oriole's train wreck -- oil's train wreck. contagion spreads to high-yield markets. brexit breakthrough, the moment of truth for theresa may has she has to sell the divorce deal. ,repped for lower returns returns aren't going to be any good over the next two years, echoing a call for a u.s. recession. david: welcome. i am david westin. we have a new neighbor. can i tell you how grateful i am i don't live in queens. can you imagine getting across the midtown bridge once amazon comes? no. maybe they will fix the subways. man whovid come a crazy clearly does not live in manhattan.

in the markets, s&p futures off. euro-dollar weaker. german that was the economy shrinking for the first time since 2015. it was worse than we expected. 10 year yield at 3.14. billion.it is $100.5 the caught my eye. crude for tending to stabilize. the opec president saying we are ready to balance the market. i don't buy it. it is a brutal selloff. have enough longs liquidated? david: it was stunning what happened oil. alix: it really was. you can't rule out another move lower. david: it is time now for the morning brief. 8:00, macy's third-quarter earnings. a call with analysts at 9:30.

consumer u.s. data for the u.s.. 10:00, the house financial services committee for the first of two days of testimony on banking. alix: time now for the bloomberg first take. oil.p story is you can see the damage inflicted on the price yesterday. down over 7%. at what point is there more shakeout? where are the puts? >> i am not sure. this is doing further damage to risk. we see the markets are fragile after the tech selloff. it is hard to be bullish if oil is falling. the memories of 2015, 2016 are fresh. oil did cause that profit recession. the only good news is energy his

in the s&p 500 as it was in mid-2014. pex's linkednomy, ca to is about half as much. alix: we take a look at the correlation over the last 30 days to tween investment-grade, even equities. you are starting to see it in the high-yield market. you see the high-yield moving 468 basis points. what are flows going to wind up looking like, rachel? hyg and another smaller etf saw a huge outflows yesterday. the third biggest day for outflows this year. $1.3 billion left of those funds. 10% of the exposure is oil and gas. it says people are taking risk off the table.

showed,t you just ,ndexes show spreads are higher the lowest since april when you're looking at high-yield energy. that tells me people are thinking about how this plays through different asset classes. david: not only that, but how it will play through brexit. alix: there is that too. david: it appears negotiators have come to a tentative deal. this shows the pound volatility. it moved up 1.5%, but today people are not quite as sure. >> people are taking a second look. they are betting on pound volatility. the spread between pound and euro volatility is the highest since theresa may gave her speech saying when the date of article 50 would be, so still

high. it is not clear that anyone is willing to bet on enduring down strength. cable and the pound versus the euro are not pointing to people betting on pound topside, which ofinteresting, the lack follow-through. it underscores you can negotiate with 27 countries, but you have to negotiate with your own cabinet. david: our funds flowing at all? >> for the most part it is waiting. some u.k.-focus etf's, we are seeing money coming out, but nothing spectacular. there is a slight impact if you australian,pean, developed markets. you're seeing more on the hedge side. ,he dollar is getting stronger

but it could be people wanting to hedge against currency weakness. david: we are watching parliament. we just saw theresa may. this is prime minister question time. it is not expected she will talk much about this deal. she will meet with her cabinet, where they get to read the deal. alix: she did say she is negotiating a good deal for the u.k. story is weur third are definitely late cycle. a some point we will enter bear market in the next year and a half or two. it is rare you hear what he has to say. rachel, there are a lot of calls .or recession in two years are you seeing the flows reflect that? >> yes, to a point. where you look at where the sticky money is, it is in the

cheaper s&p funds. were seeing a shorter-term bid for utilities, a move away, high-yield corporate debt, but it is hard to look out two years ahead. earningson to retail, has not been enough to lift the s&p. ly,, the consumer discretionary etf, saw its biggest inflow in three years yesterday, if you ignore september. david: i don't know if alan or not.n is talking he is talking to david rubenstein. he is a little concerned about the future of the u.s. economy. >> it is going to be driven by the fact that debt is rising dramatically.

there will be some curtailments occurring, and it will feed on itself. david: mr. greenspan is concerned about the future because of the debt. >> i am not sure. i think the budget deficit is helping the outlook for u.s. growth and push any recession to 2020. from 2019 we still have a fiscal impulse coming next year. andng interest rates, debt, more income to debt service, u.s. dollar strength, essentially their ripple affects of the fed tightening, this is how cycles generally end in a normal way when they are not inventory corrections. this is your typical description of a balance sheet tip over. alix: wrap this up. we had the tech selloff.

now an oil selloff. how much risk is being taken off the market? >> you see in options that not a people are hedging, which suggests they reduce growth exposure, so a lot of the offoff is risk being taken the table. when you see tech heavyweights move 3% to 5% every day, it into it hard jumping back u.s. stocks. alix: thank you. a reminder, you can find the charts we used. just go to gtv on your terminal. coming up, more on oil and how it is moving relative to other asset classes. this is bloomberg. ♪

>> this is "bloomberg daybreak: americas." this is your bloomberg business flash. the trump administration is holding off on imposing new tariffs. will consider revisions to a report on the national security implications. president trump has threatened tariffs of 25% on foreign-made cars. japanese automakers rose on the news. boeing and u.s. regulators are deciding whether to issue a stop work after the deadly crash in indonesia. they want to make sure the plane

won't dive aggressively. safety feature has been implicated in the crash. the parent of snapchat says it is being investigated over investigations -- allegations it misled investors. it is cooperating with the sec and doj. snap investors claimed the company didn't disclose how competition from instagram hurt its growth in 2016. snap has denied any wrongdoing. alix: it was the biggest one-date drop in 2015, oil down 7% after concerns, leading the market to wonder whether the selloff is technical or fundamental. >> the key thing to focus on is this is a politically-driven market. ae industry is hoping structurally bullish market for the next decade. , the declinement

is based on fundamentals. less demand, more supply. it iss all logical, but more the uncertainty likely to feature. >> the oil price could continue to come down. should be finewe for now, but the risks are there. opec agreeing on taking away some of the supplies brought back into the market. alix: joining us now is the deutsche bank chief international economists and gina martin adams. everyone is fired up on this. i looked at my phone yesterday .nd see oil down 7% the market must be down 300 points. that did not happen. positivestill a correlation, but you have to keep it in perspective.

this is not an oil price crash equipment to the last one because energy is smaller. a drag onl creating stocks, but the drag is smaller and the impact is less. the outlook for earnings, there is some risk expectations will have to come in. when you have a sector that is only 5% of the index, the drag is limited, particularly when you get the upside to the consumer sectors and users, which are bigger market cap share of the s&p 500. your thoughts on growth? u.s. thatomy like the is a big consumer of energy, lower energy prices will be good for consumers and the business community using energy. important.ery

equities, thatgy is not good. more significantly, we have seen a change in the outlook for the consumer and capex outside of energy. david: gina, any one factor should not determine it, but this is not operating in a vacuum. it seems like where having one scare a week. to what extent does that rattled investors? >> it rattles investors in the range of 7% to 10% and stocks so far. we do have downside expectations. if you get an offset by an improvement in economic ,onditions by lower oil prices oil prices spike into recessions

, they don't fall into recessions. this takes some wind out of the sails of some components of the earnings stream. revision in other sectors, so it is just one sector. eventually you find a bottom. move with earnings growth. if earnings growth will recover into the year ahead, it is just a matter of finding that. alix: what did we learn from 2015? $26 a barrel. what did we learn? things. were two first, gdp from 2014 to 2016 did not decline. we saw oil prices come down hard and the dollar go up significantly. in terms of impact on the economy, growth was still 2.5% in round numbers.

we didn't see any recession as a result. the stock market went up. it is not the case this is negative in the sense of the macro picture. it is negative for those in those industries, but broadly, we are optimistic, how can falling energy prices not be good for the economy, excuse me for asking that. alix: if you have falling energy prices, your input costs might be lower if you are a company. does that offset the negative revisions. depends on how far oil prices fall. you did have a small recession as a result of oil prices falling from $100 to $25. that is a bigger decline than what we had so far. $20, youices crash to will get negative revisions and

have a high-yield default scare for energy. and is not 2014, when capex energy investment works for ordinary and companies were extremely over letter. this is post-2014, where the companies are cautious, prices are not as high, and optimism has not come back as much. >> everyone who said we are just about to turn down, the more prices go down, the longer the cycle the last. it is incredibly helpful for any worries we are just on the cliff of a slowdown in the economy, which we don't expect. that is not where the expectation is. lower oil prices will extend the length of this impressive cycle we are going through here. alix: value trade, let's fight energy today. thanks a lot. prime minister's

questions in the u.k. theresa may talking about the brexit deal. she said it will ensure frictionless trade with the eu. wow. that is amazing. david: it will be a good deal. it will protect jobs. a theresa may classic. she will have her cake and eat it too. alix: delivers on referendum and to freedom of movement. thisay she is talking, deal is the holy grail. david: it is hard to know what we will see in the deal. they may be kicking the can down the road, saying let's have an arbitration panel in the summer of 2019 and decide whether it is working or not. alix: how is that going to go? david: it is better than a hard exit from the eu.

maybe the markets were like that. alix: we will talk about this in a little bit. how do you take the rhetoric there? i want $1 million and a nine-month vacation. >> one day you think everything is resolved, and the next day you think there is no deal. we do not know what they are debating. david: no big surprise. jeremy corbyn thinks it is awful. alix: shocked. shocked. political grandstanding? i would never have thought. david: germany released its gdp numbers come is showing its economy shrank for the first time since early 2015, driven in large part by a struggling auto industry. my question is how much of this is trade fears, as opposed to fundamental factors? >> we are not overly worried. there are some headwinds to the

european economy. gdp growth has been strong for a while. we are not seeing this as any dramatic change in the outlook. let's look at the unemployment rate for germany, still lower than 1991, so the german economy is still doing incredibly well. it is facing headwinds and there are structural issues. there are some issues with brexit, but we are still not worried about any dramatic slowdown. david: talk about the structural issues? out, and one of them basically said forget the aree issues come up there fundamental reform starting with the agricultural policy and subsidies, but going beyond that , the eu has not gotten around to it. until they do that, they will not have sustained growth. >> europe is going through some

challenges. it now has a difficult time. there are structural reforms that need to be implemented. we have been looking at that since 2012. broadly speaking, this is an unfinished project. david: unfinished, but is it moving towards getting finished or backwards? we have been talking about monetary policy reform, certainly since the greece crisis. it is going the other way now. >> the ecb has been buying time. david: they don't have a fiscal policy. not have control over structural policy, which is part of the solution to the problems europe is facing. it is part of the institutional setup in europe. it probably needs to make sure we don't have these regular crises coming back. an important part of that is what are the costs of an unfinished institutional setup.

we need a more finished project. andeed that project policies to move forward continuously. david: when you look at the populist movements in italy, hungary, germany, poland, are we moving towards it? towill be more difficult affect fundamental reform given those elements. >> that is a global phenomenon. there are a lot of things going on that are not only a european issue from that perspective. there are various scenarios you could paint here. it could go well relatively quickly, let's well relatively quickly come up and europe has shown the resolve to hold things together, so we are optimistic this will be the case, but it requires hard work on those that have to do structural reforms and those that have to reach out to do structural reforms.

think germany will have elections in 2019? >> i don't have a view, but globally, the political environment is changing. that is also the case to some degree in germany. alix: losing angela merkel -- >> there are many nuances as to what that means. generally speaking, populism is growing. there is a lot of dissatisfaction in many parts of the population. we need to think about this hard. david: coming back to the german gdp numbers, doesn't it illustrate how vulnerable germany is to international closed within and without the eu? if the world is moving away from globalization, does that hurt europe more than anyone else? talked about china

and emerging markets, other things that are important for exporters. there is a slow down in the german economy. is this something that keeps us awake at night? no, we think the data paints a picture of the german economy doing well. we have for some time seen the ecb signaling that things are going in the right direction. alix: you are sticking with this. we will talk more about >> it. theresa may saying this is a good deal for the u.k. this is bloomberg. ♪ [ phone rings ] what?!

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see the grinch in theaters by saying "get grinch tickets" into your xfinity x1 voice remote. a guy just dropped this off. he-he-he-he. alix: this is "bloomberg daybreak: americas." i'm alix steel. oil slides, dow jones futures

now 21 points. lachapelle, market cap now under $900 billion. these are things, technicals you will want to watch as the market opens. italian banks, i know it's a shocker, down by over 1%. italy caved in no way to brussels. will of the ec actually issue fines against the country? uncertainty on euro-dollar, now pretty much flat. it was down by .2%. cable rate off the lows of the session, still down .2%. it is a greatying brexit deal but nobody actually knows what is in it. the 10-year goes nowhere even though we learned yesterday the a great brexit deal but nobody actually knows what is in it. october budget deficit was 60% year on year. crude up by 20%. opec trying to stabilize the market. we will windoctober budget defig inventories.

the markets kind of bought it. david: crude comes roaring back. they have a ways to go until $80. let's get more headlines and what is happening outside the business world. emma:they have a ways to go in , one far official warns 100 people may have died in the states ever deadly wildfire. the death toll his now officially 48 and about 200 are missing. it has destroyed 8800 buildings, most of them homes. the loss angeles, a fire that raised through malibu is described as 40% contained. that blaze has killed two people. in israel, a law that could threaten the survival of benjamin netanyahu's coalition. the defense minister has quit over disputes of the gaza strip cease-fire. lieberman says israel should hold elections as soon as possible. netanyahu to strike

a harsh tone against hamas rulers after two days of fighting. the european union entering hatchets most difficulties yet. theresa may will ask her cabinet to support the brexit plan today or quit. cabinet to persuade her and then she will face near impossible ons in trying to get the deal approved by parliament. 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'm emma chandra. this is bloomberg. we have been watching prime minister may set the stage for the cabinet meeting, of him before parliament to say that she has come up with a good deal that will benefit the united kingdom. that. waiting for maria, good to have you here. what do we know, what don't we

know is in the deal? good morning. it's been two years since the u.k. voted to leave the european union and she finally has a deal. we understand this is a technical agreement, 400 pages long, but very few people have seen it. they are concerned about leaks, they don't want this to be cut off before it can fly. theresa may thinks it is a good deal, but at this point, frankly, it is the only deal she has got. that is what she will be arguing when she meets the cabinet at 2:00, saying we are not going to get a better deal. some of you probably don't like it, but it is all we have. the question is if the cabinet will clear it or not. isid: you just told us it 400 pages, i understand the members of the cabinet have not seen it or not. this sounds like the way they do business in washington.

how could they read through that and then vote on whether they support it? at this point, and it is 400 pages long, so it is quite take. we think she has told everyone individually, this is the key takeaway. based on report that came out yesterday, the concession she is about to make is to keep the u.k. in a customs union with the european union to get around the irish border situation, which has been a headache for months now. she said this would not be the case initially. the u.k. would pull out of the customs union, and cut their own global trade deals. if they stay in the customs union, they will have to stay aligned to the european union, pretty much staying in the european union. thatteers will tell you this is brexit in name only, if anything. thingsone of the great about england and london is the vigorous printed press. ande is a national press

they are not shy at all. how are they covering this right now? >> some have been very critical. we have the evening standard, a big paper, which is handed out for free, the editor is george osborne, former exchequer. he was one of the man who was in charge when the referendum was called. but they argue is with this deal, it is the eu that would be taking back control. of course, theresa may would say it is a binary choice, we either get the deal or we don't have a deal and we crash out with all the economic implications that encompasses. david: thank you, maria. at the place to be today, right outside number 10. alix: still with us is torsten slok. ceo, trader, investor, what are you thinking? >> it is difficult. nobody has a model on what the

next headline will be. that is why political consultants are having a really good time because there are so my different interpretations of what will happen, so the answer to your question is, it's really about risk management. how do i head versus different scenarios that may play out either to the upside or downside? you have the some version of options or take some volatility. many assets are still relatively cheap, buying insurance against him of the downside scenarios. alix: similar to running a .usiness >> there are so many different business models that are affected. of course, everybody is trying to do his or her best to avoid negative outcomes. in that sense i'm confident the situation can be managed. of course, that means everyone needs to prepare also for a negative scenario. question,h raises the

what is accurately priced in? volatility just popped. she is also saying that we have some significant implications in terms of companies being prepared. to some degree, every exporter is to be prepared, even the domestic consumer. inventories need to be prepared. a lot of anecdotes about how different entities are preparing. question, this is a very significant amount of uncertainty that is difficult to deal with, both for investors and companies across the board. david: coming back to the u.s., we have jay powell speaking inay, cpi numbers coming out a little less than one hour from now. fed goingtent is the to need to respond to these things we are seeing in the marketplace? torsten: on the cpi numbers, we had two relatively weak prints,

so we do expect a rebound in but the and core, difficulty for powell is, if we get a move higher on inflation, and if at the same time, the labor market remains tight, those are the mandates that the fed looks at. as you can see in this chart, the trend has been that things have been moving higher more broadly speaking, both on inflation, and the fed is listen to that saying should we look at the inflation data and tight labor market, more rate hikes? should we look at the brexit complications, global slowdowns, china, europe? then maybe we should be stepping back a little bit. in that sense it is becoming very important, the message he sends. does he put more weight on the domestic indicators are also these international things we are discussing. alix: fed funds rate versus cpi. i want to go back to oil and the

implications for the fed. if you look at 2-year the breakevens, rolling over. the conversation not long ago was 2%. what is the feedback loop for that? the breakevens are traded off of headline numbers, which includes food and energy. if energy prices go down, the headlines will also go down, which is why those charts are heading lower. this is another complication because the fed like to talk about inflation expectations. this tells you they are falling. i'm sure he will talk about energy prices today. it could be used as a way to soften him the hawkish stance. they are in a difficult situation because domestic indicators, labor market, cpi will show more of an upward trend. some of these other things, international prices, are pointing in the other direction. david: december still a done deal?

torsten: absolutely. david: 2019, there has been disagreement in the marketplace and what the fed says they are doing. which do you believe? torsten: we believe the federal reserve. if you look at your bloomberg stream and look at what the expectations are, look at me ed , they expect the forecast to be strong. the quarterly consensus is relatively strong expectations. the answer to your question is we expect four more rate hikes. that is part of our forecast because we still have growth above potential, a pressure on theation, and we believe top line shows you, gdp growth, this year 2.9. potential growth rate is 1.8, so we are significantly above.

that still needs more upward pressure on inflation. alix: your favorite terminal function? torsten: i look at it every day. [laughter] alix: let's compare that to the ecb. the conversation would we would have more hikes in the fed versus ecb, but when the fed starts hiking, that will change the conversation. if the ecb's terminal rate will be barely positive, does the narrative ever switch? issten: one important valve the exchange rate. if you have that and ecb does nothing, that puts more upward pressure on the dollar. that is pushing u.s. inflation down. vice a versa in europe, the euro will go lower. that pushes your patient inflation higher. some of the adjustment mechanisms from diverging policies is that the exchange rate will tend to solve some of those problems by holding u.s. inflation down a bit and by lifting european inflation

because the euro will go down. you are right to say this uniqueing we have had is , the fed raising rates, other banks doing nothing, is just an unusual environment. we were sitting here just two years ago saying everything was synchronized and now we are saying that is not the case anymore. decoupling is the theme that will continue to persist. alix: torsten slok, always a pleasure. coming up, and eminent bear market. steve cohen's latest message for the equity markets. this is bloomberg. ♪

emma: this is bloomberg daybreak. coming up, david herro, the cio

of international equity. this is bloomberg. this is your bloomberg business flash. dan gilbert has agreed to sell his detroit casino in a deal valued at $1 million. penn national gaming will pay $300 million and run the hotel. the real estate investment trusts will pay $700 million and own the property. gilbert still owns the scene is in cleveland and cincinnati. the world's largest container shipping line as reza lower end forecast.it they say revenue is improving across the organization. chinese exports to the u.s. group 10% last quarter despite trade tensions. another department star is getting into appliances. bloomingdale's will sell

high-end tv's, washers, stoves, and other appliances. the company says the move is unrelated to the bankruptcy of sears. bloomingdale's is following other chains that have added appliances such as best buy and jcpenney. we turn now to wall street beat, where we cover three things wall street is buzzing about this morning. all, cohen's bear market call. hedge funds unveiled third quarter holdings. the latest read from 13f filings show how hedge funds position themselves in the quarter. uber idols saudi engine. the ride-hailing app says they are waiting on more information before they make a decision with what to do with saudi arabia. let's kick it off with

steve cohen. it is so rare to get a good read from him on the market. in an interview he said we are definitely light cycle and at some point we will enter a bear market, and it will happen in the next year and a half, maybe two. >> this is a great story on the bloomberg because he does not speak often on the market. a sourally predicting atmosphere over the next two years. adjusting to note, 2020 would be a presidential year, so he is joining the course of people who say in the next two years we could really see a bear market or enter into a recession. david: which are different things. 2021mists are saying 2020, him a reasonable expectation. saying we will not see the returns if this marginal return remains. risk? you take on >> he also just has of

investing, which we have seen many try to adapt to. the other interesting point he made was he said he is trying to build out a venture capital operation, complete venture capital operation. that is interesting because we are seeing a number of hedge fund managers gravitate toward the private markets because they are not seeing as much opportunity in the public markets. david: and we don't know if they are making money or not. alix: private equity loves that. david: second story, those 13f's. first of all, they are dated. you can see some of the big things that happen. 14 million shares of pg&e in the third quarter. i don't know if they held them until now, but right now they are having a tough time. bridgewater, on the other hand, increased its investment in ge. blackrock added gold. everyone is owning it, but as

you point out, this could be a hedge. activet is not an in investment strategy. >>i don't know if they held them until now, but right there are f september 30. we don't often know what hedge funds are trading in but they are a snapshot. for a lot of these firms trading rapidly, they may be a small slice of what they are doing currently. david: it may or may not be a pattern, but there were several that sold alibaba. it popped up several times in different hedge funds. several kept popping up. good point because we are looking for all the technology stocks. the deadline is today so we are looking at hedge funds to see if they stayed in the faangs in general. alix: when it comes to ge, we saw some huge block trades last couple days. you have big, institutional guys selling but you also have

someone with big pockets who is buying big chunks of ge, which led yourself to saying, are we seeing a hedge fund or activist investor building of a position in ge? in the thirde quarter it anybody did make big bets, but we will not be able to see in their were one of the people who did the 37 million trades which were reported last week. posted september 30. we will get a sense of people piled into certain things that did poorly in october. that is when we saw the stock market route. that will give us some insight into who will be on the good and outside of trades. alix: let's talk about being on the good or bad side of saudi arabia potentially. talking about the investment into the country. saudi is a big investor in the company and we have a fiduciary duty to serve all of our investors. they have a board seat, they've been a terrific board member.

the act itself wasinto who willd outside of trades. horrible. we are anxious to learn more. then we will talk to the board and decide the best way forward. alix: similar to other guys. we are not going to go but we will send our underlings, minions over. not sure if we will invest or not but we don't want to rule out the opportunity. it is hard because there is a lot of money at stake, this is a very complicated, human issue as well. the silicon valley companies are in a particular hotspot because they have come out, presenting themselves as the more socially just, doing more impact investing. so they are in the spotlight in terms of how they handle this issue. time, at the same privately held company and a partial owner. how do you fire an owner? do you call them up and say please give us back your shares? uber may have a particular

sensitivity because they have had some issues in the past with reputation, particularly with using them.who are the bad pr that goes around that. where you are seeing investors getting a larger pressing on the social and environmental issues, calling companies more to task. david: thank you to peggy collins. coming up, who is in, who could be out? the potential shakeup at the white house. this is bloomberg. ♪

david: i'm watching the white house today, a potential shakeup. yesterdayhis afternoon. houston nielsen is the homeland secretary. the market has gone out, the

president does not want her anymore. he was supposed to tour the border but he canceled that. a big supporter of kiersten nielsen. you may lose was, your chief of staff, and the president said, that is ok. they had somebody lined up on the vice president's office to take the job. thatody had a great quote said the president pours gasoline over everybody and then wait for somebody to light a match. and then out of first lady's office, a deputy security adviser that she has gone crosswise of and the office issued an official statement saying it is the decision of the first lady that mira ricardel no longer has the honor of serving in this white house. alix: what was the reasoning? david: we know they went to

africa and apparently there was a tussle between mira ricardel and the first lady's office about who would be on the plane, how much support they would get, and reportedly, the first lady suspects some bad news about the first lady lady has been coming out of her office. mira ricardel has also been crosswise with john mack us. this is a major drama, like a soap opera. alix: like a reality tv show. david: anybody done that in white house before? alix: unreal. then again, this is how he manages. coming up, david herro, cio of international equity, joining us for italian banks, european banks, and commodities. coming up, davidthis is bloombe. ♪

i am a family man. i am a techie dad. i believe the best technology should feel effortless. like magic. at comcast, it's my job to develop, apps and tools that simplify your experience. my name is mike, i'm in product development at comcast. we're working to make things simple, easy and awesome. alix: oils train wreck.

prices for the most since 2015. goldman sachs has market should not count out a move near 50. contagion spreads to the high-yield bond market. it is the moment of truth for theresa may. she has to sell her cabinet on a deal. she tells parliament the deal will be good for the u.k. economy. the market hopes for the magic of macy's. we are seconds away from their earnings report. david: welcome to "bloomberg daybreak: americas." i'm david westin. we have them now. earnings-per-share, $.20 compared to $.14 estimated. third quarter comparable sales beat estimates for their own stores. alix: comp sales, 3.1% versus 2.5%. net sales touch light, 5.4 point four one billion. inventory coming in at just over $7 billion. adjusting earnings looks like a

crazy beat. david: $.27 adjusted, which is comparable to the 14 sense they were predicting? alix: a strong holiday season and the fourth quarter. it will be interesting with the guidance that they will be issuing as well. we talked about that earlier didn't about when they offer guided last quarter, that proved to be difficult for the stock. david: i don't see the revenue numbers yet. i also have not seen exactly what the same-store sales -- basically, we have the licensed comps up 3.7%. sales coming in at five .4 billion, a little bit light. i'm just trying to scroll through the report. they are updating their guidance for fiscal 2018.

revising their guidance, they sales for the whole year now between 2.3 and 2.5%, raised the lower end of its comp sales guidance. sales for the whole year nowthat's a positive. they seeing that sales, .3% 2.7%, raising the estimate for the full year. also, a bigger vision for earnings on the high end, 4.30. pretty good news. the guidance going well for the fourth quarter as well. david: let's turn to somebody who knows about this, sarah halzack is joining us from washington, our bloomberg retail columnist. we briefly went through the numbers. they had a little trouble last quarter because they beat earnings and then had some forward gardens that was disappointing. >> that's right. this shows macy's has some spring in its stead going into the holiday season, a strong beat. it suggests a number of its

turnaround initiatives are working. it has been expanding its online assortment, revamping its loyalty program, adding these stores within stores providing some more experiential retail. those things are gaining traction in the short-term. the question remains about the long-term, a department store format is still challenge. is this stanching the bleeding or making it into a new company? david: and the numbers on the margin i have not seen yet. how much pressure is there on macy's from wages and from freight? those are big factors. for macy's, the big margin question has been on promotions and discounting. when it has had lackluster inventory, it was along on those tactics to move merchandise. that was weighing on gross margin. it's been doing a good job the last several quarters of managing inventory and not having to resort to discounts as much. i suspect that helped its gross margin in this quarter. for the 39 weeks

ending november 3. 3.9%, up a year ago. to manage those margins. sarah halzack, thank you. in the market, s&p futures are pretty much -- actually, they are literally flat. euro-dollar flat as well. a weaker field to the market coming into today, stronger dollar story but that is muted a little bit. coming in weaker than expected. the first time growth contracted since 2015, but the euro taking it in stride. the bond market in the u.s., 3.14 is what we're looking at despite the budget deficit was $1.5 billion. crude just $.47 higher after being destroyed over the last couple weeks.

let's break down oil even more here. worst one-day drop since 2015. plunging more than 7% yesterday. part of it was opec flagging demand concerns. dicker.us now is dan you have been trading the market for 30 years. have we found the bottom? i was on your show on thursday and i said the market stops going down when the selling stops, but there is reason to believe the selling will stop. for the lastn -- two weeks i've been trying to find disconnection between the hedge funds that have been selling oil and the algorithmic boxes selling oil, and something else in the market, some other asset, and i cannot find it. but what i find -- and you sent --in a previous segment there have been a lot of

redemptions from hedge funds. these hedge funds are being forced to deliver back capital investors on november 15. yesterday's move, that move where there was not much in the market to spark it, felt to me like this capitulation move, of hedge fund lastgasp strong to raise capital for what will be an enormous number of redemptions coming in in the next two days. great point, the technical and what will happen after the redemption date. you brought this up to me last week. in the bloomberg, net long position for wti and brent. a nice wash out there, but we are not near the levels of 2015, 2016 when we had other oil price a. does that tell you something? >> this is like a microcosm of my career in oil, where the financial indicators, inputs to the market just overwhelm everything that is fundamentally going on.

there is enormous increase in u.s. production going on, but the last week over week result from the eia are 400,000 barrels in a week. that is black magic. you cannot increase production by 400,000 barrels in a week. this is just going into the feeling, the business of selling that is driving the market down right now. when these kinds of moves have been, when you get this kind of washout in the hedge funds, financial players, it takes time for confidence to reemerge in the market. i don't think this market snaps back at this point, not quickly anyway. alix: to your point, in the bloomberg, we are looking at the amount each contract has moved over the last couple weeks. i point that out because the beginning will be about 2019 and december 2018. ,ost of those contracts moved

almost nine dollars. that tells me the market is concerned. once you get the bottleneck issues resolved in the permian, we could see a flood, when we are already seeing record production. >> the curve has definitely gone from backward dated to a contango state, but those spreads have not moved to the degree they should considering the oil market has gone down $20. you are pulling so much product out of the permian now. of course there are going to be better efficiencies when pipelines free up. but i don't know how they are getting it out, by truck, train, mule, i don't know. the numbers are astonishing, the amount of production coming out of west texas is astonishing. the pipeline do get freed, so there is a better route for the oil to get out, but it is getting out now. that is not the issue.

going on with the supply out of west texas, when will that stop? they have increased 2 million barrels in a year. i would have thought half of that would be incredible. of course, opec comes in in the december meeting and they are already saying they will cut half a million barrels, i think they will go to a million. they have a lot of reasons to stabilize the market. they don't need $100 today or in the first quarter of 2019, but they needed down the road. they will do what is necessary to offset what the u.s. production is doing. alix: dan dicker, thank you so much. i wonder what the cost is, oil by mule. it seems more expensive. staying on the subject of oil, how it may impact other asset classes. joining us is the morgan stanley head of securitized strategy and head of fixed income research.

we are putting up a chart showing up the relationship with oil and the spread on high-yield. we know that high-yield goes into the energy markets, we can see a direct relation. is oil driving the number? >> i think it is beyond the oil. you could argue in 2016, the market was driven by oil at the time. since then we have seen some amount of repair, high-yield companies in the energy sector. i would not say it that across the board but in the energy sector there has been some repair we have seen. some deleveraging has happened. i would attribute this decoupling in oil suddenly playing the role, but there are some other things. david: so what are those other things? >> a lot of things are happening. we have moved from quantitative

easing, which was tremendously help all for credit markets in general, risk markets. credit markets in particular have been helpful. we have moved from wanted hated easing to a quantitative tightening mode. it is not surprising we have seen a lot of the volatility coming in since october. when the pace of the balance sheet picked up, now we are in the unwinding at a pace of 50 billion per month. off me go from handing quantitative easing to quantitative tightening, it will always be a tricky hand off. we are seeing the effects of them being played out. you add to that a whole host of things. leverage buildup has happened ubiquitously, with the exception of perhaps energy and financials.

alix: do you agree with the guggenheim that credit is weaker but still better, however, the slide and collapse in investment-grade debt has begun? you agree? >> we agree credit markets have a meaningful headwind in front of them. the headwinds, from both a fundamental perspective, technical perspective, and a valuation perspective. fundamentals have deteriorated. qe gave the incentives for companies to lever up, and they have. to all-time highs in investment yield. at the same time, what you have been paid to take home with leverage -- we measure that by spread per leverage -- is that nearly an all-time low. higher risk than you are not being compensated enough for that. you add to that the technicals

also turning negative, qe being a major part of that. and we are with us turning to oil from brexit, our other big story of the day. theresa may appeared before parliament to say that she has come up with a good deal that would benefit the u.k. maria tadeo joins us right now from number 10 downing street. what is the latest, maria? just one hour away from this cabinet meeting. we often say when this comes to brexit, it will be a key meeting, but this is probably the most important cabinet meeting in theresa may's primew. ministership. this could mean the difference between getting a deal or not. yesterday night, she had a technical deal with the european union, but it has to be cleared by the cabinet. at this one we don't know what will come out of it. we know she told yesterday, one

by one, these are the key points. the people have seen this. clearly, no leaks, she does not want this to be killed off before it can fly. that meeting will be making all the difference. the european union keeping a close eye on what happens in london. if it is cleared, we could see the optics of a deal in place. of course, that would mean brussels and london coming together saying that we will call a meeting. brexit is almost done. david: thank you so much, maria. alix: you definitely had theresa y sounding very positive earlier today. also been clear that the motion on the deal will be amendable. what we are negotiating is a deal that will deliver on the vote that will actually ensure that under the proposals we put forward in the summer, to ensure

we are able to see that frictionless trade against cross borders, with the european union, and gives parliament a lot on those rules. alix: what is your base case for brexit, vichay? >> it is tough to say. there is so much uncertainty. stance thiso take a close to the end. a wide range of outcomes are still possible. 100%, which is why i always puzzle when you look at the gilt market. you cannot know what to do in the bond market if you don't know what to do with the bank of england, which doesn't know what to do until they find out about brexit. >> we will see as the day progresses, how the rest of the day turns out. the credit markets, including the european credit markets, it's a little bit of a standstill.

everybody is trying to figure out what the potential outcome would be. considerable uncertainty and a wide range of outcomes are very much possible. resolved, the market can be news to be at a standstill. david: we want to bring in david owen. you have been following this very closely. what will happen with the cabinet where do we go from here? >> earlier indications are the cabinet will approve what is in the 500-page document. then they go to brussels. then she has to bring it back for that meaningful vote in parliament. probably in december. that is where the problems could really emerge. notissue here is she does appear to have the majority of parliament to win that meaningful vote. moreover, this is not legally binding. the vote has to be enshrined into u.k. law. at that point, parliament will

try to take control of the process and lay down amendments. the-based case an there is weeks of uncertainty. worst-case scenario for the markets is we moved to a second people's vote, which may not occur until later next year. certainly beyond the date of the next eu elections. we wrote yesterday the possibility that the eu -- u.k. remains in the eu when we get around to those may election's, which the markets are now focused on. the u.k. would be thrown into that mix and creating more uncertainty. what we see today is the start of what will be a very tense next few weeks. david: we don't know what is in this 400-page document. there are some reports that what they may do is kick the can down the road and then say next summer we have an arbitration panel come in to decide if there is a deal. how do companies, markets, investors respond in this situation?

we thought we would have some answers by march. maybe not. >> what we can see from the latest gdp print, the u.k. economy is still growing above trend, average earnings releases showing wages accelerating, 5% annualized. at the same time, business investment has fallen three consecutive quarters. investment management firms, computer software design, also retail banking. these are some of the sectors that are shifting offshore, away from the u.k. the bank of england meanwhile wants to raise rates again. they have been clear, if you have traditional data in play, they will raise rates potentially in february. with all of this uncertainty, they are stuck at the moment. alix: let's also broaden out to the water eurozone. if you look at german

third-quarter growth, contracted for the first time since 2015. we knew it would not be great, but this was worse than expected. what is your brother takeaway aware europe is right now? >> the eurozone carries on recovering. the guidance has shifted, so it is focusing on wages accelerating. wages have picked up in the u.s., u.k., and also fairly significantly in the eurozone. i know that gdp print, the german and italian print were disappointing, but in a way the ecb is looking through this. the dutch central bank governor said the ecb could raise rates before the summer of next year. this is just one person but i would highlight the ecb is still heading to the exit despite the gdp numbers. david: what does this do for the fixed income investor, are there opportunities right now in europe? >> we think the better opportunity for the bond market is in the u.s.

if you compare u.s. versus europe, we have better bond market opportunities in the u.s. market versus europe. david: why is that? >> some of the uncertainties you talked about. moving into ao be world of quantitative tightening sometime in the next year. certainly, ending the quantitative easing we have seen so far. growthk the underlying outlook is also better in the u.s.. we prefer the u.s. bond market to the u.k. bond market. alix: david, you say we are potentially seeing calls for the ecb to hike before september, august of next year. willthey start, how long they get to, what is the terminal rate going to be? >> good question.

can they raise rates before the summer? that is doubtful at the moment. just one governing council member flagging that today. in terms of the terminal rate, the ecb produces a small paper, only a few days ago, saying trend growth was picking up, 1.5%. that may be rather high by lots analysis, but nevertheless, that is what they view trend growth to be. if you look at the inflation target, you are looking at over 3% for the ecb. when they get there is anyone's guess. if this brexit uncertainty persists, it will continue to weigh on the eurozone as well. the ecb has to think about what it would do in a hard brexit scenario. the bank of england has given guidance around us. we have not heard anything from the ecb. that is something the investors have to focus on going into 2019. alix: always a pleasure, david

owens. for the bottom line, where we look at three companies worth watching this morning. i'm watching boeing. that tragic crash in indonesia , but it seems to be compelling itself because there seems to be questions about a device installed in the new 737s and whether pilots were a prize of it, that could cause the plane to go into a nosedive. this may be affecting orders for boeing. thing is notrt of completely unusual, you are dealing with a part you had to adjust to -- or was it that big of a deal? david: i don't know, i'm not a pilot, but it all of a sudden the nose of the plane is forced down, the plane things it is about to stall -- the real problem the airline pilots association complained about was you didn't tell us.

if i'm a pilot and that happens, i need to know what to do. as i understand it. i'm not a pilot. alix: you could be. i'm looking at tencent, earnings beat expectations. a nice one-time gain. the question is what do they do about a core gaining business that is plateauing and is basically regulated to the downside from china? david: the chinese government has come in with both feet saying we are going to regulate. the stock has been down so much, you can see in recover here in part. they have a problem with the chinese government. also saying they typically have a negative q4 seasonality's. david: our third story is ge. for that, we have to turn to brooke sutherland. they just cannot get out of the news. this morning,

they decided to sell baker hughes on a day that oil falls off the table. >> you couldn't pick a worse week in terms of trying to try to unwind the stock if you are baker hughes. relative to where ge close the merger in july 2017, monday was a lowest price since the deal closed. when i say worst possible time, you are looking at it. that is why this is a positive step forward for ge, brings -- in the door, about as much as they got from slashing their dividend, but it does sort of rico desperation when you see such a rush toh sell this acid and rock-bottom prices. david: that is the question that has to occur to investors. when they have made that announcement yesterday if they had not gone on tv a couple days ago and, not on purpose, tanked the stock, saying the have to sell everything.

would they have time that announcement other than yesterday? brooke: ge have been contemplating ways in which it could exchange itself from this investment. he was was named ceo, really under pressure to do something. this is one of those assets where it is somewhat liquid, easier to sell than the others. that is why you saw the action he took. i think they should have done the reserves -- reverse order and announced before they went on tv. some substance to hold out there as an office meant. from: easy for us to say the outside, you should've done it this way. in general, it is much better to do it and then talk about it. you get paid to make the decisions. you get paid millions of dollars to make these exact decisions. brooke: that was the frustration of investors. it was basically a rehash of the earnings call.

even this plan falls short in terms of making a difference for ge. alix: you talked about how the deal was for bondholders, not shareholders. walk us through that. parte: they are unwinding of this state, but all of the to paying be going down debt. this is not benefiting shareholders. you saw the stock rally. they are excited something is happening and you are seeing progress. david: ge bondholders could use the help right now. to paying down debt. this is not benefiting shareholders. brooke: exactly. this is not really a great game changer because this does not go far enough to reduce the leverage burden. alix: brooke sutherland, thank you. coming up, the latest read on cpi. this is bloomberg. ♪

alix: this is "bloomberg daybreak: americas." i'm alix steel. a few seconds away from the latest read on inflation in the u.s.. equity futures moving a little higher.

in thailand also taking it on the chain. a mixed dollar story. euro-dollar now inching into positive territory. sterling flat as we wait for the cabinet to read that brexit proposal. only 400 pages. selling on the margin now in the bond market as crude find its footing, over 1%. the latest read on cpi is out. if you backup food and energy, a little bit light, 2.1%. month on month basis, in line with estimates, .2%. cpi on a year on year basis, backing out food and energy, a little lighter, 2.1%. but it is all in line, the same story we are getting. david: certainly not runaway inflation. alix: if you keep food and energy, still 2.5%. they look at core, not headline. digging deeper, you have things

like certain goods and services were barely up, tobacco was up quite a bit. it could also be idiosyncratic on the margins. david: let's bring in michael mckee, who really studies these things carefully. our guest from morgan stanley is also with us. big issue, as it has been for some time is gasoline, based on energy prices. we saw a rise in the last month. fuel oil prices were up by 3.7%, gasoline prices up by 3%. over the year, gasoline is up 60%. that is the big mover in the index. it is all coming from gasoline. other prices appear to be in control. by .4%.down on the year food rose a little bit.

a 10 paper percent on a year-over-year basis. there is really no inflation at this point that is not driven by gasoline. alex knows well next month that will reverse. pretty ironic we are talking about the price of gasoline but it also illustrates why the fed like score and not headline. mike: even the things that you would worry about, particularly owners equivalent rent, substitute for housing, just up .2% over the month, still under control. there doesn't seem to be a brick at underway in inflation that the fed has to worry about. they are concerned it could quickly particularly with wages rising but there is no sign of it. it will not deter them in december but the question is do they start to pause as they get into 2019 rate hike season. i brought a chart alongit will n thatber but the question

sums all of this up. cpi and the fed. if you look at the white line, cpi over the decade. the blue is the fed. they had to raise the fed funds rate to push down on the cpi in the past. now you look at where we are in the red box, you don't have to do that anymore. cpi is well contained even with the fed funds rate very low. it strengthens the hand of those whom they want the fed to pause. alix: that transportation up over 1%, used vehicles up over 2.6%, tobacco up 1.3%. mike: smoking is bad for your wallet. david: transportation, not sure what is in there, but the fruit is something that we keep hearing about come even with retailers concerned about the freight costs going up. ishy, let's talk about what these numbers mean for the fed and fixed income investors. >> notwithstanding the number that we just saw, there will be

some upside for the remaining part of the year. expect some more upside surprise in inflation. i'm thinking maybe in terms of tariffs. if you look at when the tariffs hit and when they start showing up in inflation, that is about three months. , ourd anticipated thoughtn strategist that some of that would begin to show up this month. they have not. the prospect for them to continue to show up is there. we have had the effects of tariffs coming in. also the used prices are interesting. inflation, the low cpi print was driven by an unexpected growth in used-car prices in which seem to have been partly fixed this month. certainly seems to have been fixed. you take all of that into between now and next

month, we will probably see more upside surprise in inflation. my takeaway is in december the fed stays on track for a hike in december. david: basically, he agrees with you. ,ichael mckee, vishy tirupattur thank you for being with us. alix: for more market context from chicago, we have david herro, harris associates cio. good to see you, david. 21% of your portfolio is in the u.k. how do you make investments and deal with the uncertainty with theresa may trying to sell that brexit deal to parliament? investment,ake any we look at the price we pay for what we are getting. in the u.k., we see very good value. the value we see partially is because of this uncertainty

brought upon by this brexit issue come which has been lingering since really june of 2016. one way or the next, in the next three or four months, the uncertainty with brexit will come to an end. either they will do a deal which will indicate a softer brexit, or they will not do a deal. but it is that uncertainty that has hit the price. when you look at the businesses themselves, for the most part they are doing well. growing,economy is very low unemployment, similar to ours. noisee all of this brexit , which has her prices, we still see businesses perform, and we think it will get better once the uncertainty is behind them. it to how important is you and your investments that that uncertainty is put behind them? now there are some reports -- i don't know what is in this deal -- that there are some reports

that they may kick this down the road, have an arbitration panel in august. and then maybe it is not extended further than that. >> the more we can do away with uncertainty in any kind of brexit bill, the better. businessty causes people, consumers to delay decision-making. anything that can be done to minimize uncertainty will enhance consumer and business decision-making. now, i will say this, there is a lot of brexit fatigue. if you go over there, people are just tired of it. throw way, they may just their arms up and go on living their lives. but uncertainty is never good. people cannot plan for uncertainty. alix: we have brexit fatigue here on set in new york as well. if we get some kind of certainty, what stocks look interesting to you than they do

today? >> those that have been hit the hardest, selling at the lowest valuations. look at the banking sector in particular. we are exposed to lloyd's, rbs, they will do well. even though their earnings have not been hit, the share price has. perhaps people will feel better in investing in some of these businesses once the uncertainty is behind them. consumer discretionary stocks in the u.k. have been hit. exporters have done better because the pound has been weak. but the consumer, the smaller cap stocks have not fared as well as a result of the uncertainty. i would expect to see a huge rally in some of these names, especially given the valuation levels. perkins,ke travis which sells into the business trade. david: let's talk about channelss across

because you also have some investments in b.n.p. paribas. what are you looking at in terms of financials in europe, not just with brexit, but what is happening with the italian budget? >> that has certainly rattled the european financial sector. we view this more as an opportunity. why? prices of european financials have plummeted this year, whereas their intrinsic value have not gone down at all. in fact, operating conditions are ok for european financials. capital positions are good, loan losses continue to decline, they continue to slowly grow earnings. meanwhile, the price of these businesses are down 30, 30 5%. they are behaving as if we were in 2007, 2009, when we are not. loss absorbingis capital is much stronger than it was back then, and yet, valuations are depressed. i personally feel the european

financial sector is perhaps one of the best places to findbe to. it is because of this reaction to all of this bickering between italy and europe, all of these macro things which have impacted any, but have little, if impact on underlying intrinsic value, which means investment opportunity. you are such a careful student of this, so take me through the italian banks and their capital situation, ratios. are they at some risk if we increase that btp bund spread? is that capital tied up in the bonds, could they be impaired? >> it hurts it somewhat, you are correct. , a most of their holdings majority of their holdings of italian debt back their insurance products.

--re is an asset liability well matched asset liability there. on the other hand, so much of the banking sector which holds this sovereign debt, this is the capital they hold to maturity. they may have to mark some of this to market, but generally speaking, although not a positive, it certainly is not the reason to trade at 60%, 80% book value. you have this strong capital npotion, you have the problem being resolved slowly but surely in italy, and is are more important factors. alix: no doubt if you are looking for value, you'll be looking at commodity equities. we know that you own glencore. with oil getting hit 22%, copper down 60% for the year, -- 16% for the year, what are some names that have value? >> the only energy company we

own in our portfolio -- the first one in a long time -- is the canadian company synovus. a very good oil and energy resource at a very good cost basis. it has been hampered a little bit by all of this pipeline bickering. hasof the problems -- gas spiked up so high, notwithstanding the cooler fall we are having. needsnnot get to where it to go economically, so we have to build these pipelines. you be adding to shares of that considering west canadian select is $15? you cannot just look at the price, you have to look at what is happening to the share price. the market is relatively efficient. if it views the price of the , youdity fall is temporary will not see such a corresponding decline in the share price. if the share price falls faster

than what we believe is the normal sustainable oil price, then it becomes an opportunity. alix: what other opportunities do you see in the sector than? >> generally speaking, i am more of an oil there over the long haul. especially with the u.s. producers, there is a lot of low-cost supply as opposed to high cost offshore oil. there is plenty of that but it is higher cost. years,e last five low-cost oil seems to be drowning out the high cost oil. in the meantime, demand is not exactly robust. the only strong demand story has been em. developed markets have been in demand contraction for some time and this is what the world has itsed, the developed west, anything, the demand shrinks. this is not a new phenomenon. more energy efficient

automobiles, so on and so forth. grows at oil demand low single digits and you have this supply out there. it makes it hard to be a long-term goal for oil. alix: i don't think the market disagrees with you today, david. thank you, david herro. nonetheless, a nailbiting stock that you want to own. $15, that is a big spread. david: we have not talked about trade today. you know who is? michael corbett, the citi ceo. in part, he is saying don't pay so much attention to goods but services. trade is much more than a straightforward exchange up hard goods. multiple soft goods and hybrids. he is saying, mr. president,

don't just pay attention to manufacturing. wevices is where should be focused. like in china, for example. alix: maybe they want to continue the business. maybe they had been in saudi arabia. that is important because you will be talking with them later. one of many topics that you'll be addressing. david: i will sit down with michael corbett at noon at the new york economic club. we will talk about what role he had in helping amazon come to new york. they will be sleeping with amazon, as it were, taking over some of the buildings in queens. alix: looking forward to that at noon. david: turning to washington, randy quarles testified today before the house financial services committee as part of the report on banking regulation. we welcome the chairman before whom mr. quarles will be appearing, jeb hensarling,

republican from texas. thank you for joining us. >> thanks for having me. heard someave headlines on mark from randy quarles. he will say there is work to be done on banking regulations but focusing on capital ratios are some of the community banks. what do you want to hear from randy quarles? >> the first thing i hope i hear is this is not the end game. i view with the fed has done with their closer rules to be progress, but progress is not to be infused with success. number one, i'm very happy the senate and house got together to pass the economic growth regulatory relief act. otherwise we would not be here in the first place. it allows our community banks to escape the worst of dodd-frank. i know vice-chairman corals has set up a goal of transparency, efficiency, supposedly. i think he has made some

progress but we are not there with success. the volcker rule is still very convoluted. we have historic levels of volatility and liquidity that should we us ill, have times of market stress. unfortunately, i think the fed could have done a whole lot more with their other prudential regulators in trying to simplify the volcker rule. that is number one. number two, i still don't understand why we have a qualitative aspect and not just a quantitative aspect to scar, a thatthe stress tests leaves too much discretionary power in the hands of regulators. i want to understand why that is there. ofy dropped it for one tier banks but kept it in for three. a good first step, but if it is the only first step, it is not getting is where we need to go to ultimately help sustain

three, perhaps 4% economy. thed: how much is up to discretion of the federal reserve and other regulators consistent with statutes, and how much needs to be changed statutorily? well -- again, we went through this exercise and a house went through a far more robust bill in the financial choice act, then the senate was able to pass. the senate passed what they could, they needed 60 votes. but i would like for there to be more statutes passed. the house just go into democratic hands, so i'm not holding my breath. most of the action will be on the regulatory side. gave face it, dodd-frank incredible amounts of discretionary power to our regulators, and there is much more they could do that would still adequately police or systemic risk but help ,acilitate capital formation

intermediation, that they have not done yet. again, i think there is so much more work to do on the volcker rule. covered funds, for example, i don't understand if a bank can invest their money in a certain investment, but if they do it in a pool, they cannot. that doesn't make sense. there is more work to be done, somewhat limited in what they can do because they will have to get buy-in from the other regulators. but that thing has been is gorge and a gamble. it will serve us ill in stressful times. a question from a viewer action on the bloomberg that says, please ask why the republicans continue to lead on the fed to change the volcker as the economy is slowing. is this the right time to be backing off the volcker rule? >> i don't think there is ever a bad time. if you look at the rule, proprietary trading had nothing

to do with the financial crisis. if you look at the institutions that were more diversified, they weathered the storm better than many other institutions. i viewed it as something that was thrown in at the last second, to be punitive to certain banks, but it was not core to the crisis, and it has led to incredible amounts -- even the fed admits that it is a contributing factor to illiquidity and volatility in our fixed income markets. this is not a good thing for an economy. for the third time, in a stressful, economic period, this could really exacerbate economic problems. chairman,ally, mr. you are stepping down, you are term limited, you are stepping away from congress. a good time to ask you what you think about the independence of the fed. i am sure you are for it. but what do you make of president trump's jawboning the

fed into not raising rates, is that appropriate, constructive for the president? >> listen, i think it is a silly argument myself. last i looked governors of the fed have 14-year terms, they write their own budgets. we want an independent said but they also need to have skin thick enough to take some criticism. i don't feel the need to comment on every fomc meeting emma but if the president does, so be it. i was not elected, he was. somehow believing that this will compromise their independence, i say a bunch of who we to that. if the president asked my advice, i would say you better be careful, because they may push the other way, and it may not have the intended effect. but the fed ought to be able to listen to lots of feedback, critical feedback, criticism, including that of the united states. it does not impinge on their independence one whit. david: but on the merits, do you

think the fed is right to continue on a rate hiking path? >> i want us to get to a neutral rate, get us to market-based rates. the footprint in the economy has been much too big. i can quibble over the pace, over the ultimate destination, but at least i think in general i have agreed with the trajectory, the goal of getting to a neutral rate. i think we are either there or about to get there, in my opinion. the general trajectory, it will not be easy to unwind the largest monetary policy stimulus in our nation's economy, particularly where the fed invested in mbs, mortgage backed securities. we have an incredibly large balance sheet, a balance sheet that should be treasuries only that isn't, that can lead the fed into getting involved in credit allocation, and it's been left to chairman powell and his cohorts to unwind this whole

historic experiment in quantitative easing. we still do know how it will end. it is a tough task they have. david: thank you for your time and congratulations on your tenure. jeb hensarling of texas come to us from capitol hill. alix: in the market after that goldilocks cpi, s&p futures at the highs of the session. also looking at the cable rate. theresa may will be presenting the brexit due to her cabinet. here is the pound's overnight volatility. joining us now is vassili serebriakov, ubs strategist. how do you trade sterling today? >> one thing that is certain, uncertainty is high. the way we have been trading for a while, if you look at cable, between 1.28 and 1.32. there is a lot of reaction to the immediate headlines. i would say the market as a base

case has a fairly benign scenario. we see the deal pass through cabinet, it will have to go to parliament. they have until december 22 get that through. there is a lot of uncertainties but if we get some positive news in the next couple days, the pound could rally, but uncertain. how do you trade that uncertainty, is there something that you could look at? >> i still think how do you traf the bang for your buck, you have cable, sterling against the dollar rather than eurosterling. the brexit situation is having an important impact on europe as well. part of the reason the euro-dollar is trading so weak is because of uncertainty around brexit. probably more important than uncertainty around italy come in our mind. position for a

positive resolution, that is probably a bigger move. you could look at some cable upside. news,nk if you get good it could rally to about 1.35. it is a short-term move. long-term, it is not solving a lot of the pounds problems, but short term, that could be the more interesting move. what would youm, need to see cross the terminal to say, yes, that is a positive surprise? >> first, we need to have the critical mass in the cabinet to pass the deal. the hard brexiteers on the , that remainside to be seen whether she has enough support to get the deal through. if we get past the first state -- because the stakes are clearly high -- if we get to parliament, getting through at least to the parliament vote, would be an adjusting development. like i said, we have to wait and see. alix: lots of catching.

vassili serebriakov, thank you for joining us. if you want to know, we can just tune into your show at noon. david: particularly with brexit. i will be talking to michael yorkt from citi at the new economic club. we will be talking about that. we will find out if it is helping, hurting, what he is doing about it. alix: really looking forward to that. that does it for "bloomberg daybreak: americas." coming up, jim beyond go. s&p futures at the highs of the session after that goldilocks cpi number. italian banks parents of those losses. this is bloomberg. ♪

city, i: from new york am jonathan ferro, the countdown to the open starts now.

coming up, waiting for the words of chairman powell, the fed chief showing little signs of backing down from hikes. opec stepping in with verbal intervention, trying to stabilize a wild bull market selloff. on the brink of a breakthrough wayit deal, standing in the is members of press -- theresa may's own party. she's trying to get the cabinet to back her bags -- brexit deal. updates will be coming throughout the hour. thes get you up to speed on price actions, futures are shaping up, a positive 6/10 of 1%. a very slight miss on core cpi year on year, the dollar turning with muted price action on the euro-dollar. treasuries and yields are of two basis points, and