, but mark carney have to face brexit uncertainty. dead cat bounce or bottom? the biggest rally since february. earnings on deck. global markets pommel credit dragged down by a weaker activity and challenging conditions. david: welcome to "bloomberg daybreak." you have to feel sorry for mark carney. on thehey have a deal banks having access to the market in europe. alix: we will get a deal, but be in a deal, basically? david: you behave yourself. alix: it makes sense. in the markets, you can look at the clarity when it comes to cable rates. moving higher into that boe

meeting this morning. up .8%. we are seeing some profit taking on the dollar. s&p futures up 13 points. mutual funds, pension funds, or they having to rebalance for tax reasons. do we see a steady rise over the next few months? 3.16 on the 10 year. crude off .7%. potentiallyit out, korea and iran will get waivers. david: with some strings attached. it goes into an escrow account. at least that is the report, that maybe it won't be as dismal. alix: and you have an oil price shock. time now for the morning brief. 8:00, the boe rate decision and inflation report followed by

mark carney's news conference at 8:30 on bloomberg television. also, last week's jobless claims for the u.s. 9:00 come automobile companies will announce vehicle sales. apple will announce earnings after the bell. right now, let's turn to our ke.st ta we are joined by bloomberg's senior editor for markets. our chief content officer is here. alix: we like you. david: you are a veteran. boeant to go to the decision coming up shortly. will turn to you since you have that british accent. the white line shows the probability of going up. .75 right now. be a rate to will hike by november, but not necessarily august. are they right? >> that sounds about right.

the latest numbers might suggest a slight decline in those probabilities, leaving brexit out of this completely, which we can't do, house price inflation has dropped again this morning. the isn number for the u.k. is the worst since the month after the brexit referendum. that reduces some of the pressure on mark carney to raise. , the overallpoint dilemma for the boe, if you leave out brexit, is similar to the fact that we have historically good employment figures, 4%. we can call that full employment. we have a country dissatisfied with its economic lot, just like the u.s., and that makes it tricky to work out whether you

should be tightening to head off inflation. the u.k. has had a sharp fall thanks to brexit in the pound. we discovered when the pound fell sharply during the doescial crisis that that feed through into inflation and the u.k. seems to be more prone to inflation than other major markets. it is that much more of a toemma, which i think leads the same course as the fed, but doing it more slowly. alix: and possibly not having theresa may saying mark carney is doing the wrong thing. >> the one thing mark carney does not have on the back, the leader of the government complaining about rising interest rates. i think the elephant in the room is brexit. until we have a deal, it ties the hands of the boe.

was in new york last month making it clear they are not assuming the worst, but preparing for the worst, which is a no deal brexit in which case british relationships are suddenly severed. there is all kinds of speculation, which reminds me of the speculation ahead of y2k. news from the times, it is a great story if it is true, they have come to could deal on financial services, potentially very big in deed. that was something early in the brexit process after the referendum people assimilated the notion that it wasn't going to passport its financial

regulations, financial , directlyns come into into the eurozone system. that was a very major problem. if they had come to a deal, that changes quite a lot of assumptions. nightmarishe of the scenarios for britain as a whole less nightmarish. i am surprised by the news. alix: let's move to the markets. it was a tumultuous october. leading into the end of the month, the best rally since february. how did you understand it? it are the midterms part of the risk? of the story, but i don't think the markets can figure out where markets go after tuesday. if it is a democratic house, you can make the case it further means that government is

basically going to do nothing. that is usually positive for the markets. david: although a lot of people are speculating that equities come down some. >> that is what donald trump says. alix: or industrials won't get headway because there will be no infrastructure deal. all of the sectors that would have been good will not at the same time. earnings coming in. the environment for doing business postelection in the world is essentially the same with the wildcard being that china trade situation and how trump pursues that. david: how much is geopolitical and just removing liquidity? full that cat. >> even a dead cat deserves respect. alix: fair. >> i think it is primarily about rates and liquidity. you can't really fit geopolitics

on to this. when it comes to the midterms, forre largely physician what seems to be the single most likely outcome, a narrow democratic victory in the house and are reasonably comfortable retention of the senate by the republicans. if we don't get that in either direction, that will mean something very interesting on wednesday. what really has driven this has been the steady withdrawal of liquidity, the shortage of dollars, a process that has been going on for a long time. i spent almost the last decade writing the same ring, which is stock markets are going up. they look too pricey, but with rates this low come at can't afford to get out of the market. i have written that in some form almost weeklyan

basis for a decade, and it is no longer true. we have been braced for this. known thehas interesting issue will come when the fed exits. it is doing a gentle job of exiting, but there is a lot of fluid to displace there. bondsve to jump into before the yield correction, that is what created the correction. david: one is not going up, credit squeeze. to thesappointed downside. their stock has been down in trading today. this is part of fort the ceo had to say. he thinks he set his sights too high. the 10% return on capital and global markets at this point was too ambitious given the market conditions. we are confident with this that is next year, we

will get single digits. whichst of the business, is where i would like to go, is booming and doing well. we have high return capital. david: after that announcement come of the stock went down. it has come back up from its lows. dilemma for the european banks in general. they have had struggles, with the exception of barclays. the biggest struggle at credit suisse has been their trading unit. it is unclear what strategy they have to fix that in a market that is very uncertain in terms of rates. alix: how do you understand that, john? one else really blamed everything on client activity. as we go forward with liquidity tightening, what does that do for banks the can't make money in this environment? >> it doesn't bode well.

i think the point about credit , it is trading at three quarters of book value, which is a strong valuation for a european bank at the moment. of the regarded as one better franchises out there. it has, and this is true of ubs on becominghas set a wealth manager and asset taking, less of a "bank" typical banking risks. when client activity does not go your way, you will make less money. ands less about credit risk more about whether you can generate revenue. the credit suisse interview to abouterg, he was relaxed

revenue because revenue was something he could not control. alix: totally. >> i'm pleasantly impressed he can be that relaxed about something he can't control. i am incapable of feeling that calm about things i can't control. the things that i can't control really worry me. that is why he is the ceo of a large bank and i am not. i am still nervous he can take that attitude. he has a much weaker franchise than we think he does. alix: great point. completely right. guys, thank you so much. some breaking news earlier. commencing litigation against dell technology. he recently upped his stake to 9.3% and did say he will vote against the proposed merger.

he is in it. david: he said they are undervaluing the the the vmware shares. alix: can markets start november in the green? the deathscuss with dci of state street global advisors. this is bloomberg. ♪ this is bloomberg. ♪

>> this is "bloomberg daybreak: americas." apple will provide the first real insight into the success of

the company's new iphone. that is true for the lower-priced xr model, expected to be a popular gift. tol street expects apple sell 40 million iphones and its current fiscal quarter and 78 million in the holiday quarter. denmark's biggest bank is trying to restore trust. danske is providing clarity after one of europe's biggest money laundering scandals. discuss too early to the potential. innovated our capital targets. so we are well prepared to meet sanctions. bank is investing

massively in the fight against financial crimes. an all stock deal valued at $5.5 billion creates north america's second largest producer of unconventional resources. there are significant benefits from the deal, including a 25% increase in dividends and expansion of the share buyback program. alix: it is finally here. the m&a. i am so excited. david: stacks and things like that. alix: it will be great. i am really excited. david: a perfect day for commodities. alix: october was a bloody month for equities. where is the best place to find the value? here is what our guests had to say. ,> em markets outside asia latin america, some good stuff from brazil. >> we are finding the best

revenue in technology. we are looking at software and services. the idea of recurring revenue. you should think of software and services as the new defensive. >> we like financials and energy. what we have seen more recently are the utilities, the defensive part of the value trait has been holding up better. cio: joining us now is the of state street global advisors. trauma and the market, the nasdaq 100 underperforming the s&p for another month, the worst since october 2017. where is your value? it is not surprising we saw a correction in october. you have the fed on a path to raise rates. we think we have more room toronto, but the markets were looking top he. it is not surprising tech got hit the most.

we have been looking at areas more underserved, health care, defensive plays. because like the u.s. we think it is well-positioned from a geopolitical standpoint. david: why now? it wasn't just tech. , it is down. we knew that that was going to raise. >> there are a couple of things. there has been the intention playing out all year. are we at the end yet? .% attaining factor was powell they don't know where normal is, but want to remain data dependent. the u.s. data is pretty strong. that reinforces that the fed will stay on its trajectory. alix: the other part of the sell, mutual funds had to before october 31 because there are tax differences. the other part is midterms.

, are we inght weeks danger of a pop that will continue that is not supported fundamentally? >> we think it is supported fundamentally. rerate seen stocks pretty dramatically over the last month or so. we consider this to be a good buying opportunity. there are other factors. you will have stock buybacks. we typically get some sort of fourth quarter bounce. if the elections are not disastrous, that could provide confidence as well. david: some of the earnings projections are coming down, but closer to what is a norm. it's not like an earnings recession. companies continue to beat on the earnings level. they are beating modestly on the top line level.

everybody is looking for an saying are these levels sustainable? are they going to have back costs as labor markets become tight? folks are looking ahead to 2019. alix: it showed earnings revisions have been relative to history have been coming down irma but still kind of normal. how do you look at that when you have overhangs of tariffs that would not kick in fully until next year? we don't know what sectors have pricing power. of 2019,the beginning we will still look good. into the end of this year and the first part of next year, you will be rewarded well and risk assets. our largest overweight is still u.s. large-caps. we think that momentum will continue. next year, we think the middle of next year, some of the geopolitical risks in europe dissipate.

we hope to get an orderly brexit. come downe tariffs and we could be pivoting to other parts of the world. david: let's look at one chart. utilities compared with tech. it shows tech is starting to come down. when that has happened, it really ramps down. it's not very pretty for the markets. >> again, some of those sector errors and stocks had gotten so wildly stretch. about how if you take out the top 10 performers in the s&p, there was no appreciation before the correction. a lot of the market has not participated. alix: what is the leadership? financials is not happening, so what leads? >> we like health care, consumer, defensive. consumer is still strong. those are the areas where we are looking for attractive valuation.

we think banks could be attractive on a relative value basis. now, apple will be the last of the fang weighing in after the bell today. joining us now is our guest. rating and $265 price target on apple. what are we looking for from apple? >> good morning. i do think apple's earnings will be worth the wait. what we are looking for always for apple are iphone sales. what should benefit apple this year for sales is their new models have much higher average selling price points than the old ones. so strong iphone sales should

carry the momentum for apple shares. david: is that units or average selling price? average selling price has been remarkable for apple. is isthis case, it definitely average selling price. we are looking for flat unit performance, but it is apple's ability to sell more iphones at higher average selling prices that we think will enable the stock to go higher. david: how does that translate into margins? >> generally speaking, if you look at the consumer technology space, apple has very favorable margins as they focus on these high-end individual categories. we think there margin performance will be strong again , driven by smartphone performance, which is their most important sales category. alix: when you look at the performance of tech over the last month, apple was resilient, 3% versus the other names.

is this good quarter presumably priced in? >> not necessarily. spacensumer technology has seen a lot of anxiety on rising interest rates and concerns out of china on a prolonged trade war between the u.s. and china. i think china is the number one a tariff standpoint and that 20% of sales are for chinese consumers. adon't necessarily believe good quarter has been priced into the stock, but i agree with your assertion that apple performed better against contemporaries. david: we have apple music. i saw this report about an experiment using apple watch to monitor your heart. how big is that? as theices is looked at big growth category for apple on i go-ford basis.

we talked about iphone sales and the notion that units are flat, but getting growth by increasing the average selling price. services is an important, fast-growing revenue category for apple. you will see a strong performance there. it is encouraging to see the incremental health features they are adding to the watch. alix: thank you very much. i still have not gotten my new iphone. the camera on my phone stopped working. , the doe rate decision. we break that down next. this is bloomberg. ♪ ♪

alix: this is "bloomberg daybreak." we got through the end of october. it was the worst month for equities in about seven years. you did have a twice in had been day rally. the biggest we've seen since february into the end of the month.

some kimed of chat that are mutual funds had to sell and rebalance in october. so potentially when they stop, now we'll see calm and stability coming into the markets. futures up. apple out after the bell this afternoon. european stocks also on front foot. european banks on the front foot. up over 1.5%, despite the fact that credit suisse had a dismal quarter. it was a very strong dollar for october. now you're seeing dollar give up a little bit of its gains there. still weaker on the weaker end of the range we've seen. and the cable rate popping over 1%. the b.o.e. in about 30 minutes' time. mixed data coming out. the manufacturing data not looking very good. especially when it comes to new exports and new orders. so what will that mean for the b.o.e.? give them a little bit of breathing room there maybe. on the margin, yields up two basis points. david: an upkate on headlines --

an update on headlines outside the business world. >> dipers have recovered the data quarter from that crash to alonzo air jet. an investigation into the plane that plunged into indonesian eas earlier this week. several executives have been intended as they determine what led to the disaster that are killed 189 people. in florida last night, president trump doubled down on his vow to deny american citizenship to children born inside the u.s. to unauthorized immigrants. he began the stretch of 11 rallies in eight states ahead of next week's midterm elections. he then told the christian broadcasting network he thinks, quote, the blue wave is dead. tracy: there's a lot of feeling about the horrors of the illegal immigration problem, people think they're just going to come into our country and take over our country and it's just not going to happen. we're not going to let that happen. but the democrats want to let

that happen. it's crazy. so we're doing very well. and the numbers reflect it, as you know. i think we can do -- i think we'll win the senate and i think we'll do well in the house. >> the president also said he likes the g.o.p.'s chances at the polls because the american economy is, quote, the best it's ever been. and north korea's kim jong un is planning a flurry of summits with world leaders. he's stepping up efforts to ease what he calls vicious sanction against his country. south korean president today said kim would likely visit russia and south korea soon and expects chinese president to visit pyongyang in the future. kim also hopes to meet with president trump again as well as japanese prime minister abe. he's even extended an invitation to pope francis. global news 24 hours a day on air and at tic toc on twitter. this is bloomberg. david: thanks so much. the bank of england is

announcing its latest rate decision in just under a half hour from now. joining us now with a preview from london is paul gourde who leads bloomberg's coverage of western -- paul gordon who leads bloomberg's coverage of western european banks. the probability, we're not getting a rate hike until november. are the markets right in predicting that? >> yes. almost certainly. november, 2019. the reason is brexit. very difficult for the bank of england to even set realistic economic forecasts, fresh forecasts will come out today. if it doesn't know what the outcome of the brexit negotiations will be. at the moment it has a fan chart of potential outcomes for growth and inflation. takes the average of those. but that's dependent on a deal which nobody can predict at the moment. david: at the news conference which we're going to be taking, a lot of the questions presumably will be about brexit and there's news just this morning that's been knocked down off the record about whether there's a deal that's been done

for financials. also mr. rob saying they'll have a deal on breath brexit by november 21. what is mr. mark carnie going to be able to say to that? >> he's probably going to have to say, we'll take it as it comes. but he's under pressure to show the u.k. treasury what his preparations are. his contingency plans for this-deal brexit is worst case outcomes. the bank of england does stress tests for the banking sector but he's asked to go further than that. the market reaction tells you how big a deal this is for the bank of england. the pound surged on reports late yesterday, then fell back twherp knocked back, when the reports were knocked back. and those market stances underpin the bank of england's forecast. it makes the b.o.e.'s job very tricky. david: thank you so very much. our bloomberg colleague reporting from london. alix: tricky for the bank of england and also for investors. what's your base case? >> our base case is he's not going to hike as well.

because of the things that were just stated. there's still a lot of uncertainty. until there's any clarity of what brexit looks like. you're also seeing weakening in data coming out of the u.k. it's been a strong economy. but you see a little bit of weakening there. so there shouldn't be anything to rush it. alix: on the flip side, there is a story that the chancellor is loosening the fiscal purse strings. if there is a grind to an actual deal like we saw with u.k. financial services, that would be a good thing. are we also underpricing the risk that things are going to be ok? >> if there's any kind of resolution here that's not a worst case outcome, you have the opportunity for a bounce here. to your point, i think everybody sees this overhang of uncertainty and is reacting negatively. we've been underweight to the u.k. since the brexit vote because we don't think that there's any reason to take that risk when you have that kind of uncertainty. alix: in terms of the b.o.e. too, if you have a positive outcome in some way and then you have the ham onleds budget coming out, do you need to hike faster than you thought or move

that date forward? >> the good news there is that the central bankers have always said it's easier for them to deal with inflation and a hike than deal with deflation or disinflation. if they have to move forward that's not -- faster that's not really a problem. david: beyond the bank of england, central banks, including the bank of japan and things like that, they're rolling off their balance sheets. they're reducing liquidity globally. to what extent does the equity markets have to reprise fundamentally? re-price ly do -- fundamentally? it's going to reduce the value of equities. alix: what's that showing, right? david: when you reduce the balance sheet of the central banks is what that chart shows. >> in general, we've had this tension for many months now really around the tightening cycle, the slowing down of growth. and whether those things are in sync with one another or not. here in the u.s. for a while we had this narrative that the fed was tightening but that was ok

because growth was expanding. now we're starting to wonled weather we're getting to the end of that -- wonder whether we're getting to the end of that. it's about the pace and magnitude. one of the challenges is that central banks want to get off zero bounds. they know if a recession comes they have very few policy tools available. they want to make sure they have something in the back pocket. alix: that's happening in the g 4 while you have china -- g-4 while you have china regardless of tariffs. they spoke about the china slowdown earlier this week. >> there are concerns over china's slowdown. but we expect the economy to stay on a stable growth path under appropriate fiscal monetary policy. alix: basically the government is going to just buy growth. we're back to that scenario. where you sit, does that make you want to buy chinese assets or not? does it make you feel positive about emerging markets or not? >> overall we think emerging markets look attractive but we've been cautious because we think the geopolitical risk and the slowdown in china is of

concern. we've been tilting our overweight in china to more consumer-driven and localized, less dependency on the tariffs and foreign trade and what not. so as long as these tariffs discussions remain in play, it's hard to get too enthusiastic. but we think cheen will manage the slowdown. david: how much of that is valuation and how much of it is growth that you see? whether in china or emerging markets more generally? >> it's a little bit of both. emerging markets are about back to where they were historically from a valuation standpoint but relative to other major markets, they're a pretty significant discount. these are economies still poised to grow more rapidly and earnings growth expected to be higher. we're cautious right now. we're still not sort of treading into emerging markets but we're looking for good entry points into the few you to father -- future. -- future or for longer term investors. alix: brexit bank deal not fished. this is the point of, yeah, good thing. oh, wait, that's not going to happen. how do you manage that as a

central banker? david: there's no date certain when it will be resolved. maybe march 29. synchronized global slowdown snen >> there's a dwerjens. unlike a year ago -- divergence. unlike a year ago, we have a lot more divergence. we're trying to be more opportunistic. we still like the u.s. on a relative value basis in the short term. we're trying to be more defensive and keep dry powder. alix: thank you so much. great to see you. i want to turn now to oil. the news of the morning. india and south korea reaching an agreement with the u.s. and the allies that would allow them to keep importing somean -- iranian oil. that deal may nobt -- some iranian oil. that deal may not be good on monday. this is what we were waiting for. the waivers and how much reduction we need to see. what's the base case now? >> the base case is that the united states is going to give some waivers to some asian

alliances, hearing that an outline of a deal has been achieved with india and also with south korea. we're expecting probably that's going to be standard and probably the bank will be included. that's going to continue, those countries who continue buying -- [inaudible] -- the money cannot leave those countries. so it will remain on escrow accounts in national banks in india and south korea. meaning that iran doesn't benefit from the sales. david: as i understand it, they don't get the money, iran doesn't get the money, but there can be some barter arrangements. what does that do to iran, how much pressure does that keep on iran on the one hand and what does it do to the price of oil if that goes forward? >> i think that's a balance that we have been hearing in washington for a while. they're trying to upset two interests. one is the national security considerations of forcing iran into a negotiation table for a new nuclear agreement. the other one is an economic

consideration. keeping the oil price low. this will have to keep the price of oil low and it will allow iran to buy something, especially they buy enough food and a significant. a rice and sugar from india. so they will be some benefits from iran but certainly they're not going to be able to buy things -- [inaudible] -- in the global market. alix: the other sort of elephant in the room is china. we showed a chart. the biggest buyers of iranian oil. china not mentioned in this. what's the base case now and the -- in the analyst community for what china will do? >> the base case from the analysts is that china will stop -- some companies in china will stop buying iranian oil but the chinese will use a state-owned trading houses to continue buying some iranian crude. so far what we have seen on nomination that the amount -- [inaudible] -- of chinese are sending to iran to pick up the crude, we're going to still see a significant reduction in chinese purchases come november for iranian crude. alix: thank you very much.

great as always to talk to you. don't forget to tune in later to commodities. that's coming up at 1:00 p.m. eastern time. we'll talk about this plus all the earnings in the m&a we saw that week in the u.s. and coming up in just a moment, google grapples with sexual harassment rainstorms. employees are planning a walkout today in protest of how the company has handled sexual misconduct. we'll break that down and more. this is bloomberg. ♪

alix: this is "bloomberg daybreak." taylor: coming up in the next hour, mike wilson, morgan stan clife u.s. equity strategist. -- stanley's chief u.s. equity trategist.

now let's get your bloomberg business flash. the growth of housing prices in the u.k. has dropped below 2% for the first time in five years. that's according to data from nationwide building society. it's what it called a relatively subdued market in average valuings rose just $1 -- 1.6% in october. after years of booming prices, the report is more evidence that the housing market is weakening. a merger of three state-linked banks in abu dhabi will create two new lenders. people with knowledge of the matter say abby dabby commercial -- abu dhabi commercial bank would -- the divisions would then merge and take over the privately held all hilal bank. consolidation among abu dhabi institutions has been picking up following the slump in crude prices. and a new york-based activist hedge fund has taken a stake in deutsche bank. hudson executive capital has more than 3% of the german lender.

hudson is betting deutsche bank's new chief executive can revive sagging profits. the hedge fund's manager says the bank is, quote, misunderstood and undervalued. and that's your bloomberg business flash. alix: thank you so much. we turn now to wall street b. we cover three things wall street's buzzing about this morning. credit suisse falls short. the company's global market posted a loss and google revolt. employees of the company are planning a walkout today in protest of its handling of sexual misconduct and hedge funds can find value. shutting down after years of weak performances. david: joining us now is our new york bureau chief. our colleague had an interview and she asked about what happened with global markets. this is what he had to say. >> 19%. i fear we're down 13% and up 6% in equities and down 15% in fixed income.

seven points over decrease are a restructuring we need in brazil, in russia, in a number of our emerging markets, to bring the business back to london and also restructuring our u.s. rates. >> i don't mean to try to be cute, but this is a gap-nongap? usually you what see is you what get. >> i have to say, he didn't hear it first. i just read it. i laughed out loud. i'm just being honest. it's like, oh, those are numbers. it's like, i don't know why you're getting so hung up on these numbers. the idea of like optically it looks like this. because it is this. this is an unexpected loss. look, this has been a very good credit suisse for the past year. it's certainly been a turn-around and i think it's a little bit of a surprise to investors that there's more work to do specifically in this division. david: and the challenge that strikes me is he's done a terrific job on cost-cutting. very disciplined. he talked about that about how

disciplined they've been. at some point you have to grow the business. when you look at things like trading, you have to grow it. alix: to your point, barkleys was amazing. blew it out of the park. at what point you wonder this is actually a credit suisse problem. >> that's exactly it. that's what has been so interesting about this earning season versus even the few previous to this this year. there really have been kind of winners and losers. in terms of specific businesses. morgan stanley was very, very strong almost across the board. goldman sachs, strong but with some gaps and certainly a gap here. david: his theory and philosophy is he can take his very strong private wealth management business and traffer it -- transfer it into trading. the question is, does that work or not? >> right the and how soon can he get that to work? it feels like there's a little bit less patience for this. alix: maybe a little more urgency, one we did not hear in his voice. >> optically it's fine.

alix: yes. let's talk about that optics. over in google. this is what happened. yesterday the director was let go, no seve rens, due some allegation -- severance, due to some allegations on sexual harassment. now we're seeing a threat of a walkout for employees. it's a systemic issue. >> this has been brewing a little bit. there was a piece in "the new york times" about a week or so ago about andy, i believe, and some of the allegations against him. and the fact that he got this massive payout for leaving and essentially a lot of this was not dealt with. the c.e.o. of google has held a number of meetings, communicated a lot to employees about sort of we're on it. little bit of a drip, drip, drip here. and this walkout, as you say, optically, and even beyond optically, this is a really important moment for google it feels like. alix: it is. you mentioned what the c.e.o. was saying. he had a memo out to employees saying, i'm deeply sorry for the

past actions and the pain they have caused employees. i am fully committed to making progress on an issue that has persisted for far too long in our society and, yes, here at google too. what i find interesting, this is a total bias, is that with hot flying tech companies, for example, you would think that would happen less in that they're new. they're newer. they're not old-school, blue chip companies that are ingrained in this particular culture. i know that's a complete bias because it's not true but that's why i feel it's also interesting with google. david: one thing that is not new is sexual harassment. alix: 100%. david: indiscriminate across all sectors. >> it was a year ago that our colleague came out and there were elements there that i think were surprising to people around the silicon valley culture specifically. david: let's turn to value versus growth. a hedge fund based on value who said, forget, it i'll give you back your money, we can't make it work. >> what i find interesting about this is this is existential angst of heng funds running up

against -- hedge funds running up against really the classic debate around investing which is value versus growth. what i find interesting about this value play is we're starting to hear a little more confidence from the value guys right now. and so if you're anvester, you may be thinking, hang on. aren't we going into a market where you should thrive? alix: you could have said that in february and february, 2016, and august, 2015. which leads me to what i'm excited about. when we see the hedge fund returns for this month. who is able to really capture the volatility and capture the good bets and who just totally mised -- missed the market? >> what i find interesting too, the market hasn't really acted the way it has in the pafment and i think if you're an -- past. and i think if you're anvester you say, that's why i pay you money. i pay you money to figure this out. out new and different ifferent

ways. because if the markets behave the way everybody expects them to all the time, i can do this myself. or i could put in a mutual fund or park it somewhere else. so people are like, this is not going the way that it usually does. it's like, yeah. ok. figure it out. david: that's exactly right. ok, many things. jason kely. you can listen to jason on business week on bloomberg radio every day from 2:00 to 5:00 p.m. eastern time. coming up, washington leans on saudi arabia following the killing of jamal khashoggi. more on what i'm watching next. alix: and if you have a bloomberg terminal, check out tv go. watch us online. interact with us directly. go to tv go on your terminal. this is bloomberg. ♪

david: this is what -- watching. washington. there are increasing reports that washington is going to take some action and push saudi arabia and part of it came out yesterday when our secretary of

defense, james mattis, gave a talk at institute for peace. he said, among other things, we have to move toward a peace effort and we can't say we're going to do it sometime in the future. we need to be doing this in the next 30 days. he's talking about yemen. he's saying saudi arabia, you've been bombing the heck out of yemen, people are dying down there. you have to stop that. mike pompeo said something very similar. they're really saying they're going to put pressure on saudi arabia. alix: r.b.c. had a great note out saying as long as the hot seat is on saudi arabia, iran's going to be very chill. so they have the oil sanctions coming on 11:59 p.m. eastern time on sunday. so the initial conversation was they were going to come in, guns ablazing, be really aggressive in terms of fighting back against this. now they may not do that. would i would they want to take attention away from saudi arabia? david: that's part of president trump's problem. he has to worry about iran and saudi arabia. the tougher he is on saudi arabia, he's easing off on iran. at the same time, we sent an awful lot of arms over to saudi arabia.

if we say we don't want them used in yenl, that's pressure. -- yemen, that's pressure. alix: it depends on who has the leverage. saudi arabia isn't going to want to use potentially oil as a weapon. also if they buy arms from somewhere else, that's going to be more expensive for them. david: that's what president trump said. it's a hard job. coming up, the balance of power, i'll speak with the office of management and budget director at noon today. you might think he might have something to say about how good the economy is given the election on tuesday. alix: you have seen the lego movie? everything is awesome. coming up, this is bloomberg. ♪

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equities find their footing after the biggest rally since february. apple's judgment day, company reports after the bell with holiday guidance the first real read on how their phones are selling. stocks resilient in the recent tech selloff. and carnie in the hot seat. b.o.e.'s latest deal no surprises. but more brexit uncertainty. and we have that brexit decision , obviously no change in the rate. staying pat at 75 basis points. but the bank of england says the output gap has closed and the economy will run hot from late 019. as the b.o.e. says the output gap has closed. david: certainly. the vote was 9-0 to keep the interest rate where a it is. alix: they say global economy is more uneven and the down side risks have risen and, shocker, brexit remains the main challenge for monetary policy

uncertainty. but nonetheless, you see the cable rate moving higher. you also see u.k. bonds extending their decline after that decision. definitely taking it on the more hawkish tint from that. david: exactly. welcoming from london, our bloomberg colleague. thank you so much for joining us. not surprising they kept the interest rate the same. are we surprised what he had to say about the output gap and the economy running hot? >> that's pretty emphatic messaging from the bank of england. we all know that output gap is close to shut. unemployment's very low. it's been as low as it's ever been. for about a year now. so it's not surprising. but the language around it is. it's going to run hot, that's a clear indication that interest rates are going to need to rise faster than markets have been pricing in. alix: fair point. you throw on the budget from hammond also this week as well, does that mean we have to start pricing in a faster pace of rate hikes or just rate hikes sooner than we thought?

>> the forecast of the bank of england don't even include the extra boost that's going to be given by more spending as hammond announced earlier. so if anything, the output gap is going to be even hotter than the just described. the economy will be doing well. so long as negotiations conclude with a deal. david: let me ask you the impossible which is predict the markets at the moment. going into this, when you looked at the possibility of probably rate hikes, basically markets are saying yes in november of 2019, no before that. particularly in august. no, it's not going to happen. does this language coming from the bank of england today perhaps change the curve? >> i think what it does is i think it makes the likelihood of a hike coming after the brexit deal has been concluded extremely high. so it's very, very likely that you'd have a rate hike in may.

personally i think negotiations are going to go down to the wire. they're going to go to the 11th hour. this means you're probably not going to see a rate hike in may. if by some surprise a deal is concluded sooner and the bank of england has clarity, then it's possible the rates could go up in february. alix: i also want to point out that the bank of england is saying they note the tight labor market and said dome particular cost pressures will build -- zome domestic cost pressures will build. how does this change the pace of spikes? are they going to have to raise when they don't want to or is this going to be a fundamentally strong zphe >> wage growth is picking up in the u.k. that hasn't yet fed through to higher inflation so that the bits of c.p.i. basket are affected by labor costs the most. and so in time, we will see that. we will see that wage pressure translating into stronger inflation. so the bank of england has to

respond to it. i think, yes, it's very likely the rate hikes are going to have to happen. probably about a year. the u.k. still needs cautious policies to guide it on the right path. david: to interpret what the bank of england is thinking, not just saying but thinking here, when they have this emphatic statement about running the economy hot, into the end of 2019, is that really a concession to brexit? is that to say, we're not going to start tamping things down because we just are not sure what's happening with brexit? do they have to run it hot until they find out what's going on? >> i think they do. because there's very little point in starting to administer tightening now, with a good chance you're going to have to unwind it all later on. remember the policy effects the economy with a lag. it doesn't make sense therefore to cool the economy now, knowing you're going to have to live

with the consequences of that potentially going into a down turn. you have to wait for the brexit outcome and the bank of england is quite right to stay its hands. as soon as brexit is agreed, then it can be pretty quick out of the plocks and it wants -- blocks and it wants the market to know that. alix: thank you investment you do have a cable rate jumping, euro dollar moving lower and a huge sellup over in the bond market with yields spiking higher. let's look at your cross asset here. futures up by 12 points. it feels like the 29 days of october were no more. just kidding. it was a brutal month. the last two days of october saw a nice rally. i mentioned what's happening with sterling, the cable rate, 129 popping over 1% against the dollar and in the u.s., a little bit of selling with yields moving higher by two basis points. coming up, we're going to get down more to the markets after that red october. can they move higher to the end of the year? we're going to break that down with morgan stanley chief strategist who likes the rolling bear market scenario. how do you play that into a

potential bounce? this is bloomberg. ♪

taylor: this is "bloomberg daybreak." affiliates have commenced litigation on dow technologies. the lawsuit is seeking more information on the company's proposed dvmt merger. in a statement, they said, dell is coercing shareholders to vote in favor of a merger by invoking the possibility of an i.p.o. the icon affiliate -- a, -- icahn affiliates over stock. possible democratic gains in next week's midterm elections aren't likely to curb white house efforts to ease postcrisis banking rules. analysts only see short-term downward pressure on bank shares

should democrats take control of the house and its committees that oversee financial matters. most of the regulatory changes since president trump took office have been made by the administration's unilateral tweaking of agency rules, rather than acts of congress. and credit suisse group's turn-around is running out of steam just as the bank enters the time stretch of its overhaul. revenue and net income missed estimates in the third quarter. they joined bloomberg today. >> 10% return on capital in global market. it was too ambitious given the market conditions but we're a windfall of -- [inaudible] -- more than enough because the rest of the business which is where i'd like to go is really booming and doing very, very well. with very high return on capital. taylor: the swiss investment bank has promised to return half of the bank's profit mainly through buybacks or special dividends. and that's your bloomberg business flash.

alix: thank you. those buybacks. investors facing a mixed picture after october turned into an ugly month for global equities. what do you do know on the -- now on the first day of snove >> we've been looking at areas -- of november? >> we're looking at areas that are more underserved. health care. defensive sorts of plays. we still like the u.s. because we think the u.s. is stillwell positioned from a geopolitical standpoint. david: where are you finding the best revenues? you're generally finding that in the area of technology. we're looking in particular at software. software and services. the idea of recurring revenue. you should think of software and services in many respects as the new defensives. >> we've liked financials in energy. what we've seen more recently is it's the utilities. it's the defensive part of the value trade that's been holding up a lot better. alix: joining us now smorgen stanley chief u.s. equity strategist. bear market quickly turning into a cyclical bear and margins are at risk for 2019. good to see you. we all know it.

it was ugly. we lived it. but you can see how ugly october was for all the indecembers. worst multiyear in months. so, what do you do? >> this is not a time to react. the damage has been done at this point. so our rolling bear market narrative began with going after the weakest links this year. we thought it would finish with a small cap in u.s. growth stocks taking their pain. and they did. that's what led into this decline. so i don't think we're going straight back up. that's the first thing i'd like to safe. i don't think this is a time where you can blow the all clear whistle. at the same time, we've done a lot of damage so my guess is you're probably going to chop around between now and year-end. i don't think we're going to have aial that saves everybody's year -- have a rally that saves everybody's year. the end of this rolling bear market should signify something. there's going to be a leadership change. the market's looking for new leaders. and the value growth continuum is kind of our favorite play. we think that is still

underappreciated. i think people need to understand that value-oriented stocks have really discounted already a full-blown bear market in some cases. that's what's been going on all year. that doesn't mean growth stocks have to get killed. it means the foremans is going to come from other parts of the -- performance is going to come from other parts of the market where people are not exposed enough in to date. david: how bad could it get? this chart up is called popular vs. panda. it tracks the technology versus utilities. the white line being where we are right now. the blue line going back to 2002. if this follows this pattern, this would suggest we have a lot further to go. >> yeah. we're overweight utilities, underweight tech. kind of looking for this top. that's happening. we don't think that's going to happen. number one, the valuation -- alix: that blue line is not going it happen? >> right. because the valuation isn't near where it was in late 1990's for technology stocks. that's not our call. our call was the dwerjens got a little too wide but not like

that. there's probably over the next i would say two years or five years even, there's going to be a rotation from value or to value from growth. i think financials and energy are more important within the value could he hotter. they should garner some of the money that has -- cohort. they should garner some of the money that has been crammed into the growth stocks. alix: let's also distinguish between sort of the short term and your medium to longer term call. j.p. morgue-a note out talking about what we're going -- jpmorgan had a note out talking about what we're going to see in the next few months. an elevated risk of market reversion into the year end. investors should keep that in mind. namely that a rolling bear market turns higher. you mentioned we're going to shop around here. is this situation, know, -- though, something we could see out of utilities? >> that's what rates are going to do that. will be the answer.

first of all, it's nice to see the competition acknowledging a rolling bear market. that's always a good thing. although what i would say is that that also means it's probably getting priced. so when people are acknowledging that theme. we have to be a little careful not to get too extended here. i'm not looking for a big run into year end. there could be some squeezes, people frobble have gotten a little too underweight in some of these areas. i think it's going to remain tricky between now and year end. the reality is, most investors don't have any profits to play with now. they're playing defense. i think the appetite to try and jam stocks up into year end is not there. there's going to be redemptions for some fund managers. that's going to allow this thing to chop back and forth. david: let's talk about the why of it. people talk about two things. geopolitics and the reduction of liquidity globally. in your latest note you have a chart that we'll put up showing the extent to wit central banks are reducing their -- which the

central banks are reducing their balance sheets. this isn't new. so why now? >> it didn't happen in october but it accelerated. that was the tipping point we wrote about which is, q.t. went from $40 billion a month to $50 billion a month. the balance sheet reduction. it did accelerate. so you have two big sources of demand that kind of went down in the beginning of october. that rate of change is what tipped us over. in my view. the good news is that a lot of that's gotten priced. i think there's a wild card for next week with the midterms obviously. i don't want to make it a political show but we have to acknowledge that the polls have been generally wrong for the last couple of years. and i would suggest that the surprise is either republicans sweep or a democratic sweep. the consensus is it's going to be split. let's think about what the surprise could be. i would lean to say that the republicans probably have a better chance of sweeping. still not likely, but a better chance. if that were to happen, then

could you get another move that rates move up, a rotation once again away from growth to value, that to me is the bigger risk than the democratic sweep. david: we're putting up, they did a nonscientific survey, it comes up where you are. fairly low probability of a really big sweep either way. what they said is they think if it is reasonably narrow, that it either goes slightly republican or democrat, in the house, that it -- the effects are limited. if it goes narrowly republican, there's a slight uptick for equities and slight down tick that goes narrowly democratic. is that your assess. ment? >> my view is about rotation. if it excuse more republican then you have more of a value bent because the cyclicals will do better. there will be hope for an infrastructure build. maybe you can get that passed now. if it's skewed toward democrats, maybe rates come down a little bit because there's maybe more headwind against further fiscal -- if rates come down that's good for growth stacks. i'm not as interested in playing the index level anymore. that damage has kind of been

done. we still think there's down side between now and -- our bear case is 2450, 2400. but we're near our year-end target. there's not a big index play at this point. it's more about the -- what do you want to own within the market? alix: and it comes back to the dollar too. what midterms do to the dollar and when are we going to peak out? then it filters through to earnings and margins. what's your dollar story? >> we're secular bears on the dollar. we think the dollar is in a topping process. it can probably rally a little further here in year-end at some point, if people start feeling better about the u.s. economy again. but generally speak, the trend is down for the next five, six, seven years. that is basically anity-u.s. it's an international story. we contaminant to be skewing our portfolios toward international stocks. this is a time to be doing that. that's the other transition. the not just growth of value, it's u.s. to e.m. to europe to

japan. and that's going to be a five, six, seven-year cycle, we believe, because money is rul really just too cons rated in the u.s. -- too concentrated in the u.s. if that goes in reverse, the money will start to leave the u.s. david: without respect to whether we have a true, full blown trade war with china? if the world divides newspaper two camps, asia, southeast asia, versus the west and the u.s., how it that effect that anal sniss >> we're not anticipating -- analysis? >> we're not anticipating a full blown trade war. it could happen for sure. there's concern in the marketplace for these tariffs where a lot of damage could happen. but barring a full blown trade war, i think that our view stands. if we get a full blown trade war, yeah, we'll have to revisit that idea. but is that really going to make you want to jam more of your assets into the u.s.? i would argue, if we go full blown trade war, you could see asset goes back home in the same idea, that it becomes a nationalist view kind of globally. i still think the international

versus u.s. relative performance will work. it just will be less upside for everybody. alix: rounding out this part of the conversation. going back to the value growth. value typically financials and energy. but financials have not kept pace with higher rates and energy's not kept pace with higher oil. so how do you make the case? >> it's a give-up. a give-up trade. nothing works. people just have given up on those two sectors. remember, part of value is a defensive could he hotter which has done really well -- cohort which has done really well since june. until we have full pricing of an economic or earning slowdown next year, it's going to be a balance. it's not just about the cyclical parts of value. it's about the defensive parts. we're balanced. we have financial, utilities and energy and industrials within our. it's not just a mix. it's not just the financial energy cyclical trade. david: coming up, betting on the iphone. apple reports after the bell and

analysts are eyeing one thing. how the new phones are selling. more on that next. this is bloomberg. ♪

david: time now for the bottom line. we look at three companies worth watching this morning. still with us is mike wilson of morgan stanley. the first company, msci. they've been trying to aeffectuate reform by taking into account in their weightings the voting pattern of the structure of the companies and they've had to back off. that it's been 18 months now. it affects places like snap that was not going to get included in msci because their voting isn't so good. they said, we're going to reform the industry. and they've gotten their head anded to them. do you care, as you look at equities, about the voting pattern and the structure?

>> it's a very important issue for shareholders. i would not want to see this go the other way where people are saying these things don't matter. but i got bigger things to worry about right now in the broader market. david: do companies generally do better when they don't do funny things with their voting structure? >> absolutely. transparency is very important. it's corporate governance. that's taking a very forefront really since 2001-2002 when we had that crisis and we've had things like f.d. and sarbanes-oxley. so it's very important to the market. it's not unimportant. alix: i'm excited to look for apple. 4:30 earnings come out. you had some suppliers come out over the last 24 hours and talk about what they see. so corvo reported they got 36% of revenue from apple. their revenue better than estimated. also, dialogue semi gets 75% of its revenue from apple and it's looking for acquisitions. >> they expect apple will do well on average selling price.

they've been ramping up and also services. alix: my question for you is what's the importance, apple's been really resilient. so if you have a number that comes in strong, the stock gets a nice pop, does that stabilize tech? is one company that important when you look at the overcrowding or nonovercrowding of the tech trade? >> apple's importance to the market is very clear. there's one thing that matters, share buyback program. you go back to may, august, they usually report the first of the month. the market bottomed the day they reported. not because apple's important for the market but because they were back in the marketplace buying their stock inside size. remember, if apple buys a share of stock from somebody, they don't have to buy apple, they can buy anything. but it's a liquidity injection. nd it's a big one. alix: i.b.m., $4 billion buyback. >> absolutely. this has been a crossover point the last two quarters. where in april the markets sold off during earnings.

same in july. one reported it was a positive catalyst for everything because it was that tipping point the other way on liquidity of the i anticipate that could be a catalyst again. david: for our third story, dow due ponlt. big news today. -- dow dupont. big news today. >> very good results. earnings beat expectations. revenue maybe a touch light. what investors are really latching on to here is positive commentary about double-digit sales gains in oosk related markets. china, which -- in automotive-related markets. china talking about really big pain in those markets, mourning on profit for the full year. to see that contrast is really interesting. >> that's what baffled me. the two areas we think we know are soft are autos and china and they said that's where they really are overshooting. >> they are. the call is going on right now and i'm looking to hear, why are they standing out in those markets and doing better when so many companies, -- chemical

companies and industrial companies at large are suffering in those markets? i think part of what this points to is these companies kater to different customers. they're slightly different. there may be some nuance here and i think that's what i'm looking to hear from the call today. alix: fair point. at the end of the day, the u.s. is long chemical products and china is short. if you're in the right market and have the right product, it doesn't really matter what the trade war is in essence because they need it full-stop. >> i think it's also important that they saw pricing gains in all of the regions. they were able to offset those rising raw material costs and the currency headwind. alix: that's the interesting part too. you can see it in how traders are hedging volatile. seeing an uptick involved for individual names but not for the overall index. making it that really idiosyncratic story. >> the cost is one of the rising concerns now. we've written about it.

consolidation helps. no doubt about it. this is a consolidated industry and they do have some pricing power. we're trying to find more companies that can exhibit pricing power for next year. i think that's going to be one of the most important factors to identify. >> i think that's a really good point. on that consolidation theme, they increased their cost saving target from that merger. they're looking for $3.6 billion in savings which is up $300 million from their last update. by $600 million from when they announced the merger back in 2015. hard to believe it's been that long since this deal was announced. >> when they announced it, they said they were going to have some real savings. >> absolutely. they also came out today with their board directors for those spinoffs and the capital structure which i think they're expecting the first to happen in april. that will be the material sciences business which is the commodity plastic unit. i think having those details out there is maybe factoring into the stock game today because we've seen these companies that announced breakups. stocks are sort of in limbo

until you have that happen. when people are waiting to sort of see what that value creation is. so just sort of firm up those plans there is a benefit to the stock. alix: mike and brook, thank you so much. it's been such a pleasure to have you onset. thanks, mike. good to see you. david, breaking news. david: yeah. this continues on this story that was broke early this morning. a story in the press in london that said that they had cut a deal to let u.k. banks stay in the system. the e.u. system. then there were unnamed people in the british government who said, no, that's not going to happen. it's over. now we have the e.u. calling reports on brexit and financial services misleading. so they're knocking down those reports that had been in the press this morning. alix: interestingly enough, you look at the cable rates around he highs of the session, but you see a yield up two basis points rather than four or five. all of this ahead of the press conference. david: i was going say. there's a war in the news between two stories.

the bank of england and what mr. carney is about to say and these reports about whether the e.u. is going to keep the u.k. banks in or not. alix: let's look at some of what we learned from the b.o.e. so far headed into that press conference. first of all, they changed their inflation outlook as well as their growth outlook here. so for 2018, they see 1.3% g.d.p. level and 2.5% for inflation. that is the inflation target that's slightly higher and the growth target is slightly lower. so what we've been seeing from the eurozone as well. we also heard, that was the big headline, that basically they see that the economy will be running hot in late 2019. they say the output gap has closed. so very definitive language for mark carney and some saying that, look, the hawk took a back seat, they should have hiked before. former member said that interest rates on hold.

another spineless decision from the m.p.c. and like i mentioned, you saw a selloff in the guilt market. yield climbing as much as five basis points. we're off that level now for a moment. the cable rate still climbing and holding onto those highs of the session. david: he may be right and history may judge this hashly. if you're the bank of england, how can you move aggressively on rates with no about to happen come brexit? we don't know whether it's going to be good or bad or somewhere in between. alix: no doubt mark carney will be facing all those questions in just a few second' time as the markets try to gain their footing here. >> welcome to the bank's inflation report press conference. on my left is dave ramsen. my far right, ben, deputy governor for monetary policy. and on my immediate right is

governor mark carney. >> geernings everyone. a series of transitions are under way that will affect the outlook for the u.k. economy and the stance of monetary policy. first, global financial conditions have going to tighten and trade growth slowing. as a consequence, while the global economy continues to grow at above potential rates, growth is becoming more uneven and is expected to decelerate towards its potential rate over the course of the next few years. second, u.k. fiscal policy is shifting from a restrictive to a more acongress dadive stance. the u.k. economy is in the process of adjusting to a new and as yet uncertain economic relationship with the european union. as has been the case since the referendum, the m.p.c.'s forecast are conditioned on the assumption of a smooth transition to the average of a range of potential brexit outcomes. as the deadline for concluding the withdrawal agreement approaches, the expectations of households and businesses are

diverging somewhat from this assumption. ouseholds are more san begin while businesses are more wary. the shifting expectations could lead to some greater than usual short-termouseholds are more san begin while businesses are ata. u.k. households remain resilient to a brexit that has not happened. consumer spending is being supported by a tight labor market, with the employment rate and vacancies at record highs and the unemployment rate close to record lows. regular pay growth has been stronger than the m.p.c. had expected, rising to over 3%. in contrast, business investment has been weaker than previously anticipated. the level of investments fell by more than 1% in the first half of this year and is now almost 15% lower than the m.p.c. had projected just prior to the vote. as the brexit deadline looms, u.k. companies are now

understandably postponing investment until they have greater clarity over the u.k.'s future trading relationship with the e.u. financial markets are hedging their bets against brexit down sides, with sterling risk reversals building, despite sterling already being some 15% below its pre-referendum peak. in the committee's central projections, g.d.p. growth averages 1.75%. consumption grows modestly, rising broadly in line with the subdued pace of real income growth. growth in business investment is expected to stay subdued in the near term before rebounding as the current brexit-related uncertainties wane. that trade is also expected to contribute positively to growth supported by solid global growth at the lower level of sterling and the assumed significant acselves e.u. markets over the next few years. the m.p.c.'s projections were

finalized prior to the budget being announced. and the committee will aelse is the implications of those -- will assess the implications of those budget measures at the next meeting. although modest, the projected pace of u.k. g.d.p. growth is slightly faster than the diminished rate of supply growth which averages at around 1.5% per year. the m.p.c. judges that demand and supply are currently broadly imbalanced. as a consequence, over the forecast, a margin of excess demand emerges as demand grab exceed pozz tension supply growth. -- potential supply growth. for example, whole economy regular pay growth has risen om around 1.75% per year between 2010 and 2015 to 2.5% in 2016 and up to 3.1% in the third quarter of this year. with producttivedy ty growth below rates, pay growth doesn't

need to be as high as its pre-crisis average for unit labor costs to be consistent with meeting the inflation target. inflation is currently above the m.p.c.'s 2% target, boosted by the effects of higher energy costs and the rise in import prices associated with sterling's past depreciation. the contribution from these external factors is it's projected to fade over the forecast period. so taking waxing domestic and waning external influences on inflation together, c.p.i. inflation is projected to remain above target for most of the forecast period before reaching 2% by the end of the year. were the economy continue to develop broadly in line with the november inflation report projections, an ongoing tightening of monetary policy over the forecast period would be necessary to return inflation

sustainably to the 2% target at a conventional horizon. any future increases in bank rate are likely to be at a graud pace and limited extent. the economic outlook depends significantly on the nature of the e.u. withdrawal. in particular, the form of new trading arrangements between the e.u. and the u.k., whether the transition to them is abrupt or smooth, and how households, businesses and financial markets respond. whatever happens, monetary policy will act to ensure price stability and support the economy during the transition. as the m.p.c. has repeatedly stressed, the implications of brexit for the appropriate path of monetary policy will depend on the balance of its effects on-demand, supply and the exchange rate. so turning to each of those. first with demand. withdrawal from the e.u. will affect the demand for goods and services produced in the u.k., because of changes to the ease with which u.k. companies can

trade with the e.u., levels of uncertainty about the future relationship, and earnings prospects as well as financial conditions. these effects over the m.p.c.'s policy horizon are likely to be more negative the greater thedy ruppings to the economic relationship between the e.u. and the u.k. and likely to be more positive if there's less disruption. the extent to which changes in demand effect inflationary pressures will depend on how the supply capacity of the economy evolves. as trading relationships change, reductions in openness are likely to reduce the economy's productive capacity for a period of time. shifts in production across sectors will neither be seamless for this costless as resources in different sectors, including labor, are often highly specialized. this will drag on supply, as the adjustment process unfolds. as changes in supply are usually gradual, they normally have less

bearing on monetary policy in the short term than do changes in demand. if the future economic relationship between the u.k. and the e.u. changes only gradualy, losses would emerge relatively slowly. in some brexit scenarios, however, it's possible that the u.k.'s supply capacity could fall sharply. for example, an abrupt and disorderly withdrawal could result in delays at borders, disruptions to supply chains, and more rapid and costly shifts in patterns of production. severely impairing the productive capacity of some u.k. businesses. the prospects for inflation will also depend on how the exchange rate reacts and on any tariffs that result from the new trading arrangements. in the case of a smooth transition to a relationship judged to have a relatively small long-term economic impact, financial market participants might expect a smaller hit to u.k. real incomes than they currently have anticipated,

causing the pound to appreciate. in contrast, a disruptive withdrawal from the e.u. could result in a more pessimistic view of future income and some further depreciation. turning to the implications for monetary policy. since the nature of the e.u. withdrawal is not known at present and its impact on the balance of supply, demand and the exchange rate cannot be determined in advance, the monetary response won't be automatic and could be in either direction. in the case of a smooth transition to a relatively close economic relationship, the extent to which domestic inflationary pressures increase would depend on the balance of an expected rebound in demand as uncertainty fades and any further impacts on supply over the m.p.c.'s policy horizon, as well as the scale of the likely appreciation in sterling. in contrast, a disruptive withdrawal from the e.u. would probably result in a further

decline in the exchange rate and a large and immediate reaction in supply. tariffs might also be extended. in each of these developments would increase inflation. set against that, it's likely that demand would weaken as a consequence of lost trade access, heightened uncertainty and tighter financial conditions. and the overall extent of infleagsary pressures would depend on the balance of these forces as well as the evolution of inflation expectations. and there are three other important considerations for the conduct of monetary policy. first, the current situation differs materially from that on the eve of the referendum. the economy is now broadly in balance, rather than being in material excess supply as it was then. inflation is now notably above target, not significantly below. and if brexit is disorderly, any disruption to supply will be

immediate and material rather than distant and speculative. second, there's little that monetary policy can do to offset large negative supply shocks, which occur relatively rarely in advanced economies. and third, in exceptional circumstances, the m.p.c.'s remit allows the committee to extend the horizon over which it returns inflation to target over support of objectives for growth and employment. given the economy's starting position, this flexibility would only become relevant if the shock to demand were greater than that to supply. in that event, the committee would explain clearly its approach to managing any tradeoff between inflation and output variability, including the horizon over which it's thought to return inflation to target. however, however -- sorry. not however, however. but however the brexit process

unfolds, monetary policy will remain guided by the con stansy of the inflation target. the m.p.c. will respond to any material change in the outlook, adjusting policy in either direction as required to bring inflation sustainably back to the 2% target, while supporting jobs and activity during this most important transition for the people of the united kingdom. and with that, ben, dave and i will be pleased to take your questions. >> as always, if you could give your name and the organization you represent, and please stick to one question for the first go-around. >> thanks. ed from sky news. governor, in your last comments just then, talking about the reaction function if there is indeed a no-deal brexit, can we just be clear, are you saying that if there were to be a no-deal brexit and if, as many

economists think there could be a recession, even then you can't rule out raising interest rates? >> from the committee's perspective -- first, let's be clear that a no-deal, no-transition brexit is not the most likely scenario. so we're talking about a less likely scenario, tail scenario. we have to be prepared for that and the committee has given the guidance it has to provide some context to that. second point is, as the committee has emphasized, it matters what happens to all three factors. the main factors, the ex change rate, what happens to demand and what happens to supply. thirdly, what is unusual about that situation, if it were to come to pass, and the not the most likely thing, but if it were to come to pass, is that here would be a hit to supply,

potentially fairly large, and certainly more rapid than one is accustomed to in an advanced economy. and the consequence of that, we would need to -- the committee would need to balance the inflationary consequences of that. the potential inflationary consequences of movements in the exchange rate, and potentially tariffs, obviously tariffs is a discrete decision. for the government. and weigh that against an obvious desire to provide what support we could to the economy, to jobs and activity in the economy. so there are scenarios where policy would need to be tightened. in the event of a no-deal, no-transition, so-called disorderly brexit. but i would stress that that is not the view of the committee that that is the most likely scenario. >> that will be the response a lot of people might say?

>> look, we have -- the m.p.c. has a clear remit. the remit is price stability. subject to achieving price -- the y, to supporting government's economic policy supporting jobs and growth, if i were to simplify it to that. will be important that we take our responsibilities, we have some flexibility under our remit in terms of the who arize en over which to -- horizon over which to return inflation to target. we have some ability to look through one-time effects, such potentially as tariffs. distinct from those broader forces. but i think what needs to be recognized, what the committee thinks needs to be recognized, is a couple things. one, this would be an extremely unusual set of circumstances. an impact on supply, something

that's immediate and material. not, as i said in my remarks, something that's distant and speculative. that would have inflationary consequences. and we would have to balance our responsibility. ed a we've said in the report, as we've said in the minutes, as i've said in my opening remarks, this isn't prewired much there's no automatic response -- prewired. there's no automatic response. we'll have to look at the situation. if it were to come to pass, we don't think it's the likely situation to come to pass. but we'll be guided as we always should be by our remit in taking those responsibilities. reporter: chris from the financial times. just to follow on from ed's question. in that scenario of a disorderly exit, where you have to balance the situations of demand and supply, how on earth would you know what was a demand effect and the supply effect? because all you've seen is people hurting, people not being able to buy stuff in shops

potentially and queues on the roads. you wouldn't be able to know in realtime how to distinguish the two. >> so there's a question -- there would be a question again in this less likely scenario. and i hope we'll send a substantial proportion of this press conference on the more likely scenario. because it's more likely what your viewers and readers are going to be facing. but in this less likely cenario, there would be a need to distinguish between shorter term effects on supply that were caused by logistical challenges, very short and sharp transition challenges, such as you referenced, versus more structural effects on the supply capacity of the economy, which would be the product, as you would recognize, of losing

access or losing substantial access to one market and the economy not yet having had time to reorient itself either to domestic production or production for third-country markets. now, we're not totally uninformed on this. in that these are the types of thinking issues -- issues we've been thinking about since the referendum. it's part of the reason why we have an agent network, we look at a variety -- there are a variety of ways of looking at this. ut it will be a challenge, without question. and part of the series of judgments we will have to make are exactly around what you're pointing to. which is what's temporary, what's more persistent, and then the relative balance of that versus what would be expected for other related reasons a hit.

- to demand. reporter: cnbc. to pick up on the more likely outcome, to use your phrasing. assuming we do get an e.u. withdrawal deal agreed, and we do transition to an implementation period until the end of 2020, you've cited that we may see a rebound in demand if that transition deal is agreed. you've also said we could see upsides on the wage growth fronts. you've also said that kyo see firming domestic inflationary pressures and finally, we haven't actually incorporated any of the latest budget spending plans into any of your forecasts. so my question to you is, how much -- [inaudible] -- to the economy and g.d. -- g.d.p. forecast would all of those issues combined together pose and do you think it's time to start preparing the market for more than one rate hike a year

over your forecast horizon? of aarney: so in the event deal, as you can appreciate, and others can appreciate, it depends on what the deal is. we have a conditioning assumption which is an average of a range of outcomes. so we and others would have to look at not just having a transition period, but what the economy is transitioning to. we do expect a rebound in demand. let me emphasize a couple of things. one of the things we're seeing in the very short term, we're seeing it in virtually all the surveys, i can even reference something which came out after we finalized the forecast which is the p.m.i., manufacturing p.m.i. this morning. we see it in our agent conversations and surveys which is imbedded in here. we hear it in conversation with businesses up and down the country. that business is taking a very

cautious approach right now of, e we're at the point if not maximum uncertainty, close to maximum uncertainty. and there's not that much time left until there will be clarity. so waiting a bit of time is understandable. because we see all that, we have some sense of what's being held back and what would be potentially unleashed with clarity about implementation period and a deal. and so you do see, would you have seen in the forecast that we do see a rebound, notable rebound in investment and i would recall that investment has fallen over the course of the last year. investment growth, i should say, has fallen official the course of the last year. we see a fair pickup in the pace of investment growth over the forecast, investment, level of investment ends at some 14% higher by the end of the forecast, for example.

so we would see that pickup. the way -- and you're right in noting and others may ask about, i'll do it here on the fiscal, we haven't incorporated the budget into the forecast. the budget came only a few days ago, after we closed our forecast. we'll have time to incorporate that and we'll speak to it at our next meeting in december. but i'll just close with, on the last bit of your question, the forecast is conditioned on an average market curve, a 15-day average, we close that average a week ago. so it was a curve that was higher than the curve at present. something with roughly a bit less than one rate increase a year or three over the forecast who are ines. and that curve leads inflation a little above target at year two which is normally how we would think about the policy horizon. so one can draw conclusions from hat.

reporter: joel from i.t.v. news. this week, viewers will have seen the chancellor deliver his budgets. households and businesses have been told this week that austerity is over. are you clear that in the event of an abrupt departure in a disorderly way from the european union, that austerity will return? mr. carney: fiscal decisions are for the chancellor and for the government, not the bank of england. whatever decisions they take now or in the future, we then take those as given and we set monetary policy around them. so we can move monetary policy much more quickly than fiscal policy can be moved and we stay in our lane, we focus on our direct responsibilities which re on the monetary side. with respect to this week's budget, as i said in my opening

comments, there has been a shift in the sands from more estrictive to more acongress dative -- acongress dative. it has -- accommodative. it has the potential to be significant. for the outlook. but we need to do a proper analysis of it and assess how significant from our perspective that would be. >> andy in the middle and then larry. reporter: thank you. andy, bbc news. governor, you've referred to, in the veven a disruptive -- in the event of a disruptive withdrawal from the e.u. there will be an immediate and material hit to supply. can you spell out in non-economist language what that might mean? shortages, price hikes? what do you mean? mr. carney: yeah, i think we're al aware that in the event of

no-deal, no-transition brexit, which is not the most likely scenario, but if that were to come to pass, there will be at a minimum, and this is acknowledged by the government, it's acknowledged by the logistics industry, it's acknowledged by the e.u. and it would also effect e.u. as well, there will be a series of logistical challenges in terms of getting good through the ports and the knock-on effects of those to the ability of businesses, a number of businesses, not all business, but a number of businesses, to exist, at full capacity, and one can make estimates of that. reporter: what will that mean for ordinary people? what will they see? to draw it outk,

to the shop or the shop floor, it will depend on the agree to which an -- degree to which an individual business is able to prepare for that. it will be different for different individuals in terms of their jobs. and for us as a whole. and for whatever product or service we're using that hither to had relied on seamless access to the european market. so in some cases, goods and services will be affected. in others, they won't. i would stress that in many -- cts, there are certain we would distinguish between issues which are short term in nature, in other words, the system becoming used to new restrictions, the ability of both sides to increase customs capacity and make adjustments to

logistics. i would distinguish between those and more structural issues which mean that having less access to europe or more costly access to european markets will mean for businesses either which use parts that come from europe or which sell their end product into europe, that they will take decisions to reorient their production, to either the u.k. market or to other global markets. and that will take a period of time. >> i need to give enough people a chance to get a question. larry just behind you there. reporter: larry of the guardians. you say that the chances of a no-deal brexit are not that likely. but do you think they're more likely than they were the last time we had a press conference with you three months ago? mr. carney: it's tough to say.

not probably that productive to speculate on the relative probability. i think as we get closer to the deadline, the negotiating deadlines, it concentrates the mind. it concentrates the minds of -- david: wuvee been listening to governor mark carney of the governor of england, following the bank of england's decision today, no change in the interest rate. not surprisingly, the alonzo share of this news conference has been devoted to brexit, the consequences of brexit, which is laid out in some detail. he said one. the average u.k. citizen is not disturbed by it but businesses are refraining from investment. they're much more cautious. he's been asked a lot of times about what is a no-deal brexit, he says he doesn't think that's the most likely outcome. but the question keeps come back to, what happens in that case? and it's not pretty, i think it's fair to say. alix: how many times can he not answer that question?

in the markets you are seeing the cable keep on to gains, but not extending them and the selling prominent on the short end of the guilt curve. the s&p 500 at the highest of the sefplgts futures up by about five points after that two-day rally. the biggest we've seen since february into the end of the october month. european banks also in the upswing despite fact that credit suisse was hit. now in positive territory but it had disappointing read-through on the capital markets unit and check out these other asset classes here. a broadly weaker dollar story. feels like a selling of the dollar after its rally in october and a little bit of selling on the back end here in the u.s. the deal up by about three basis points. that does it for "bloomberg day break: americas." this is bloomberg. ♪ to "the open"

starts right now. ♪ coming up, leaving behind the biggest monthly loss says 2011, the features are rallying to kickoff november. signs of a slowdown in asia, china increasing their fiscal support. results, the first real insight into the success of the new iphones. 30 minutes away from the opening bell. futures positive a quarter of 1% on the s&p 500. euro-dollar, a weaker dollar in g10, euro at 1.1388. month,is a brand-new same old worries. >> i think that it is still a little premature to call the bottom. >> tough to take risk right now. >> cost pressures that companies are battling. >> the fed is tighte