being called a currency manipulator. tom: we are not yet on a seven 26.95 but getting almost for a brief moment this morning. almost to 6.95. francine: we are a good double act sometimes. yuan fell china, the

to its lowest since january 2017 hours after the u.s. treasury averted an escalation in a trade fight and stopped short of calling china a currency manipulator. steve mnuchin made it clear the u.s. will be watching closely after the yuan's. recent slide president trump is warning against putting the u.s.-saudi relationship at risk over the disappearance of a saudi journalist. the president says he hopes to have the results of a saudi investigation by the end of the week. turkish officials have said the saudi king killed the journalist inside his consulate. theresa may is considering a radical move to break the talks.k in brexit she is weighing a plan to stay tied to the european rules for a longer period.

buy it prolonging the tradition period, it could cost of the support of fellow conservatives in parliament. officials debated over how high to push interest rates. published showed a majority favored a temporary move above the level they think is neutral for the economy in the long run. were in a broader agreement over continuing a gradual path of rate hikes. global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: thanks so much. turning, i love the phrase, and impasse over the last couple of days. persistently weaker euro over the last 72 trading hours.

west texas down under $72 as brent crude gives way to an oil build. the renminbi, we had a 690 four half an hour ago. -- 6.94 an hour ago. the federal reserve may favor more rate hikes next year. there is debate over the neutral rate. we will discuss that with the deutsche bank chief economist. stocks a little bit mixed. afteroking at renminbis the u.s. treasury refrained from calling them a currency manipulator. tom: how about a moving average study from david? herehere is yuan, there he well

behaved coming off to mr. with a weakening yuan. we have just given way up near the seven renminbi level. i like that. what about talking about the neutral rate as well? this chart talks about the neutral rate and how the market is positioned. we were talking to the chief economy of ubs saying the market is lazy and not listening to what economists are saying. what i am looking at is neutral rate fed's estimate moving around with growth. a lot of people saying, if it goes above expectations, it means growth is much better. next.l discuss that the treasury department also stopping short of declaring china a currency manipulator in its semiannual report on rates. steve mnuchin said his department would watch the yuan closely.

the currency fell to its lowest levels since january 2017. has accusedump china of gaining value in the to gain value in trade. david is deutsche bank's chief economist. mean?l, what does this neutral,aying in because if they had said they were manipulating, it would have ratcheted up tensions. you would expect a weakness and the renminbi in trade negotiations, china is added disadvantage -- at a disadvantage. as it has become clear, it is not just about trade. is due forrelations

a rethinking. the trump administration is pushing that hard. and my sense, even in the meetings in argentina, it is coming up. there may be good is coming out of the g20 meetings, but fundamentally, it is an adversarial situation that will get worse. expect its continued weakness. i don't believe they are going 695 to 7.2rop from or 7.3. francine: do you worry about the fragility of the chinese economy? they are stimulating at home. there are capital outflows. the chinese have an ability to manage that more precisely and more than we can. their control over the banking

uasion, their moral s goes a long way to prevent runs and things like that. i would not expect any kind of precipitous reaction to this. an underlying weakness in the economy from here on out. growth will come down further. isre is always a potential something happening that we can't quite foresee. it is a situation to watch. tom: i can't believe i am saying this, but it was 15 years ago that you stop the traffic with a very important paper on the idea of six exchange rates over to flexible rates. in that, you talked about how you graduate to the center. i love that phrase. is china graduating to the center in foreign exchange or are they not? been, the idea we had effectively, there were two arrangements for the chinese

currency to the u.s. dollar. now that we are talking about having currency the let tony or -- volatility or movements as part of these trade negotiations, you can see future trade agreements locking in some sort of currency ranges as well. that will get us back to a more fixed exchange rate system. that is reviving itself. are within the reviving certain hints points. to be a point where capital flows shift. yuanu and your team have a level in your head where capital flows abruptly shift? david -- david: i don't think so because the chinese have administered controlled to prevent a sudden burst of capital flight.

that is unlikely to happen in china, but it would manifest itself as a continued weakness and pressure on the exchange rate. i would rather think in terms of rather than a discontinuous move. francine: we have a lot of geopolitics crisis or scandals coupled with some of these idiosyncratic moves, brazil, turkey. are you more worried about global growth now than you were six months ago? bit, but this is what you would expect. we have lived in a regime of extraordinarily high liquidity and low interest rates. , we arerecedes pretty soon hitting the point where the central bank balance sheets are contracting in the aggregate. huge discontinued shift in the monetary environment. all of those countries that have weaknesses like turkey, brazil,

argentina, they will show up as problems. i think this is to be expected when you have a change in the fundamental underlying monetary regime. francine: they could snowball into something negative for the economy as a whole, or does it remain idiosyncratic? david: absolutely. the core center of the global economy is the u.s. unemployment, 53 year low. that is kind of the driving engine of global growth. you cem countries as they react to capital outflows and rising interest rates, they have a recessionary tendency to come down. the u.s. remains the one and only real driver. i think there are concerns that this, ultimately is going to result in aggregate lower

growth. david, thrilled with deutsche bank's research over the summer. with david.inue coming up tomorrow, we are thrilled to bring you the gentleman who served as undersecretary of state, robert poor man's -- hormance. stay with us worldwide. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." is expanding further into the lucrative field of oncology.

it has agreed to buy it an american -- we spoke to the ceo of novartis. entereder this year, we therapy for oncology with a $4.4 billion acquisition of advanced accelerator applications. endocyte. i believe that will give us the footprint and portfolio to really own the space into the future for the treatment of cancers. francine: nestle -- taylor: nestle is losing its top executive in asia. the company says he is leaving at the end of the year. she couldpeculation be speaking the ceo -- seeking the ceo job at unilever. technologyggest

company has raised its forecast for the year. it sees momentum for its cloud business picking up. new cloud bookings rose 37% and a third quarter. we spoke to the company's cfo. >> are combined auto entry has been a 12%. i cannot stability not see any signs of deceleration. we have actually also increased our guidance for the combined cloud and software revenue for the full year. what we see is of course an accelerated revenue makeshift. our classical call license and support business is still resilient. taylor: that is your bloomberg business flash. francine: thank you so much. the eu commissioner met with italy's finance minister to discuss the country's budget.

the european commission has also said giving their approval risks invited a result from other governments. i think we're also hearing the finance minister speak at the moment. we heard the prime minister saying he refuses prejudices about budget. those are live pictures from the finance minister due to speak shortly and rome. overall, when you look at the italian situation, you think europe should give these guys a chance? david: you have to remember when you look at the basics, italian debt is not sustainable. it is far too far above what they can afford. there is no combination of variables they can achieve to make it sustainable. ultimately, it is being studied by the fact that investors theyve rightly or wrongly

will stand in for markets. the eu is being confrontational about markets. this.ne: it goes back to the 2.4% budget is because you coalition.asy both parties are trying to save some of the campaign promises. is 2.4% sustainable? david: i believe what italy needs is to jumpstart the economy. we need to stop talking about reforms. it is a matter of jumpstarting the economy. to make 2.4% the end-all bl is a mistake. they have all the rights to go forward. you have to remember where this debt came from. italy has been building up this debt in the 1950's, 1960's and

1970's. they have run a primary surplus from then until now. it is a most extraordinary thing. italy's fiscal deficit is beyond anyone -- what anyone in europe has done. surfacesulated primary are about 3% of gdp. italy is the most virtuous country in europe. to hit it with a baseball bat again and say you have to go down yet the gear a budget to make this sustainable but you criteria -- by eu defies all logic and criteria. from thes this threat eu and radicalizing the country and politics. i'm strongly on this -- on the side of the italians in this argument. tom: beautifully stated. what is so important is the idea of germany giving way to normal

fiscal processes. gettingve any chance of a debt workout process in europe, or does it just buttress up against ancient culture? david: i think the question is a ways off. i don't think it makes much sense to start speculating about that now. for now, we know something has to happen in the future. for now, things are being held in place by the ecb's omt. the tenurewon't see going from 3.52 7.5 or 8.5 because the ecb will step in. the question is what comes after that. in the meantime, as i said before, it is important to recognize the political, cultural and socioeconomic constraints and italy. to think you can reengineer the

country's dna to make it as efficient as germany is political suicide for the europeans. that is where this is going. made thatn has to be this is like reparation payments after the first world war. you have to deal with the italian debt, and you can't deal with it by forcing the italians to pay it down from $2.3 trillion to $1.7 trillion. one has to think there is some reason coming from the european commission rather than trying to do grandstanding about fiscal prudence he. -- prudencey. tom: coming up, there is no mother discussion. 19 days until the election. stay with us. balance of power at noon. this is bloomberg. ♪

francine: tom and francine from london and new york. we were talking a little bit about italy and some of the challenges. it was really interesting hearing from david of deutsche bank actually explained that because italy has a surplus, we should give the european union -- the european union should give italy a break. overall, is it crunch time for the european project over the next two or three years? there are two basic

things one has to worry about with regard to europe. one of them is the disappearance of the political center. you see this and germany moving to the right. the right-wing party is the second-most popular party in germany according to recent surveys. the social democratic main party just to came in with less than 10% and bavaria. you are seeing a splintering of the political center. italy going right and left.you saw it in sweden . there is brexit. the consensual politics that were there around grace is gone. from here on out, it is going to be much more difficult to put policiesral, eurozone in price. acorn'-- macron's set a program for deepening institutions.

that is essentially dead. you have italy as this profound existentialist. theignals a way after inability of europeans to come to grips with a problem like this. you have trade. i think these are trying times for the eurozone and eu as a whole. francine: we haven't even touched on brexit. thank you so much. us.we willaying with talk a little bit about brexit . then, we look at oil around the world. bloomberg users it can interact with the charts shown using gtb go.-- gtv this is bloomberg. ♪

.

"bloomberg surveillance." francine lacqua in london and i am tom keene in new york.

a 6.94 print this morning. with your first word news, here is taylor riggs. the burden escalation of the trade fight with china, the treasury department stopped beijing saying manipulates its currency but steven mnuchin says he is concerned about the recent fall of the yuan and china's lack of transparency. hours after the report, the one fell to the lowest level since january of 2017. white house counsel don mcgann has left the administration, his last day was yesterday as he led theprocess that confirmed president's supreme court picks but ran afoul of his false over security clearances and his moment as a key figure in the russia election meddling investigation. theresa may says she is not expecting to use one of the options being floated for bitcoin, that plan what extent

-- brexit, that would extend the implementation. months as she told depression expects the future relationship to be in place as scheduled at the end of 2020. an antiviral pill taken by thousands of men has led to an unprecedented reduction in new hiv cases in australia. it shows a target of preventative approach may accelerate progress on ending the aids epidemic, a study measure the impact of the bill on reducing the aids causing virus and a large population. 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. francine: thank you so much. theresa may says she is considering a plan to extend the brexit transition time but does not expect to use the option. it could end a stalemate on talks which have stalled over the issue of the irish borders and eu leaders have extended the

deadline for a summit in brussels. >> a withdrawal agreement and future relationships come on withdrawal agreements, there are issues around -- the backstop is what would come in place to ensure that there would be no hard border between northern ireland and ireland, if the future relationship is not in place by the end of the implementation time. 29 of march where the last date the united kingdom is a member of the european union and we have to have a deal before. all united behind michelle. >> i want to be optimistic. is march. favor -- we need

to work a lot in the next weeks. leaders: some of the eu as they were meeting in brussels. let's get back to david folkerts-landau of deutsche bank. they were very polite with theresa may but there wasn't enough progress. what does that mean in terms of potential outcomes, closer to no deal or an 11th hour agreement? david: i believe there will be a deal. everybody has an advantage if a deal is reached because history will not forgive them if they do not. extension does not serve much of a purpose. by giving more time you will not solve the underlying problems. donedecisions and get it one way or the other. what we need most of all is more certainty.

an extension does not solve anything. francine: how do you deal with the irish border? the only positive of extending would find a technical solution and technology would enable a hard border but with -- a soft-hard border. written inuld keep the -- britain in the customs union but renegotiate the customs union and allowed britain to have a third-party negotiations about trade agreements with the u.s. and , which thethers europeans do not do because you need approval of the all european countries. there has to begin and take to how to define the customs union. i have been thunderstruck by the brilliance of opinions on brexit, i will start with barry eichengreen with a grim view of the future of the united kingdom. is it a diminishment of the rate of economic growth, are you

willing to say that there will be a level change in economic growth? david: i am in the opposite camp. yes, there would be a price to pay to the adjustment. over a 20 year and 30 or horizon, i believe u.k. will do better than the european union but the adjustment will be painful. mature to think this is about 2% or 3% of gdp. it is about much more, deeper issue than that. yes, over generational time, u.k. will look just fine. flexibilitynomy has to do well and be innovative. it doesn't have a bureaucratic construct europeans have to struggle with. this will, just fine. tom: are you saying deutsche

bank will kick out a long-term lease on the wall? people talking about the end of london, you are an iconic member of the london business seen, will there be a long-term lease for deutsche bank on the wall? david: i cannot comment. you have a nice building in london and must think it is a good place, so do we. francine: david folkerts-landau versus tom keene, 1-0. could we see a big fall if something were to go wrong? the concern is you are negotiating a theresa may negotiating with her own party, and also negotiating with labour, and with the eu. david: if the negotiations go badly and no agreement is reached, that will undercut parliament. 25,ould see it going 131-1

and stabilize and gradually find its way back up and the market will react to that. francine: what will be economy look like in 10 years? is it a tax haven? ,oes it become a services singapore like-based economy? david: it will be an export driven economy. u.k. is internationally -- has international outlook, u.k. much more global than the european union which is inward looking. u.k. will need to do trade agreements with the rest of the world, canada, u.s., japan. and use its outstanding education system and technology -- i do not like to compare it to singapore -- you could have the possibility of financial services, u.k. was a global financial center before the europeans or even a democracy.

will go away that all of a sudden and moved to paris is lunacy. london will remain the global financial center. that will be a source of gdp growth. u.k. will be ok. francine: david folkerts-landau at deutsche bank, he stays with us and coming up on balance of -- we wills hartley talk about the situation with saudi arabia and key allies of the u.s.\ different moral values to the west?- ♪

>> this is "bloomberg surveillance." they trump administration persuaded iraq to sign the general electorate for $15 billion power deal instead of germany's. learned senior u.s. officials warned the iraqi prime minister going with siemens could put the u.s.-iraq relationship at risk and a rockside a memo of understanding .he ge increase shares of alcoa rising in premarket trading, the biggest aluminum producer in the u.s. reported third-quarter earnings that were double estimates. and alcoa said first share buyback in more than a decade, all signs the company is making it through the trade right. ebay is accusing amazon of infiltrating its female system to get high-value sellers. in a lawsuit, ebay says amazon's tactic appeared to be part of a larger pattern of aggressive and unscrupulous conduct, amazon is not commenting as they have

previously said it was investigating ebay's foundations -- allegations. francine: thank you. warnednt trump has against putting the u.s.-saudi arabia relationship at risk with increased attentions over the journalist. major companies registered for the battles in the desert still plan to attend in riyadh this bike growing pressure for a boycott with bloomberg pulling out a future investment initiative evidence. is our us for the latest goal for economy reporter. reporter.onomy when do we expect saudi arabia to respond? we seem to be getting a grip of information -- drip of information but have not heard from saudi arabia? >> it is deafening silence from

saudi arabia, mike pompeo went back to the u.s. and says they are committed to the investigation but we have not heard about this from the saudi arabians in terms of the outline of the investigation and who is carrying it out. they said -- any details about the investigation and about how it will be carried out and transparency. probably know, the newspapers in the u.s. have been publishing damaging pictures, stories for the conference, telling people suspected by turkey of cutting out the attacks on jamal khashoggi the consulate in istanbul. francine: if you look at world growth, they are reliant on oil and president trump, the arms deal should not be put in

question because of this investigation but congress may think otherwise. if congress put sanctions on saudi arabia, will they retaliate? >> no one would know how this would play out for sure because high-level negotiations are going on. president trump is trying as much as possible to temper this but he may not be able to persuade congress to not sanction saudi arabia amid a wave of anger from both sides of the aisle. ramifications can be huge theriyadh because cutting weapons shipments can hurt them because a lot of the weapons are american-made and buying weapons from russia or china will not be easy because of the integration of the systems. answers but wesy know from last week when the

editorial or an article citing people close to the government that there is a possibility of using oil as a weapon and other theures, we do not -- government of saudi arabia backtracked on a lot of those comments and said they were representing the person who wrote them and not the government of saudi arabia. no one knows how that will play out in the end. francine: thank you for the update. is david us folkerts-landau of deutsche bank. this is the implication, the foreign policy, especially to the u.s. and saudi arabia on what saudi arabia is putting in terms of money into american companies and asian companies and oil. david: this is a serious event. if you want to be a global trading partner, you cannot behave this way. even if it is a rogue event. it is not possible.

having said that, it is important to recognize economic ties between the u.s. and saudi arabia. a solution will be found. congress does not impose sanctions, they will talk about sanctions by the president imposes sanctions and any legislation that comes to his desk, he would veto. on thersonal sanctions security team of mbs, but that is about it and i think defense deal will go through and this will not have a great impact on oil prices. iran is much more important from that point of view and life will go on. -- will bewill go on found in the next couple of weeks. it is something that should not have happened. devastating testimony about how the government in saudi arabia is run. a diffusion of control over who

does what and that has to improve. tom: thank you so much and we will look at central banks in a moment. david folkerts-landau with us from deutsche bank. an important conversation with a former prime minister of canada, look for that in the 1:00 hour new york time at bloomberg. this is bloomberg. good morning. ♪

is bloombergs surveillance. hsbc, the bankt is examining plans for the shanghai london link which would allow copies trading on it changes in the cities to issue depositary receipts. like a big

it would be one of the first times we see a u.k. firm doing this. explain the significance. >> a link has been under discussion between london and shanghai since 2015 when the chancellor at the time that a delegation to china, it is about opening up china's capital markets and comes at a time when china stock market is 20% down amid an escalating trade war with the u.s. francine: how much of a boost with this before chinese authorities? >> it would be a huge boost and comes at a time when the stock market is struggling. is trying to broaden its markets and comes at a time when benchmark provided ftse has stated they will allow china shares into its label benchmark. tom: is it business as usual of the western banks to asia right now? i love to see synergy comments and press releases of bodies going out the door, and three days later they will announce they are expanding in shanghai or beijing or kuala lumpur. are we repeating 2006 when there

is an asian expansion because we have to? >> hsbc has generated in the first half, more than 70% of --fits in asia and -- 17% 17% of profits in asia and increasing business in the region, china has been a growth driver of the global economy, maybe slowing down at the moment but a lot of action is in asia. tom: thank you so much. hsbc.y appreciate it on we make a hard turn to the real reality of central banks and president trump, a critic of the american central bank. david folkerts-landau with us from deutsche bank. you know where the real rate is, the yield curve, i would suggest the fed funds target rate is barely positive inflation-adjusted rate. we have miles to go, don't we? david: yes and no.

going afteruage in the fed was objectionable but the underlying thought is not necessarily wrong in that he focuses on inflation and if you look at inflation numbers, no need to increase rates. on the point of view of reshaping sustainable equilibrium, the fed funds has favorout and we tend to for the fed to go ahead and go one more this year and three more next year to get to an underlying 3.5. i can see donald trump's argument and from a non-economist point of you, why would you want to raise rates if you are arnett 2.25%, if you have inflation below 2%. textbook, get01

overheating and within that, behavioral construct to a debt buildup, all agreed we have a debt and deficit buildup coming. is that the outcome of money for nothing? side, on the u.s. fiscal we have a debt buildup but not so much on the corporate and private side, that is within the parameters of previous business cycles. not so on the public-sector debt. i do not think it is as clear-cut. economists favor normalization of the curve and normalizing fed funds rate. it is not clear-cut. to think that there -- the fed falling behind the curve, no evidence of that as we do not see wage growth that would make you think the next quarter you would see some increase -- a sudden increase in inflation.

i can understand for donald trump is coming from. francine: are the markets wrong about looking at neutral? this is a chart suggesting neutrals should be a concept and not a hard number. david: definitely. warrantedr is not given our inability to do macro forecasts and understand the economy. it makes no sense. it needs to be a range. 3.25% or thereabouts. see it in a year or else i don't rates by do think of it as a hard number we can estimate does not make sense. francine: should the fed the central bankers of the world? we get told no by dollar strength impacts emerging markets because -- and impacts while growth. david: this is an important

issue, the fed and central banks to the world, during the crisis in 2008, the fed extended nearly a trillion dollars of ready to the rest of the world. the question is -- will that happen again if we have another crisis? to supply dollar liquidity to european banks. will the feds do that again? tom: thank you david folkerts-landau of deutsche bank. coming up, christopher marangi joins us. kevin cirilli on the election. this is bloomberg. ♪

, the mysteryning of fed policy here.

's datan powell dependent. the market is data dependent. the chinese yuan weaker. the mystery that is the mid-term election, 19 days and very much counting. what will turn out look like? in the media wars, life is digital, but will anyone make a profit? good morning. this is "bloomberg surveillance." in london.ene prime minister may jawboning the border, are we anywhere near brexit? francine: we are not near. the clock is ticking. we don't have a solution yet. , butaders were cordial said not enough progress had been made for a summit in november. i guess it is better than looking at hard brexit.

i love the opinions on this. viewsrandma views -- grim on brexit. right now we go down the first word news road. to its lowestll level since january 20 17 hours after the u.s. treasury averted an escalation in the trade fight and stop short of declaring china a currency manipulator. clear heuchin made it will be watching closely after recent slide. president trump is warning against putting the u.s.-saudi relationship at risk over the disappearance of a saudi journalist. he hopes to have the results of an investigation by the end of this week here turkish officials said a team till the man inside the consulate. president trump said the saudi

government as an ally who has promised to buy billions in u.s. weapons. prime minister may says she is not expecting a plan to extend d formplementation perio months. she expects the future relationship to be in place as scheduled at the end of 2020. federal reserve officials debated last month over how high to push interest rates. comments published from the latest meeting show a majority favor a 10 brain move above the level they think is neutral for the economy in the long run. broadmakers were in agreement over containing a gradual path of rate hikes. global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. thanks so much. equities, bonds, currencies, centric.es, yuan

oilerday, euro weaker, and takes a hit, west texas under $70 a barrel. the vix nothing. there is renminbi with a 6.94 print. the turkish lira having a better day. francine: i'm looking at the treasury markets. i guess bonds in europe are dropping after what wears perceived as hawkish fed minutes. the dollar extending some gains. the treasury department stop short of declaring china a currency manipulator in its semi-annual report on exchange rates, but steven mnuchin says his apartment will watch closely. joining us now is our bloomberg china economics editor. you on the to have story.

talk about what this means for china. is it a ratcheting down of trade tensions or a standstill? two things are separate. this report has been through many additions and has yet to declare china a currency manipulator. strongly. is rising on the other side is weak confidence in china. the chinese authorities are trying to stop the yuan from depreciating quickly. we are getting uncomfortably close to that seven per dollar level now. francine: what worries you about china, or what should the markets worry about china, shadow banking, trade tensions, something else? we are seeingt over all in china is a very weak confidence reflected in the

investment numbers. due to the trade war and the uncertainty that has wrought. there is no clear path out of that for china, and a exporters are saying i will --ten down the hatchet hatches and put my money in the bank. if spread wide enough to you will have declining markets, a declining currency, and slowing growth. you hear forecasters getting below the 6% gdp growth level? term, i: over the long think that is where we are going. the chinese economy is in a structural slow down, and it has been in that for many years. probably over the next few quarters we will see a great deal of management of that number.

the number is sensitive politically, as we all know. since the middle of this year, quite a lot of stimulus has come through, including from the central bank. as we get into the first quarter, we should see that start to feed through. next year's forecast is still about 6%. tom: thank you so much. jeff black from china. an interesting our, an important conversation. lots to talk about in the media wars and his broader view on growth, shifting into value. , workings this morning with citigroup as an economist, go to mr.ant to peterson and talk to you about the idea of mr. trump folded into china. what do you see there? i think that the trade disputes will probably continue

with respect to china. tom: are they in the numbers yet? >> they are in the chinese numbers. we think the trade actions could to 1% from chinese growth. if tariffs are raised to 25% on the $250 billion, that is another .5% shaved off growth. tom: within the debate and the presence job owning, it is almost like a pause in the war. what is citigroup see in the fourth quarter, the next year, the next step in this trade war? >> definitely ramping up to the 25%. we think the midterm elections might prove to be somewhat of a turning point. certainly if there is messaging from the populace that they are concerned about the trade wars of effect on them with respect to jobs, inflation, president might alter somewhat.

about thedo you worry trade war? what does it mean for the supply chain and businesses in the u.s.? of elements are pressuring costs and margins for companies. we are seeing higher steel prices. you have other elements, higher energy costs and tighter labor markets. francine: what does it mean for someone positioning? is it too early to say what industries will be hurt the most? industrial materials in particular have been hurt the most. industry, auto stocks have been doing poorly, in part because of concerns about the commandant pressure on margins. we are focused on domestic companies and domestic services, media, for example, that are less impacted by what goes on in the global macro environment. francine: thank you both. you both stay with us. canadian, the former

prime minister at 1:30 p.m. in new york a lot of focus on dollar dynamics. and on trade. this is bloomberg. ♪

>> this is "bloomberg surveillance." i am taylor riggs. is losing its top executive in asia as concerns grow that consumption in china has found its low. he is leaving at the end of the year. she couldpeculation be seeking the ceo john that you love her. roseé reported revenue 2.8% in the first nine months of

the year, matching estimates. europe's biggest technology company has raised its forecast for the year. cloudes momentum for its business picking up with bookings rising 37% in the third quarter. profits missed estimates. we spoke to the cfo. >> our combined entry for software and cloud is up 12%. i can absolutely not see signs of deceleration. we have increased our guidance for the combined clout and software revenue figure for the full year. what we see is an accelerated revenue mix. our cloud business continues to be in strength, while classic businesses are still resilient. >> that is your bloomberg business flash. tom: thank you so much. there is no other topic in washington today, an opinion piece in the washington post from a gentleman who has

disappeared and now appears across many sources has been murdered and many more grizzly reports. arabs need to read their own language so they can understand the complications of democracy in the united states and the west. the arab world needs a modern version of the old transnational media so citizens can be informed about global events. our kevin cirilli in washington. kevin, the president of the united states is a master of american media. what will be the spend today? kevin: the president has not been saying what the senate has been forecasting. the release of this video, turkey has released the audio recordings in the video of the killing, and that raises questions in terms of u.s. foreign policy in the region, most notably what with this mean for the u.s.-saudi relationship

and the u.s.-turkish saudionship, and so the relationship continue to trend in a negative way, what does that mean for a country like qatar and other countries in the as another middle eastern country looks to be the go to with an alliance with the u.s. tom: i look at the dust on the boots of general mattis. he has a little experience over there. is he giving advice to the president, or is there too much distance? kevin: it appears he relies on mike pompeo them and their relationship is the most important geopolitical tensions. francine: how far apart is the trump administration to congress on how to deal with saudi arabia and how will it end?

there are republicans pushing this president to take a more aggressive tone against saudi individuals responsible for the killing. .ook at senator lindsey graham he said the king is an "toxic and has to go." that is aggressive rhetoric from someone who had been incredibly supportive of the relationship. qatard note that is the dynamic to watch in the coming weeks, especially if this trend of u.s. saudi-relationships continues to go south. francine: what is the chatter in washington? do people worry about oil? takes oilons on iran off the market. the only ones who can fill that vacuum of the saudis.

kevin: that is their top calling card. there be should sanctions against individuals through a mechanism in the u.s. through the magnitsky act, the ,audis would respond with oil so that is the leverage point thede the beltway, that saudi lobbying forces chattering itut, but with the killing could be a broader issue. tom: we will move on. first, several companies, , have pulledomberg out of the initiative in saudi arabia. we have pulled out as media partners. i'm thunderstruck by the above of flat out republicans doing better. can that be the mother of all shocks looking at the eighth

district of minnesota as one example? is that is what is coming down the pike in 19 days? i'm glad you highlighted the eighth district at of minnesota. this is an interesting race. you have the republican trending to flip the house. the democratic congressman, it has not gone republican in years. then you have the democrat who is really trailing. why? steel. theses a district where plants have been opening and the republicans were counting on it. major shock if republicans got control of the house of representatives. i was speaking with democratic staffers last night. they are still ambitious in terms of what they might be able to flip, but the jockeying of the landscape in the financial services world is very much underway at the house. tom: fascinating, 19 days away. , our chiefli

washington correspondent. i want to get to the media wars. dana peterson with citigroup on the american economy. jim smith, the former u.s. ambassador to saudi arabia, in the 8:00 hour. this is bloomberg. ♪ s is bloomberg. ♪

>> the biggest threat is the fed , because the fed is raising rates too fast, and it is independent, so i don't say i am not happy with what he is doing, but i think the fed is far too stringent and they are making a mistake. it is not right. despite that, we are doing very well, but it is not necessary in my opinion. i think i know about it better than they do, believe me. i think the fed is making a mistake. i think the fed has gone crazy. that is a lotell, of safety and gives you a lot of margin among but i think the fed has gone crazy. it will be a person who hopefully will do a fantastic job, and i have somebody very specific in mind.

i think everybody will be very impressed. the economist donald trump out of wharton. i think his paper was on kinsey in stringency or something like this. in, christopher, and dana peterson from citigroup. i have no idea what the president meant by stringent, but is this a fed that can clamp down the gdp of the united states? normalfed thinks it is trying to create monetary policy not to restrict the economy. were not seeing much inflation. we saw that in the minutes yesterday. happy tos continue to raise rates gradually and some said they don't want to go above neutral. tom: this goes back to if we get

back to value, the price of money. the president knows the price of money. his money getting more expensive now or are we anywhere near the real or not year as it matters? what will impact the main street in the real economy, you are seeing some cracks, impact on housing starts yesterday, but the market is adjusting. that is what last week was about, adjusting to normalized rates. well?ne: is it adjusting there is this debate whether we saw a hawkish fed statement yesterday. been clear.as if you read the notes, they seem fairly unified they are going higher. i think the market understands that and has been discounting that. there is a chance for policy error. there is a disagreement about

how strong the economy is, but for now, the market is discounting this properly. francine: the you agree with that, that the market is getting this right? is aheadk the market of their skis in terms of the strength of the real economy. the fed is seeing the underlying economy doing well, a lot of stimulus, and now is time to raise rates back to a level where the fed feels comfortable they have some options when there is the next economic downturn. tom: let's get a citigroup 2020. on the gloom of friday is when the gloomsters come out. how does citigroup rebut that in your weekend note? >> sure. in terms of the u.s., we don't force of theas the

economic downturn, but we have slower gdp growth the guys are going to see a fiscal cliff. ,e are closely watching markets particular china and europe. tom: europe as well to see if they go back. >> certainly if there is slower growth there. tom: dana peterson with citigroup. -- we come and digital are digital all the time. the expertise on the media. we will talk about media in the moment. the digital wars, and may be some profit as well. later, the democrat from new york, gregory meeks. look for that at 12 noon. this is bloomberg. ♪ ♪

from london,ning new york. we are thrilled you are with us. let's get the first word news. anlor: the u.s. has averted

escalation of the trade fight with china. the treasury department stopped declaring beijing manipulates its currency. steven mnuchin said he has concerned about the recent fall and china's lack of transparency. after the report, the yuan fell to the lowest level since january 2017. white house counsel john mcgann has left the trump administration. day was yesterday. he led the process the confirm president trump's supreme court picks, but ran afoul of security clearances and his involvement in the russian election meddling investigation. come a retail sales fell last month by more than forecast. from august. that was led by the biggest drop in food spending in a must three years. pill taken by thousands of men led to an

unprecedented reduction in new hiv cases in australia and shows a targeted, preventative approach may accelerate progress on ending the aids epidemic. a study measured the impact of gilead sciences pill on the aid causing virus in a large population. global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: thank you so much. theresa may is considering a plan to extend the brexit iod, but does not expect to use the option. move talksuld forward. they discussed the deal at a summit in brussels. making progress on withdrawal agreements and our future relationship. on the withdrawal agreement, there are issues around the

backstop. the backstop is what would come in place to ensure there will be theard border between countries if it's not in place by the implementation period. >> the 29th of the month is the less they where u.k. is a member of the eu, so we have to have a deal before. we need to fix the date. we are all united. optimistic. be is more or less in march. we will vote in favor without the third point it is impossible to vote for the agreement, but this now means a lot in the next weeks. francine: those are some of the european leaders. joining us from brussels, maria

has been following the summit closely. how would you describe the relationship with theresa may and her counterparts? they were cordial, but they want her to come up with another solution. deadlocked in brussels. as you heard, theresa may is considering this idea of extending the transition period. this means the u.k. would stick closely to the european union, even after brexit. for officials, this means come up one, she is willing to make tough decisions to get the deal running out, she is of ideas. it does not solve the fundamental problem, the irish backstop. european leaders said it has to be in the final deal, otherwise there is no deal come and potentially could create a new problem for theresa may in london because we are hearing those who saying it is another

concession. we are saying they are not able to pull away from the european union and would potentially stay for longer and get no stay come and what does that mean for brexit? a lot of people voted to leave. we could see 2021 with the uk's still in the eu. tom: thank you so much. right now someone writing a detailed, terse, and lengthy piece on the state of the nine and kingdom's our guest who is with us now. i love your piece on the united scared enough. i am hearing that in interview after interview with world-class come international economists. what are the people of the u.k. not getting about the joy of brexit? whatthink as maria said, we have seen in brussels is another delaying tactic by theresa may, and the reason she has to delay is there is a huge

part of the united kingdom that thinks this should be easy. we voted out. let's just leave and everything will fall into place. those looking at the details of what brexit entails are saying come on hold on. we need to get a deal that will not take the economy -- tank the economy, good for businesses and consumers, and hardline brexit ers smell a rat every time there is a delay. tom: in the game theory of all this, we talked about the decisions and the fancy mumbo-jumbo out of cambridge. 2019?is the decision in i don't see it. all the eu does is delay come at delay, delay and dragged this puppy at one or two years. >> it is hard to wargame, because may has to deliver a report to parliament.

she has until january 21. they can vote yes or no on that, then there is a series of almost unknowables. can she renegotiate, can she not? the eu is relaxed about this because the real problems are may's and internal. the parameters are not huge on this. the real problem is domestic and political for may. francine: are we almost too optimistic? could bea chance there a crashing out and a constitutional crisis because parliament doesn't vote. are we underestimating a multitude of things that could go wrong? >> i think the market may be underestimating it. there is an expectation a deal will be called out at the last minute. it is almost inconceivable that britain could leave the eu

without any agreement in place that would keep airlines, airplanes moving, but it is a real possibility. 40%, 30%, 50%? it is impossible to discount. it can also happen almost by accident. francine: if you drag it out, whether it is the eu or theresa may, is there a bigger chance we get a deal? leave, a day where we but right now we need to find a deal. is it increasing the chances of no deal? strategy, the trick, for may. could she have really done anything at the summit in brussels? i don't think so. she has her budget to present. there have been threats by the northern irish party that props up her government and hardline conservatives that they would vote against the budget if she

crossed their red lines on brexit. can she do a deal in november? meetu said they will not in november unless they see a deal on the table. this has to drag out to the last minute. cancel christmas. francine: there you go. cancel christmas. tom: thank you so much. we will come back with our guests. i want to dive into media stocks with chris. i look for to the digital wars we have been seeing the last couple of days. thank you so much. we are watching weaker renminbi this morning. coming up, the media wars. this is bloomberg. ♪

>> this is "bloomberg surveillance." i am taylor riggs. the trump administration persuaded iraq to sign with ge for a $15 billion power deal instead of germany's siemens. warned that it could put the relationship at risk. iraq signed a memo of understanding with ge in recent days. inres of alcoa arising premarket trading. the biggest alumina producer in the u.s. report third-quarter earnings double estimates. plus, alcoa announced its first share buyback in more than a decade. these are signs the company is making it through the trade fight. avoid a is trying to repeat of what happened during the 2016 election campaign, so it has established a war room

aimed at fighting misinformation and meddling in the run-up to the next month's midterm election. bloomberg spoke with facebook set of cybersecurity policy. >> this is why we had the war room and have pulled these teams together. we are laser focused on this challenge. it doesn't mean there won't be challenges come about what i am confident of is we have done everything we can to make sure authenticment will be and people will be able to engage as they need and want to. >> that is your bloomberg business flash. tom: thank you so much. dana peterson with his from citigroup, and christopher with us. each media company has a war room. there is a war room at fox, at disney. i want to go back to the basic concept of another time and place, content is king. his content or digital king --

is content of digital king? >> content is still digital king. distribution is king. that is true. no matter what streaming service you use, you need fast broadband to get it. that favors the cable companies. whether they are replacing low-margin revenue with high margin revenue in broadband. tom: within this is all the new stuff coming at us. will there be profitability down the road? not next quarter, but five years down the road? there is this wall of stuff coming to will it make a profit? -- stuff coming. will it make a profit? >> it is a war for market share. services aren't making money. the ip owners are making money.

you can own sports franchises. the newark next have a winning record. tom: they are playoff bound. out of thees are playoffs, but they will benefit from that money going to tv contracts and sports. francine: how much are these contracts worth? content isrrounding king come it will it be sports, this kind of thing at the forefront? ininterestingly, nfl ratings the u.s. are out after being down for the last two years. sports are very powerful. if you put good games on the air, people will watch them. there is scarcity value in sports. that contract is up in four years come and we will see a significant increase, including participation by the tech companies. francine: when we talk about is this crossroads between media and technology.

technology translates into your world of economics. how does it change the way we compute things? >> there is a lot that can be gained from technological advances. the challenge is measuring that with gdp and the effects on inflation, whether we see compression of prices because we are having so many more technological advances. i am sure we will catch up. we see this as positive for the u.s. economy. tom: what is the buy, hold, sell here? within that world, is their enthusiasm for stocks? .> comcast has gotten beaten up they paid a full price for sky. the core broadband business is very strong. the report next week expects very good numbers. tom: you mentioned earlier the

profitability of moving from a traditional cable, you cut the cable and go to digital streaming. i get it is a higher margin with the digital streaming, what can that make up for the units of a traditional box? to cut theave tried cord, you are usually paying more for standalone broadband. comcast, those of the prices they will quote you. that revenue has no costs associated with it. ,hen you buy the cable bundle you have fox, disney, the regional sports networks for that content. francine: the trend for mergers has started. what about cross-border mergers? is it the chinese going into u.s. media stocks, or the other way around, and where does europe fit in? >> there was some interest in u.s. studios a few years ago.

i would not expect that to be the case. you have u.s. companies going into europe, and possibly beyond. scale matters. you will see more mergers. obviously we are watching cbs viacom, but we have just come off a large and unexpected combination with disney and fox. will we see lofty valuations when there is m&a because there are so few valuable players left? >> that was exactly the case with the fight over the fox entertainment assets and the sky, which went for premiums that we did not expect, because those are scarce assets. tom: let's circle back to the distributors. you believe the persistency of their cash flow will continue? >> the threats to the distribution cash flow stream are regulatory, always has been.

to the replacement for your wired connections in the home. even with 5g, we don't think that is the case. tom: is rupert murdoch executive of the year? there is an age issue, and there then article out today, but courage to unload the lifework is extraordinary. >> it really is. he made a cold, rational futuren about what fox's was in this environment of trillion dollar companies and decided to sell his baby for a significant premium. clearly the murdoch family and shareholders of fox are winners today. we will see if disney can use those assets as a viable competitor to netflix. tom: fascinating. we look at the american economy in the digital world affecting all of our lives. i want to tell you about gtv

. let me get it here. gtv , loaded with charts, including, how about that? gete else are you going to excepthmic renminbi bloomberg surveillance. gtv , you can steal those charts on your terminal. this is bloomberg. ♪ this is bloomberg. ♪

francine: this is "bloomberg surveillance." i am in london. shortly.une into tom it is time for our single best chart. our guests are with this. this is my single best chart. i'm looking at treasuries and the impact of higher yields for u.s. treasuries on the bull market and on equities.

saying iteff has an impact on eps. if you look at the s&p over the past 20 years, an impressive run. chris, what happens when treasuries go higher? the biggest market move in the last month or so was how rapidly treasury yields went out and how that could impact the equity market. >> sure, higher interest rates mean lower asset prices across the board. all is never equal. have gone up, you have seen growth outpaced the squeeze from higher rates. we will see if that continues. obviously higher rates do impact costs, borrowing costs, and they impact margins for the financials.

as rates go up, they don't need to pass that along. francine: a lot of u.s. banks have reported earnings. what we have learned from those? >> the bank of new york reported yesterday, trust banks are somewhat levered to the curve, and net interest margins didn't go up as much as we expect. , onehe traditional banks of the issues has been the pace of loan growth. as mortgage rates go to 5% and higher, people will be refinancing. that impacts their business. there are offsetting factors for the banks there. francine: when you look at treasuries, were you surprised at the speed which with the yield change 10 days ago, and could we see a fast repricing, and is that a concern? >> it was surprising, but late in coming.

the u.s. economy has been outperforming most of the globe. the fed has been raising rates for some time now, but it didn't seem like it was priced into treasury markets. i think the equity market received the wake-up call this is happening. we did see rapid repricing. if we can hold near these levels of the fed should not have to worry about the yield curve inverting sometime next year. francine: do you think they should be worried, even if it inverts? itave seen pushback saying does not lead to an imminent recession or slow down. >> this debate was going on in the minutes of yesterday's minutes released by the fed. i think there is concern about the signaling that whenever you see the yield curve invert, you have a recession within one to two years. i don't think the fed wants to have that signaling. they continued to save the u.s. economy is doing well with respect to inflation, growth,

the labor market. the persuasion being used by members of the fed in the interim weeks is trying to tell markets you need to start pricing this into the back of the yield curve, the back of the curve, and that we are not seen any issues with the economy. francine: thank you both for joining us. they were both continue the conversation on bloomberg surveillance radio. this is what else we are looking at, china and the fact the refrain from naming china as a currency manipulator, well increasing scrutiny of the exchange rate policy. ♪

fed talks

restricted, markets take that as a hawkish sign. china dodges a bullet. the u.s. does not label china as a currency manipulator. brexit backstop, theresa may contemplates extending the transition leaving the eu. hardliners call it completely nuts. david: welcome to "bloomberg daybreak." we have earnings coming out. blackstone the expectations on eps, $.76 as opposed to $.74. assets under management were $457 billion, so the rich get richer. alix: that was a record. it was up 18%. i am looking at phillip morris. that company is cutting its full-year earnings forecast. they now see the high