through financial contagion. so far, the rise in sovereign spreads. has been mostly restricted to contagioncase, and must countries has been limited and we had such a development naturally feed into a tighter bank lending conditions for the real economy. , there are some a reprise in bank lending, is happening when the rising spreads has been more significant. overall, bank lending funding costs remain near historical lows in all large countries, thanks to a study deposit base. to protect best thanks to a based.posit countries should simply not increase their debt further, and

poor countries should respect levels of the economic and monetary union. other risks stem from the possibility of a disorderly premium.in global risk the reaction of asset prices to other jurisdictions that are more advanced in the business -- it wasa return mentioned by mayor baker, a return to the financial regulation that was up -- financial deregulation that was the primary cause of the financial crisis, and facilities in several emerging-market economies exposed to mismatches are all a risk. and of course, we have brexit, where we all wait to see how it goes. growth picture inflation. look on

we need to assess to what extent growth will be robust to slowing growth momentum, and to what extent to which increases into prices. output growthen and wage growth in the euro area has strengthened compared with recent years. as the domestic expansion continues, which pressures have started to build and have surprised on the upside this year? annual growth in compensation for employee -- per employee reached 2.3% in the second quarter, an increase that is broad-based and present across most sectors in your area economies -- euro area economies. two factors suggest which growth should be resilient to periods of slower growth. the first is that the labor market is already showing signs shouldtness and they

remain the case so long as growth continues at or above potential. labor shortages have become more prominent and widespread across the euro area. broader measures of slack have also fallen substantially although there is some heterogeneity across countries. thesecond factor is changing composition of wage growth. the initial pickup in wages from the trough in 2016 was driven by wage driftm which includes components such as bonuses, overtime and tends to react more quickly to the cycle. but more recently, negotiated wages have strengthened, rising from the trough of 1.4% in may 2016, to 2.2% in the second quarter of this year.

negotiated wage agreements frequently last two or three years, suggesting that higher rates of which growth are likely to persist. however, the next leg of the inflation process, namely the pastor of wage growth to prices -- that passed through which growth to prices remains relatively muted. measures of inflation such as core inflation continue to hover around 1%, and have yet to show a convincing upward trend. to some extent, this large response is in line with the standard pattern of demand-driven expansion in the euro area. as demand picks up, employment initiative reacts slowly come at which boosts overall productivity and these margins. firms therefore have little need to increase prices, but as the expansion matures, businesses increase wages more strongly to and put upward

pressure on prices. this pattern has been visible in the euro area since the start of 2017. unit labor cost growth fell year, but rose measurably to reach 1.6% in the second quarter of this year, it's strongest rate since the start of 2013. there is evidence that margins are now being squeezed, with unit profit growth decreasing substantially, from 2.7% in the end of last year, to 0.7% in the second quarter of this year. we should therefore expect price pressures in the euro area amount. however, the speed of this --cess is dependent preliminary ecb research finds that the recent history of inflation is of the key factor

in need and strength of the pass-through from wages to prices. the pass-through is systematic as one should expect, by the way, it is systematically faster and stronger in periods of high inflation than in periods of low inflation. so following several years of low inflation in the euro area, a more tentative pass-through of wages to price is palpable. will --ages rise, we the margin squeeze will price.lly vanish as squeezes become a more widespread and firms become a more confident about their pricing power, we should see a higher degree of pass-through and higher inflation. so, when the governing council met in october, we confirmed our confidence in the economic outlook, the underlying strength

of domestic demand and wages continue to support our view to the sustained convergence of inflation to our aim. of the lag between wages and price after a parent of low inflation, patience and persistence in our monetary policy are still needed. with monetary policy providing a significant degree of stimulus through our interest rate policy , stock of acquired assets and investment in maturing bonds, the governing council as fast that inflation convergence could be maintained even after a gradual winding down of our net asset personages -- our net asset purchases subject to incoming data confirming this assessment we anticipate that net asset press just as -- in asset purchases will come to an end and september. the governing council also noted

that uncertainty surrounding the medium up term outlook has increased. fore the latest round of jackson's is available at our decembering in -- while the latest round of projections is available at our next meeting, we will be better any predictions. we expect interest rates to remain at current levels at 2019.through summer of for as long as necessary, to ensure that inflation continues to move toward our aim, and is sustained manner. we have stated that investments will continue for an extended period of time after the end of purchases and in any case, for as long as it's necessary to sustain favorable liquidity conditions and monetary accommodation. of course, the nature of this

guidance is contingent on economic development, and therefore, acts as as automatic stabilizer. if financial and liquidity conditions should tighten unduly or if the inflation outlook should deteriorate, our reaction function is well-defined, this should in turn be reflected in an adjustment in the extended half of future interest rates -- the extended path of future interest rates. i will forward guidance has been anchored in a traditions of future interest rates and preventing an undue tightening of monetary policy caused by premature expectations of policy normalization. it has also helped shield financial conditions in the euro in other lsu changes -- from policy changes in other jurisdictions. so in conclusion, i just want to

emphasize how completing the economic and monetary union has more urgent over time, not less urgent. reasoningor economic that underpins my remarks, but also to preserve our european construction. take the previous two dresslar we think the previous two speakers for having reminded my last speech at this conference as president of the ecb. by the way, i wish to thank this audience for the support that you always expressed for the action of the ecb during this hayward of time -- during this time. of yesterday while preparing for this meeting, i looked back at the speeches i give here in november, 2011. amongst other things there, i

lamented that the economic crisis would require a faster pace in strengthening the monetary union, especially as far as it decisions that have a concerned.taken are in other words, lots of stuff has been decided that was not being implemented at that time. a i think this must be having familiar ring today, but since then, the work has been remarkable. but it is still far from being finished. the completion of the banking union -- i reiterated for different reasons as well, of the completion of the banking union in all its dimensions, including risk reduction, and the start of the capital markets union through the implementing 2019,going initiatives by have now become as urgent as the

first steps in 2011 where in the management.isis these actions are urgent today not because of an economic crisis that we have successfully addressed, but because they are the best response in the economic and financial area to the threats that are being levied at our monetary union. to these threats, we have to react with attention, certainly, but also with strength, pride for what we have achieved, and with conviction where we want to go. to these threats, there can only be one answer, more europe. thank you. [applause] ♪

>> in the u.k., the power of the banks, the homebuilders catch a break theresa may holds on the deal. no . the u.s. commerce secretary says it is impossible to get a formal agreement by january. the u.s. still plans to any 5% goods. on chinese and this morning, francine lacqua speaks to the chair of bnc powerball, ceo of commerce bank and deutsche bank. welcome to "bloomberg surveillance, i am nejra cehic. today, we are all about brexit. are hearing from labor that a second referendum is still on the table, meanwhile, theresa may is still fighting for her brexit deal, and we are on resignation watch. absolutely, fighting a leadership growing leadership

challenge -- fighting a growing leadership challenge. good morning to you, nejra. that is indeed what we are watching today. can to reason may face. hurts her critics. may face hera critics? she has been particularly quiet in the last 24 hours. there aren't the numbers for a leadership challenge it seems just yet, and it could be difficult to launch it on a friday with so much constituency business, but certainly, that is a focus, all to keep an eye on the relationship between theresa may and the dup which props up her government. there are very angry as to what she has a that she has agreed to. this: lots to talk about hour. with all the political drama yesterday, we saw cable dropped

more than three standard deviations, biggest since 2016 flash crash. has it found a bottom yet? flathile, the ftse 100 was yesterday while other european equities declined. today, the stoxx 600 and the are up a bit, after a missed session in asia and also what we are seeing with futures went lower. that is all. on concerns around chipmakers after the disappointing forecast from nvidia after the u.s. close yesterday. that hit chipmakers in asia as well as so there. are other stories out there other than brexit that are impacting the market. wti and brent, three days of gains for wti but oil heading for a sixth weekly loss. coming up on "surveillance" we have a lot for you in the program. we carry on with the brexit and we will be speaking to the bcc director general, adam marshall.

to the european banking congress in frankfurt where francine lacqua is moderating a panel with the ceos of deutsche bank, commerce bank and bnc paribas. >> more than italy. >> i don't know. nobody knows. the british don't know. the only solution is to work on , stand ready, be ready to serve the clients whatever happens and to be strong and resilient. we work on options and we are ready to implement them. that is the job we have to do. >> and prepare for the worst. in the situation we have. >> unfortunately, we have prepared for this, and that is not good news. francine: how do you view it, a 20% chance that we get a bad of brexit and it has an impact on financial services, what are the

odds of having a workable brexit passed through parliament? do you have to make a decision on that? >> yes. you know, when he said 20% chance, 20% chance for a risk risk. is a huge it leads to what has just been said by martin, you have to prepare the organization for the worst, and that is a hard brexit. i read this morning that even the corporates in germany are preparing for that. everything else, would be a softer outcome, but if you are not in position to prepare for that and you don't have that as illegitimate challenge, i think you are doing something wrong in your daily management. francine: what do you think is ?he impact >> there are two different questions. brexit is a unique case iliad one question here is, what will happen in the market. the impact on currencies, the impact on valuations -- i would

that it is exceptional, but we are used to it. this is the job we have to do, risk management. then there is another dimension to brexit, which is how to structure the business. what is the impact on the way that we operate, not only immediately, but in the medium-term? that probablyt -- can say this year, but banking is a highly regulated activity, present in the city of regulation, it helps area .ecause there are supervisors we are not left alone. a twice factory, they are left alone. nobody cares about them.

supervisors, central banks, we know that they care. everything to us, of course, they have to do their job, but they are there. and this is crucial in a situation which can have a big impact. them, we knowust both, of course, from the economic point of view, but from the more technical regulation standpoint. we may go into details, but the understand what i mean about how we can operate in london, if -- full brexit, hard brexit, no agreement, what is it mean? how can we operate? what is the impact on asset management, all of that is being discussed by supervisors and by the industry. and we know that good or bad,

there will be solutions. >> i would totally agree with you. i think what we have to keep in mind is that the banks, thanks to the do regulators -- thanks to the regulators and the supervisors, are in my point of view, very well-prepared even for hard brexit. what worries me a little more is our customerss and of the industry has come a to really add up to regulations, are very big as well. forget that it is not only a question of financial industry, we are regulated so very well that they prepared for the -- i think we are. to think abouts its business models as well. --and we should not forget

it is a mess, there is no upside in this. francine: christie and, you are saying that you think frankfurt a nationalhe almost second -- the natural second-home if brexit were to happen in an unruly manner. york?bout new a lot of jobs, a set of relocating to paris, madrid, frankfurt and answered them, they could go to new york. >> i have set for the last year that -- i also amended it this morning, of course, i think frankfurt should be the first choice, but overall, the most important thing is that europe takes the chance and gets more unified, in order to be a real competitive institution and competitive region to the americans, but also to asia. you worries me because if want to do retail banking or asset ranking in europe, we are six or seven countries with

retail and private banking. six or seven different legislations in terms of data protection, consumer legislation. if you compete with the americans or asians, that is something that really hinders us. therefore, if you think medium and long-term, it is important that we have a completed banking unit, that would have capital markets, that would have similar legislation, only that preserves the euro state competitors if we achieve that, we can have the nicest rates between paris and frankfurt. but it does not help us at all if we rank behind the other cities. so we must be sure we're not only talking about this, and losing in the meantime, jobs to hong kong, singapore or new york. francine: this is question number five what are the chances of a banking union deepening sufficiently soon to?

make a meaningful impact on banking please vote. not in mywill; b, never.e; c, the banking system will have moved on so much, that actually the rules will be behind. i think honestly i would not see it that negatively. unionof all, the banking would come and it would have a positive impact on europe. --on't think the trend veteran completely left the station, but i would also say, if you look at the size of european banks compared to europea -- compared to asian or american banks, there is something we need to take to our -- we need to speed up and

get on the offensive side, but i would not say that overall it is too late, or that it will never happen. results, we have the 66 .4% of you think that the banking union will have a significant impact on banking. is there a presser and that by the time we get to it, it may be obsolete? >> that is a question that should've been asked, does it have an impact today? of course, it does. it has a huge impact. a positive impact on daily life. what has been done is unique, we have at least -- just the three of us, the same supervisor with ,any other banks, with, which are rules implemented the same way. how can we speak about competition? it is massive progress. we have stress tests that are open, credible all over the

world. a lot has been achieved. i do agree on the fact that we , a be middle of the river little more than the middle of the river, but -- achieved.has been if not, it will, and it is. we should stop in europe always working hard in criticizing and undermining what we do. we have done a lot, we should continue to do a lot. we have built massive resolution funds. a bank like a b.n.p. paribas pays for a resolution fund, but is of euros a year. we have built that capital. we have done a lot. now, what should be done? there are risks, i may have a few frustrations. one is risk of fragmentation of

liquidity. we know this. we know why. -- i think there will be an end to this. but i want to be positive. of -- whyagmentation do i say this? costse it imposes useless on the banking industry in europe. the challenge we have is to deliver the best service to the economy and to compete with american banks. and i think simply, we need to go to the end of the story we started. now there is the endless debate about the guarantee of deposits. i know that it is a highly politicized debate, i understand why. i hope it is not a pretext not to move forward.

and if i say this, it is because i do believe it has become a pretext not to make progress. but it is urgent. i have listened carefully to the president of the ecb about risksharing and private sector risksharing. of course, the eurozone can be a much more efficient system to absorb risks if there is a free flow of liquidity and allocation of capital across the zone. so in a nutshell, you understand my view. the first question should have been, what does it bring to you today? my answer is, a lot. and i would like to see more, but i am hopeful. francine: dcaa capital markets in union that is strong enough, given the disparity in as the quality and also the different banks? >> i think the banking union is helpful to create a more robust

banking system. i think we did huge progress, john, and with you some of i have to say, we are not yet i think we made huge progress, john, i am with you, but i have to say, we're not yet .here compared to the u.s., for example, we need to speed up and finalize it. we still have different, let's say, national surroundings, restrictions, which really don't when we see the targets, the goals of the banking union. i think we have to work on that. we need to do that in a more holistic way and finalize all the steps. we need that because otherwise, compared to the u.s., asia and other areas, we will not be here ahead of the curve. >> mia at two remarks?

the first one is about what we see -- may i add a remark? what we see today, the eurozone has built new, efficient institutions. , there is still debate about how much they can trust this institutions. risk in thee latitude at which they try to keep some power, maybe for some good reason, at a domestic level; but it has an impact on the building of an efficient economic and monetary zone and banking union. my second remark here is, you marketssed the capital union, which for me, is

absolutely part of the banking union. for two reasons. i am always surprised by the speed of recovery of the economy in the u.s., and the difficulty in recovery in europe. i think part of the story is about securitization. american banks can adapt their balance sheet much more quickly than we do in europe, because they can sell assets to investors. and of course, it has a lot to do with the availability of capital. and we have a lot of savings and capital in europe. we should stop dreaming about pension funds, we have life insurance. about pension funds, we have life insurance. there are discussions these days. thought in that mindset. how capital in europe can be used to promote securitization and help banks and the economy

to recover more quickly. my second point is quite easy. when i look at banking unions, largein point is not too balance sheets. this toohould not say much. economyot finance the limiting the size of balance sheets if savings cannot come to the economy different way. the only way to do that is fiscal market union. banking unit and fiscal market union should go much more together. do see progress on a common insurance system? >> i think so. it is not only in this regard,

but i have to say also, if i look at the topics which come out of the german finance ministry, how they view the financial industry and germany , it has a completely different emphasis than before. necessityve it is a for the capital market unit that the catalyst for a growing economy are banks and therefore united a capital banking and insurance system. it was simply not sufficient, while we responded to the views of president macron. now i can see that movement is coming and we should not stop it. we should give our ideas on how we can make better.

is also a change in the mentality that it is not only us as bankers are people from the corporate industry looking at politicians saying, how do we complete it, we need to work together. together.y do it as to the political willingness also in berlin to do this. therefore, i would say, yes there is movement, but we cannot afford -- we need to move forward. francine: you also see progress? >> i see progress, but not enough. i think we have to cope with the critical problems we have there. team, there is a precondition that we have. the banking unit finalize that we have clear roots and regulations for risk in the

banking systems in different countries. that.s why i repeat i think we really need to work on the finalizing of all of these things to come to the point because stopping now cannot be an answer. this is the digivote number three. the question is, what is the biggest problem with eu banks. we have narrowed it down to european politics, overbanked, legacy business models. please vote. and 15 reconvene seconds. >> i have a clear idea.

francine: the results are in. without looking, what would you vote? >> my answer would be europe, and especially german is a clearly overbanked market and under odigitialized. francine: what would you have voted? all of the above? >> i always have difficulty with questions. [laughter] >> i would've raised another question. it's because of politics. i think it is not politics, i probably have put the first point. i think it is mindset.

we are changing. this is always extremely difficult. we come from a different situation. it is in the making, but too slowly. hear,ne: then i want to are we overbanked? every day i open a newspaper and you are buying each other or buying the french or the other way around. >> yes we are overbanked. banks, if with 5500 you look at germany with 1600 banks for 80 million inhabitants, in the long run, there must be consolidation. we will compete against the platforms in asia in five or 10 years time. we need to think differently about how we standardize banking. therefore, i think consolidation will come over time.

i think one is missing. you could attach it to legacy. it is also the new mentality. the new mentality that you think about other business models and also go with what we have. , we have totrust first contact and use these assets to not only think about banking, but beyond banking systems. i think the fourth one missing is mentality and i think we need a new mentality. nejra: that is francine lacqua speaking with christian sewing, the chairman of bmp and commerzbank. you can watch the rest on your bloomberg terminal. let's get back to brexit and prime minister theresa may is defying demands

to quit. what does all this mean for the pound? great to see you. i love this chart that i'm going to show you showing sterling pounded. yesterday, we saw a move of more than three deviations to the downside. could we see sterling hit lows with more political drama in the coming weeks? jane: we certainly could. the future of prime minister may over the next few days a couple of weeks is really a part of this. what she is trying to do and what she has do is sound defiant. really, she sounded defiant. she is refusing to answer any questions about her leadership,

even though there are lots of rumors out there. the tories are trying to oust her. what she is trying to do is drum up support for the deal she struck. yesterday, a number of mps said there wasn't enough. she is still trying to get that support. investors know if she doesn't get that support for the deal in parliament, the risk of a hard brexit becomes quite large. that is what sterling is waiting for. has all wasquestion then pushed a little bit to the back burner with all the political crisis over the past 24 hours. in terms of what traders should do now with sterling, are you advising them to sell on any rallies or take the opportunity to buy on dips? jane: i think most people out of the market. think you really do have to be brave to be involved in sterling now. nejra: its untradable.

jane, for lots of people, yes. i think the news of the weekend could really be crucial, and whether or not she is beginning to get more support or it looks like she will be ousted, i think by monday morning, we should have more clues on that. if the piece of news of the many things that have come up over the weekend that will provide the most downside risk? jane: that would be that we are definitely on course for a hard brexit. whatever happens, she is not good to get -- going to get a parliamentary majority. even if she is ousted, these issues do not go away. is a new leader going to provoke article 50? could that happen? could a new leader call another referendum?

the questions regarding brexit do not go away, even if we get a new leader. i think it really is, only going to get a hard brexit or not? is the probability of a hard brexit, does it continue to increase on a daily basis? nejra: meanwhile, the eu watching and waiting. what does this all mean for eurosterling? jane: it's the same thing. if it looks like we're going to have a hard brexit, i think eurosterling continues to push higher. indicated in europe about 25th of november summit will go ahead. because the instead discussing a hard brexit. i think many firms are continuing the contingency backup if there is a hard brexit. the probability of that is very trend of all right now. jane, thank you so much

for joining me. plenty coming up, and putting a conversation with the director commerce. the british you can watch that panel online go -- on live go. this is bloomberg. ♪

>> sterling is studying as the brexit turmoil is kicking up again. trading now around 128 versus the dollar. energy stocks helping out there. crude rising near $57 a barrel. nejra: headline coming through

that michael gove is tuesday. this is according to the times. afterl deciding to stay being one of the names perhaps tipped to be the next to leave. sterling is picking up going about the 128 handle. let's get back to jane foley. we can see how sensitive sterling is to every political headline. does this change anything meaningfully for sterling? this is exactly the kind of move the prime minister needs right now. she has been defined over the last -- defiant over the last 24 hours. this news again will bolster her position, but clearly, she still faces a lot of hurdles in the next few days. nejra: we have seen money

markets reprice the boe and basically price out a hike in 2019. is that premature given how sensitive everything is to every political headline? that we have to remember if sterling were to tumble very significantly and i were to be a hard brexit, it is quite possible that the bank of england may still hike. it is possible that the bank of england will remain hawkish even if real incomes are hurting. nejra: thank you for joining us. great to have you with us. jane talking through all the movements for sterling. joining us now at westminster is out of marshall -- adam marshall . and: i am joined by adam

anna. let's start with you on policy. michael gove deciding to stay. leave, it could have influenced more ventures. this is something of a stabilizer for theresa may. adam: absolutely. he is one of the big beasts. this has got remarkable stick ability, but is what it been a serious blow. this comes as very good news. names havee how many been calling for her to leave. even if there were a leadership challenge, she would be in the in the first round and she could win. what do the numbers look like in terms of whether she would win it even if there were 48 who a challenger?

-- would challenge her? anand: there is a big gap between 48 and 149, which is how much they would need to oust her. tory mps are finding it very hard. if you are going to vote the prime minister down, you have to have some idea of what to happen next. anna: in terms of the winners haverday, she seems to succeeded and study both sides. there were a few voices mentioned the were pleased. is this a win for business despite all of the drama over the last 48 hours? adam: i think it is certainly a step. the nature of this process is that a lot of things businesses are most concerned about, the future terms of trade we would have between the u.k. and eu are

in the next stage of this process, not the divorce deal, but trade deal phase. for a lot of businesses scratching their heads, watching a rather dispiriting political show in westminster saying we need clarity, precision on how we trade. we only get a little bit of that. anna: to spend a lot of yesterday trying to show mps that what she is showing is not the backstop. impe -- mps seemed to be transfixed by the backstop. what did businesses need to focus on? should they be trying to put that in some context? anand: i've never seen any positionto find theirshould thy on brexit. anna: i suppose they need to

make an assessment. after two years, will he be and a customs union or free trade agreement? nobody can say for sure, can they? reason,, and for that most businesses are planning, saying i may have to plan for the most difficult of scenarios and work my way back from their. one of the things businesses tell us repeatedly they want to avoid is two sets of trading. every time you change your trading arrangements and goods and services move across borders, that adds cost. you're taking people away from your core business toward making those changes. companies has said to us, we are pragmatic. we don't want to do it three times are four times because that is bad for the u.k. economy. the prime minister looked

more relaxed and more on top of the details than i have seen her before. there is a strong hint in the political declaration that this is the direction. it is absolutely true that we don't have a trade deal and we won't for several years, but there is a hence the but is where we are headed. anna: that is a both sides has said they want. but what has been a great is the backstop. our interviews -- are mps willing to be persuaded on the possibility of a free trade agreement in the future? while things might appear transfixed by the detail of this document, for many of them on both extremes of the debate, this isn't about the document. it is about are maneuvering yourself into a situation where you can have a referendum and stay or into a situation where there is no deal. for a lot of people, this is just a cipher. they are picking holes in a document, but this is not about the document. adam: that is what is so

dispiriting for some money in business sitting there saying this is a time for calm, deliberate look at the details, saying which of our questions does this answer and what does it not? deep, legal text with deep ramifications and deserves the ability for businesses to look at it and actually read the detailed themselves. there are quite a lot of people pining without knowing the content. anna: we are hearing that the european research group believes thatbrady has the 48 locked away in a safe. if there is a leadership challenge, it doesn't necessarily mean that she loses. anand: if he doesn't have those 48, the boj would look rather silly. i suppose you,

have to hope it is there. she is safe for a year because they are out of options. that is one of the reasons i think they have hesitated for so long. anna: you could understand if she has had enough. if we do get the vote stage in parliament, what do you think the question will be? will it be the binary choice? anand: firstly, insofar as it you startnded, if tampering with the detail of the withdrawal agreement, activity falls. the second thing is, don't underestimate the fact that once the european council has happened, if it happens, the uptick changes quite dramatically. the first time you see theresa may alongside leaders on the

same side. i imagine to see several business is coming out and saying this provides us with the level of uncertainty we have been craving. anna: is that the game plan? adam: levels of uncertainty are all relative. there's a lot to be welcome here. unlocking the transition is important for businesses. anna: thank you both very much. nejra: we did see sterling pop earlier on the reports that michael gove, the environment secretary is not to resign. we went above 128, we are back below it again. ftse 100 is higher along with the rest of europe. markets, thethe focus also on chipmakers .ollowing disappointing

futures. $67 ad brent on a barrel handle. that is your picture across the markets. u.k. markets very much in focus. "bloomberg surveillance" continues in the next hour. this is bloomberg. ♪

tom: this morning, michael gove reports he will stay.

lady remainorable as prime minister in the u.k.? anna edwards at westminster. now, gates growth and inflation into 2019. and fireisse cut costs employees. all of european banking must right size amid a constant of negative interest rates. good morning, this is "bloomberg surveillance." now.edwards joins us right the times with the report on michael gove. is he supporting the prime minister? anna: it certainly, the reports suggest that he is. that would be quite a stabilizing force, i would suggest in his developments at westminster, which have been

fast-paced, to say the least over the last 48 hours. she lost a couple of cabinet ministers, but did not lose michael gove. it does seem that she is going to face some kind of leadership challenge. it is important to point out that if she does, she will contest it. she wants to stay on. she could still win. this is a necessarily game over at all. tom: i was fascinated by the sky news poll, which for people outside the realm shows the complexities of the politics. wrongid we get most in our study of what is going on in the united kingdom? anna: i suppose it is understanding the divisions within the country. it is a very complex government at the moment. the government doesn't have a majority and so it relies on support of the dup. ofheard a lot from members

parliament yesterday that were unhappy with the deal she brought back from brussels. she was appearing on domestic radio and lb see this morning -- lbc this morning. newspapers reported that the dup were not support her anymore. this is theresa may speaking about her confidence and supply arrangement with the dup. with the duphanges about the issue in relation to northern ireland. they have raised questions and concerns with us, and we're looking at those. has ashe says to still relationship with the dup. tensions are very out in the open. in the house of commons behind me, spoken about. i want to do later the tony blair sa that i believe i saw in the telegraph is a morning must read. in that is the heart of a second matter, which is a second

referendum.is there any debate within the conservatives, the tories to give the nation one more try it brexit will even remain? anna: there is very few voices at all, many more on the opposition side who are still calling for another kind of referendum of some form, of people's vote of some form. that is something that theresa may has said will not happen. vehemently opposed. we are thrilled that anna edwards is at westminster as this unfolds. now, your first word news, markus karlsson. jong-un hasn'tng

said a pointed message to the u.s. and south korea. to be overseeing what is being called a new tactical weapon. no response from the u.s. yet. earlier this week, president trump suggested that negotiations with north korea are still on track. the trump administration still plans to raise iteris on chinese -- tarrifs by 20%. the two countries are now discussing the agenda for the leaders meeting at the group of 20 summit and when osiris. -- in buenos aires. a study by bloomberg economics of found the economy of the world's largest energy exporter is more than 10% smaller compared with what might have been expected at the end of 2013. that was when the crimea crisis

triggered sanctions by the u.s. and eu. some of the blame falls on the slump in oil prices, but sanctions are the bigger culprit. the acting attorney general apparently won't shut down special counsel robert mueller's investigation into election meddling. bloomberg has learned that matthew whitaker told lindsey graham that he will let the probe continue. before taking office, whitaker publicly criticized the investigation. global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i markus karlsson -- i'm work is carlson. i'm markusomberg -- karlsson. this is bloomberg. francine and a panel with a delicate conversation on the

view forward. the yesterday announcement was on credit suisse that will be cutting costs. lenny cut to a data check. equities, bonds currencies. just one screen today with futures -10. a little bit of a risk off but a friday churn to the market with all this political news and international relations going on as well. let me go to the bloomberg to set up a discussion for brexit. that is my brexit chart. certainly, the abrupt move from a 143 level down to 130 and the migration down to 122 in early distant.ear seems so here is the optimistic recovery of stronger brexit. the doom and gloom of so many reports we heard. the rollover. sos is on a technical basis,

bring with a really critical 126 level not reached yet. .hat is a good entrance when you come in and look at your bloomberg, how do you interpret sterling this morning? to interpret sterling this morning, we have to look back on what has actually happened over the past few days. i think yesterday, largely the selloff in sterling was driven by the resignation of the brexit markets, raab where the started pricing and higher probability that the agreement is not going to be ratified in parliament. all the macho flexing we have had from the hard with just, ending up two resignations of senior ministers and two junior

ministers should not be that concerning. i think right now, we are seeing a rebound, which i think maybe has some legs and will continue over the short-term. tom: i was really taken by the sky tv poll which paints a completely different picture than what i see in the yes, it is a nation divided, but those polled didn't suggest zero support for prime minister may. where is her support? ileios: first we have to acknowledge her as the prime minister. bringsl remain until she this withdrawal agreement of parliament. in that respect, i find it quite we get theo say that

process initiated for a vote of confidence, and secondly, even if we do get there, i think it is quite likely she will win it. in which case, she is actually fulfilling her promise and trying to see this thing through. cine as we see france with speaking bankers, everyone is trying to understand chronic negative interest rates. what do those odd bills and notes price up yield down below 0%, what does it mean for these three bankers in this panel? vasileios: there are two sides to the equation. you have to ask yourself why we had the negative interest rate. that is because we were running into a deflation scare.

central banks were running out of tools and had to come up with unconventional monetary policies. banks, to a certain extent will depend in a positive way as long as demand is being boosted higher. but, these things are not linear. you find the maximum and then you start have a negative affect because the negative interest rates are actually impacting in a negative way, right now, balance sheets. i think over the next two were three years, we will be in the process of monetary policy normalization. we are to start seeing interest rates gravitating into positive territory and potentially bid higher. anna: this is anna in westminster. lots of the focus on what the bank of england might do. if we do see a harder version or a no deal brexit, we heard from

the bank of england themselves there could be some upside to interest rates, if that is the situation, but the market is not seem to buy that. what would you expect? first, let me say that i understand the market bidding volatility higher and keeping sterling lower, largely because there are so many unknowns between now and the ratification in parliament, and even thereafter if we did get the rejection. basically, the market is dancing of higherscenario brexit getting priced in higher. in which case, the market i think that right to a certain extent that the bank of england is going to hold off from interest rate hikes. assuming our central scenario plays along, it means that we are going to get a smooth brexit.

tighterwill end up is monetary policy in the u.k. largely because weights growth has started picking up and started showing its teeth on inflation. tom: all the writing that has been done today, i tried to understand what is going on, it is good to hear from any former prime minister. here is tony blair in the telegraph. sherlock.tary, the only way through this is a second referendum. the former prime minister goes which was a nation byword for common sense and clear thinking has been relegated to an object of bemused petty. you can do brexit in a way that honors the mandate of brexit, but that will mean breaking cleanly from the single market and customs union. i really thought that was an important point from the former

labour pm. why can't the u.k. just simply break away from europe? anna: and is a very complex one. i have seen a lot of people talking about the suez crisis, this being the biggest crisis the country has faced since the postcolonial times. this is certainly something that still divide people. u.k.'sn politics, the relationship with of the continent will no doubt continue to raise the questions about british and english identity in the years ahead. tom: we continue at westminster with anna edwards. we moved to the united states. germany, the home of the european central bank,

francine lacqua in conversation with the won are getting it right. look for that soon. this is bloomberg. ♪

tom: good morning, everyone. we welcome all of you particularly on the continent of europe. francine lacqua in frankfurt. an important panel of european bankers. this after mr. draghi spoke. francine will join us in a bit. westminster.thaat

right now, vasileios. i know you are putting together a year-end note, give us a briefing on the ambiguity of the dollar direction. vasileios: that is actually one of my favorite topics. we are quite bearish on the 2019.thatwe go into is predicated on a number of reasons . first of all, we think one of the reasons dollar is a bit higher, because we have to put has been thetext, implications from the impulses of the fiscal stimulus. these things are going to start waning off later in 2019. forward-looking investors are going to start pricing that in potentially earlier, sometime

towards the beginning of 2019. basically, the central scenario here is that the u.s. is going to find itself towards the end of the year with a deficit problem and he celebrated growth because it will be losing the impulses from the fiscal stimulus. the other thing which is equally interesting, we have seen one of the most erotic and precedented widening interest rate differentials between the u.s. and rest of the world. u.s. rates have kept on going higher, which is fine because the fed is backing rates. at the same time, it seems to me the market has been extreme a complacent and pricing monetary placing with the rest of the world. you will see that there is a dislocation currently. thatat respect, i expect rate differential is good to start narrowing because there is

going to be some repricing higher from the rest of the world. these two forces that have kept the dollar stronger throughout the rest of this year are probably going to work in reverse next year. tom: within the dollar and ambiguity an idea of a weaker dollar, there are people that go the other way. how do we get on the other side to dollar strength? vasileios: the trade war is definitely a risk because you are going to have a lot of demand for safe haven assets. dollar is definitely one of those perceived as safe haven assets. other things that could actually go wrong relative to our scenario is that, you have a longer-lasting impact of the fiscal stimulus which propels u.s. growth higher. we are continuing the growth emergence.

can, at the same time have a deceleration much deeper than the one we have seen in the eurozone. scenario,here is this which i think is a very low likelihood that inflation in the u.s. accelerates very sharply. the fed panic's and goes ahead with a very aggressive monetary policy tightening. vasileios with us as we continue to focus on the markets amid all the political storms of washington and london. anncine in germany, important conversation with what someone call the most successful bank in europe, bmp. we will do that conversation next. this is bloomberg. ♪

markus: this is "bloomberg surveillance." bowling has been hit with what may be the first u.s. suit over the crash in indonesia last month. killsther one of those says a failed system caused the crash. more asset sales at general electric.

agreed to sell a portfolio of health care equipment leases and loans for $1.5 billion. culp isarry raising cash while he is under pressure to reduce debt. nvidia addeds from service from tip companies is falling. that is the bloomberg business flash. much.hanks so we continue our coverage of the market impacts of all these different political economic stories as well. vasileios with us. about thetalk reaction functions when we finally moved from negative interest rates to zero and even a positive nominal rate, and even, heaven for bid, a real

return. is it going to be shifted with stability or not? vasileios: i think it will depend on two things. first of all, it will depend on the speed that this adjustment takes place. i still think it will have to be very gradual. the second thing, it will have to depend on the timing that this has been implemented, at which time in the cycle it has actually come. there. will leave it we will come back on this, if we can. this is bloomberg. ♪

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"all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. >> this is bloomberg surveillance. today, from new york and frankfurt. i am moderating a panel at the

european banking conference. on it was the chairman of b.n.p. paribas. we talked about brexit, the big concerns. i'm delighted to have him join me. thank you. when you look at business models, you are saying business models are important for banks. what you need in the immediate future is more central-bank normalization. what will that do for returns? jean: it is up to them to make a decision. monetary policy will be decided by banks. it has a big impact on us. oft we see today is a lot flat monetary policy, flat interest rate curves and it has an impact on the business we do. we adapt, reducing costs,

adapting this is models. it has an impact. any change would be positive. it is not up to us. process ofn the normalization, how much volatility are you expecting? massive liquidity, quite high valuations. this is a difficult environment for normalization. my guess is, both in the u.s. and europe and japan, it will be gradual. they will be careful not to challenge to many situations and to do it in a smooth way. this is the risk because it can be derailed. derailed not by monetary policy but by external events. in circumstances i cannot guess today.

circumstances mixed with italy or trade and you could have a crystallization of bad views at the time of normalization. it is not likely but this is the way i see the risk in the future. francine: what does the current political turmoil mean for your commitment to the u.k.? jean: brexit means two things. one, for the markets. we need to be careful about the reaction of investors to this news. businessay this is the with political tensions. there is the second one, which is the setup. london is a large, global market. it is important. we employ many in london. we need to adapt. we do not know how because there

are scenarios. we have options. we stand ready. ecb and the the bank of england to be ready to any circumstances and continue to serve they clients. this is the only point i can raise today. i hope it will go smoothly. francine: what would a no deal brexit mean? how many staff would have to move? jean: we are ready for decisions. we have thought about them. they will not have to be made immediately. i am confident about the fact that even in the case of a hard brexit, there will be some transition, otherwise it will raise operational risks. everybody will try to avoid this. adaptation will come if needed. francine: you think no matter what happens, -- jean: supervisors, banks, asset

managers, and governments will do their best to avoid any kind of crash. a mistake not to do the best to avoid it. francine: are you in contact with government officials in the u k jean: we have permanent dialogue, especially with supervisors and they are active. they understand the risks. they have to respect political decisions and we shall find the right way to do it. out ofe: who will win london moving staff to brexit? is it paris or frankfurt? jean: this is not a race. there will be more activity in the eurozone. brexit is such that i hope the right mix will be found. probably, more activities based in the eurozone, paris, why not?

frankfurt is good and there are other cities in which activities could be grown. we need to keep the specificity of the london-based market which is liquidity. i hope that through the negotiations, we shall be able to get them. francine: what will happen with italian retail banking given the political situation, which is fluid? jean: regional banking will continue in italy. funding che cost of because the -- because the cds has gone up. it has been stabilized and i hope italian banks will continue to finance commodities. italy and wek in finance companies.

it must be finance. francine: what does it mean for lending? do you see a credit crunch? jean: no, we are not in this situation. maybe i should answer a different way. over the years, the eurozone has gone through some crisis. a lot has been learned. institutions are stronger today and the system knows quite well how to address tensions. flexibility to do it and this is the way i see it for italy. i hope that governments in europe, including the italian government, will understand the challenge, will understand they have no interest in derailing this system. tensions can be absorbed. have tensions in emerging markets, i am thinking about turkey. are we going to see flaring up of tensions linked to fed

normalization and dollar? on principle, they are different questions. one question is, what about emerging-market countries. reason too specific doubt the normalization will be gradual. there are difficulties on some countries because of their situation. argentina, turkey, and others. these countries must be monitored carefully. it does not depend on the situation. is that from the situation of these countries, asset managers and investors begin to say, it does not go well for these countries, maybe this is a broader question. that is the reason why all countries need to be careful. but alsosovereign debt

corporate sector debt and everybody should be aware of potential risk which is not real today but may come. francine: what is businesslike in france? is it getting better? clients, thateet is the best test i have, the mood of the client is positive. invest, they recruit, they build up on reforms which have been decided. the continuation of reforms and they welcome initiatives taken at the european level, which is about openness, competitive business, and strength. francine: what do they worry about? jean: the current situation in europe. we are going to have election in parliament. when we see what is happening in italy, when we see the rates in germany are we have known that

situation. the french have addressed these problems. there will be a change, may be the commission may be less skeptical than before. this is a new paradigm and we have to adapt. francine: do you worry about a europe that will be without angela merkel? jean: the answer is, of course, yes. she has been and is a great leader. she has given a lot to europe, to germany. she is a friend of france. and i know how much he was committed to support europe -- how much she was committed to support your. -- support europe. does not depend on one leader.

francine: thank you so much for joining us today. once again, on the road here in frankfurt. francine: thank you -- tom: thank you so much. there is news out of the united kingdom, no surprise. here is anna edwards. >> yes, a quick update here. that they had agreed to stay on in the cabinet. she said yesterday she was not resigning. there were ongoing reports of more stability in the cabinet level. that does not mean theresa may is out of the woods. she could face a leadership challenge. ers have been

gathered. runs, she would not lose and if she wins, she stays for 12 months. tom: thank you for those updates. we will continue to see more. let me look at pound sterling right now. 8.17. giving us linkage into the markets, the silliest you cannot this -- the silliest you cannot leois gkionakis. one of the great things about b.n.p. paribas is they decided not what to do versus other banks. give us an update on the strength and persistency of capitalism within eastern europe. an issue thatt is

needs to be monitored given the developments we have had in hungary and poland. the other thing we should keep monitoring is to the extent third is the slow down -- extent there is the slow down in eurozone is going to start filtering through to eastern europe. we have political issues and that is a political risk. , economicdamental perspective, the region is not doing bad. correction over external imbalances. monetary policy, hungary needs to be tighter than it is. loose forn kept intentional reasons. right now, when i look at emerging markets at different a few yearsook at

ago and it seemed to be one of my preferred places. think it has overtaken it because it has managed to insulate itself against an external vulnerabilities. tom: thank you so much. vasileios gkionakis with us. remotes from frankfurt, from westminster. of the week, within the united states, is alex webb of bloomberg opinion. the only one i can think of to talk about facebook and its uproar is you. distance, it seems like arrogance, we are a private company, even if we have the advantages of a public company.

is there regret within facebook and other technology companies that they went public? can they have it both ways? has been ank there huge benefit of going public. that business model is what is creating problems. it has been a private company. if that had not been the case, it would have been hard to guess valuation. thatthey went public, created the need to create a business model. exploiting people's data. who was responsible? cheryl sanders. she did not do that as the story makes clear. she is implicated as heavily as anyone else in their response. dyingo you look -- i am

to talk to alex webb about this -- do you look at the new york times article as a sea change in governance and executive responsibility for these young turks and their pretense ceos. -- pretend ceos? it is hard to see what can be forced upon these companies. founder, google, the has the majority of the voting shares. it is hard to force him to do anything beyond leaning on him in the form of public discourse. a regulatory standpoint, more can be done to look at to deem them as media outlets and not just a platform. it seems as though the approach is changing in washington. it has been slower to do so there than brussels. tom: do you see the management

change -- all the different machinery to be a private company, even if we pretend we are public -- is that going to shift or business as usual and a free pass for silicon valley? i fear that is unlikely to change. when you speak to people, they say this hunger for growth in the public markets is so great thesehey are seeking unicorn starts. they see them as the only opportunity for growth. they have let them retain control if they do deliver on profit margins and annual revenue growth. tom: this has been wonderful. thank you so much.

in frankfurt, germany. frankfurt -- francine lacqua. to bene: i'm delighted joined by the deutsche bank executive board. thank you for joining us. there are so many questions i have on monetary policy our viewers want to hear about. where do you see the german economy going? >> stronger than in the last quarter. whyave specific reasons there was no growth in the last quarter. it was because of the current situation in germany. there was a specific problem in the car industry which meant they did not produce as much. this will pick up. this is no sign of worry. it is only seasonal event. francine: what do you see in 2019?

what are the main concerns? trade wars? joachim: i think our domestic importantill be more and that is a shortage of labor, for example. other reasons. i am confident we will have next year,growth maybe not that much in the last year. there is no sign for recession, first lowdown. slack will be reduced and the growth will return to the potential. there is no sign for worrying. growth isif european timid, would you be ok with the ecb extending its asset purchase program? joachim: this is not our position. exite advocating a gradual

from the monetary policy because it has downsides. if we are seeing downturn in the circle, we need to have some monetary policy weapons in our ifor to react to situations they deteriorate. we are in favor to stick to that decision and to also stick to the outlook. francine: even if growth is that %, you think it is more important because of consequences to start normalizing? joachim: i am not talking about but maybe from 1%. are in monetary plus allstate

-- in monetary policy, remain quite loose. loosening more monetary beyond anything which occurs in the first of january. it is not yet a tightening as we have. francine: when do you see a downturn in the eurozone economy? would it have to be first in the u.s.? joachim: that is difficult to appreciate. at this moment, i do not see any indicators, apart from political risks. do you worry about the u.s. economy? i keep you are in 2020. 2020.eep hearing joachim: long times of growth

are not unusual in the economy. economists say there is no natural downturn or no natural growth -- when -- for the growth is cut off by cr isis which come from external sources. francine: where do you see the next crisis? competitionre is a which of the risks are the biggest? nobody knows. nobody knows whether one of these materializes. we have seen mitigating practice in the last month, the trade deal on nafta and the ongoing talks with europe. there are discussions on italy. witnessedsks we have

did not materialize and my hope is we will continue with them. francine: how can central bankers do brexit? the first view is on financial stability. carefully fromed the different segments of the financial market, from the different segments, whether there is supply of the financial the continental sector and our conclusion is, there is enough supply for everything needed. the liquidity is not that big. turbulencexpect any even from a harsh brexit. it will be difficult but it will not turn into a crisis. is aine: even if there crash, institutions are prepared? joachim: is this a question related to brexit?

why should there be a crash because of brexit? . crashinglike the u.k now, like a constitutional crisis -- do you think there is a plan for every financial institution? joachim: icy. we are working on these plans. we are aware in which kinds of products there could be difficulties and all the nowulators, legislators k they have to give messages to the market to reassure their business, to make them know what is compliant and what is not. i think we are prepared for that. we have known it for two years. francine: how would you help italy grow? gdp is small. what is the prescription you would tell italy?

joachim: it is not for me to give advice. i can recall experiences in the eurozone. , in portugal, in france, and in germany, where we were in the beginning of the century in a bad situation and our competitiveness went down and we had the famous reforms of the and the socialor welfare legislation. reform whichctural had the german economy to pick up again. recipe iflook for the they look around their neighbors. there is another conversation to be had about populism. board ofthe executive

deutsche bundesbank. over to you. tom: thank you. looking at the data with sterling. u.s. futures -14. some final moments with vasileios gkionakis. andook at foreign-exchange to next week. we should circle back to the pair that matters and for the continental of europe, that is euro-sterling. how is that different from cable dynamics? euroeios: it takes in the aspect. we have to consider european which i ammics expecting a stronger rebound for next year. on the back of solid domestic growth whichge

seems to have signs of life. it will also depend on the fact that the ecb will be ending the asset purchase program by the end of the year which means the next year, we will have investors squeeze out of the market because of the ecb coming back into the market and bringing flows back into the eurozone. cableright now is -- right now is about brexit and what happens to the dollar. euro-sterling, you have to factor in not only the dollar-sterling, you have to factor in the trajectory of monetary policy and growth in the eurozone. will bethese forces to 90.zing between 88

if we do go into a hard brexit, it is feasible we gravitate 95 to 100. tom: thank you so much. vasileios gkionakis with banque lombard from london today. if there is one thing i have known it is that the pros are watching india. it is underreported in the west. we have a reporter in mumbai who joins us. said that india had nominal gdp of 9.4% and real gdp in the 8.2%, no one would believe me. is it a good growth? the growth numbers are on

track. there is a larger problem that is playing out and that is a standoff going on between the administration and the reserve bank. sanguine effect on macro. all of us are watching out for the board meeting of the central bank. there has been a standoff between the central bank and the administration when the deputy governor of the bank of india spoke about the independence of the bank and he said governments that do not respect central bank independence will incur the wrath of financial markets. official on the government side putting on a tweet aimed at the rci.

it can direct the bank of india to do its bidding. the climaxes on monday when the board will meet and members of the government are on the board. tom: thank you so much. we look forward to speaking with you in the future. we have got much to talk about this morning. looking forward to talking to jon ferro about his united kingdom. anna edwards is at westminster this morning. the headlines in the last hour about cabinet members remaining. let us look at the data. it is a friday. the future is at -13. , india withvancing a better currency, with a little bit of fresh air from oil and oil pressures we are seeing.

francine lacqua in frankfurt, anna edwards in westminster. we will talk about washington as well. worldwide, this is bloomberg. stay with us. ♪ tom: political chaos. prime minister may fights for political life. it is a country broken by the debate over leave and remain. anna edwards is at westminster. this morning in the united states, political chaos. florida is recounting votes. congresswoman polo see attempts si heard democrats -- peloi attempts to herd democrats.

stephen roach on mercantilism in the age of trump. i'm tom keene. germany, with mario draghi, is francine lacqua. did anybody want to talk about negative interest rates? is that unspoken? lemierre made a point that we were there to talk about business models. we talked about brexit. deutsche bank told us they were planning for the worse. a point of saying our business models have been broken because of the monetary policy happening in europe. until that gets normalized, that is putting them under pressure. we did the panel in front of mario draghi and they were polite about it. it was an important conversation where they faced up saying,

where we have been struggling with these rates. is inhen a central banker the audience, it is a different conversation. headlines, immediate cost cuts at credit suisse yesterday. ,o these banks that were there all of european banking, get the feeling they are going to right size into 2019? francine: i would see their challenges, the political situation. i would for brexit into this. -- i would fold brexit into this. that does a brexit not encourage the customs union. the third is normalize nation

and the fourth is risk. tom: let us go to london right now. anna edwards expert on all matters brexit. i looked at the wars of the roses and it is the wars of the tories. who is winning? anna: the tide seems to be turning into recent may's -- in theresa may's direction. things look different to yesterday. yesterday, ministers were resizing -- resigning. today, not so. other names from the cabinet who could have gone decided to stay. is a significant development because there was a risk, it would give more momentum who might be considering for asking her to resign.

she could face a leadership challenge. tom: i looked at tony blair's essay and i think of stephen kinnock. the great fascination we have is labor seems to be invisible. is that true? anna: labor is divided. of thek about the war roses, labor is divided on this issue. for remaininge and there are those for brexit and there are those who wish they did not have to talk about it. jeremy corbyn accused of not being an enthusiastic supporter of the european union. we are past that point. the government propped up by the democratic unionist party. what was interesting was hearing how critical they were being of theresa may and her plan.

we heard from the prime minister, speaking about her relationship with the leader of the coalition party, or her government colleagues, that is the dup. she was talking about this this morning. >> we had exchanges with the dup. relation tosue to northern ireland. they have raise the issue, concerns. we are looking at those. did decide not to support the prime minister. to, thatecide not could in theory, bring down the government. the party on its own do not have the numbers to lead. said, the dup are not fans of the labour party. they will be mindful of that.

francine: what can the prime minister offer? do they want cash? anna: that has happened in the past. at the time of the past election, when they had to rely on the dup, after days of talking, the dup decided they would go into that agreement to support the government. a substantial amount of money set aside for northern island. certainly, the dup would need things. the leader of the party was meeting with theresa may yesterday. theresa may says they are working together. we will wait to see whether that holds. tom: the headline across the

bloomberg, looking forward to staying in cabinet. that most forward from what we saw earlier today. , ite stays in the cabinet is not assumed he would run the brexit show. he could do something else, correct? anna: yes. he has not been doing the brexit job. he has been in agriculture. there is domestic reporting suggesting he could have been given the brexit job. the job was not running negotiations. theresa may herself has been playing a prominent role in negotiations. take that job, you have do us coup is going to be in charge. and theork is done european capitals are saying there is nothing left to negotiate, is it going to be

something where you are going to be influencing policy? tom: anna edwards with us and we will continue to watch these headlines. stephen roach scheduled to come up as well. we are looking forward to talking to him on the trade wars and china. here is markus karlsson. marcus: the u.s. justice department has revealed that prosecutors have charged wikileaks founder julian assange. courteared twice in a filing. it is not clear what charges he would face. he embarrassed the u.s. government with folders of information. he has been in the embassy in london for more than six years. kim young on has sent a message to the u.s. and south korea over stalled nuclear talks. he is said to of overseen tests

of a new advanced weapon. ofy did not say what type weapon it was. no response from the u.s. yet. president trump suggested that negotiations with north korea are on track. the trump administration still plans to raise tariffs on chinese imports to 25% and jittery. that thess says presidents will agree to only a framework for further talks entree when they meet this month. the countries are discussing the agenda for the g20 summit and buenos aires. sanctions may have cut as much as 6% off russia's economy. a study found that the economy of the largest energy exporter is more than 10% smaller compared with what might have been expected at the end of 2013. that was when the crisis triggers sanctions by the u.s. and you

sanctions are the bigger culprit. global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am markus karlsson. this is "bloomberg." tom: thank you so much. terrific news flow this morning. that i made all is a trade were. his book was an important effort more than a decade ago. his newer effort, "the imbalance," is a treatment on where we are right now. here is stephen roach of vl university. wonderful to have you today. get to think we would this point of a trade war? war when not a trade you were on the watch in china? now, we have got a trade war. stephen: this book i wrote a few about ao spoke

relationship that was unsustainable and it was on a difficult course. andid not anticipate aggressive new u.s. president who would initiate the trade war with large-scale tariffs. idea that the the united states has trade deficits countrieswith 102 because we do not save and the biggest piece of that is with china. we have a president now who is anti-china, just as he was anti-japan in the 1980's and believes you can address problems country by country. countries you102 are in deficit with, it will not work. tom: the heritage those back to

jonathan spence in those minds of taiwan when they took those treasures from beijing. it leads up to stephen roach and the modern china. throughout that was the belief that mercantilism was something from the 17th century or the 18th-century. andt a mercantilist america do we do that at our peril? stephen: we are looking at half the story. trade and the at dark side of trade and what it is presumed to do two jobs and wages and the character of our .ociety what we fail to see is that trade is the other side of a coin of a nation that has lived beyond its means and needs foreign capital and trade

deficits to square the circle. it is ludicrous for us to be critical of country after country without ignoring why we get into this trade problem. that is what is missing in this debate now. francine: good morning from frankfurt. do you think the administration has won certain cases and that is why they are continuing to escalate trade tensions? stephen: the jury is out on what they won. there is an interesting article today in "the wall street journal" that talks about president trump's long-standing beliefs on trade, first with japan, now with china and his view that we have to get tough on countries that are "ripping us off."

to go into this tocussion with xi jinping push the chinese leader to give somewhat on this key issue. it is not clear to me, i guess there is a story out overnight about wilbur ross saying they are not going to come to an agreement. they will come to some understanding of the framework by which they will discuss this issue, which is a vague construct. what is the issue? is the issue the bilateral deficit? is the issue the allegations of technology transfer, theft? is it a strategic issue of us really having a difficult time in dealing with a communist -socialist market-based economy? greater clarity in

defining what we're trying to get china to do in these important negotiations. should we only try and get china to do what they will do and can you try and get them and shouldmore goods the u.s. administration work with the europeans to get more commonality on a better solution? for 10 years,, has been on a path to reform its economy, to become more consumer led. we have encouraged that. it has continue to be a focus for china. the ip issue we have put together through a series of allegations that were summarized in this section 301 report by robert lighthizer, which was

published last march. it is a weak case. it is an impressive document. i have read them all. the evidence is shaky, the analysis is poor and there is no real solid case. ont we should do is focus market access, making certain our companies are able to the way wechina operate in other countries and addressing the joint venture can structure that constrains that. tom: lawrence kudlow is there. what does lawrence kudlow need to do to push against people you think are nuts? stephen: he did that the other day. he slept peter navarro around. tom: he did it for you. of the business

community watching this, for the farmers with a pile of soybeans rotting, what is the prescription to assist this president to a better outcome? views, he isy's caught up in the political atmosphere he is operating under. he is a free trader. he does not believe in tariffs. he hedged that. i think he wants to make certain that we have access to chinese markets and that we are treated fairly in the arena of global rules-basedby standards that we and others have agreed to in formulating the wto. tom: you are world famous against pushing against the gloom. will beday, articles

written saying china is going to have a hard landing. are they right? , the hard landing has been around long before you started doing the show. nighta debate on monday with a good friend of mine who wrote a book called "the coming collapse of china" in 2001. he has revised its since then. , chinese period economic growth has averaged 9%. it's share of the world economy has doubled. china has got issues in terms of debt and the environment and excesses and property markets. it is addressing those. the trade headwinds are serious. is this the stuff of a hard landing in china?

i would not count on it. tom: stephen roach. really, it is a g2 meeting. news continuing here with francine lacqua in frankfurt. on monday, a perfect time to speak to the university of chicago. his italy. please stay with us. this is bloomberg. ♪

francine: this is bloomberg surveillance. francine and tom from new york and frankfurt. i am here at the european banking congress. a lot of the talk was that the business models that are strong enough to withhold any kind of political eventuality. we talked about trade wars. the conversation was on brexit and italy. tom: there is a business model for the federal reserve system. stephen roach of morgan stanley has been a wonderful student of theory, pulling together the likes of richard berner. of are star.

toit a theoretical construct gaming what a central bank should do? stephen: the fed has been created. it recognized it had to use its saynce sheet and stretch to the balance sheet expansion was equivalent to reducing the policy rate below zero. bernanke made this point repeatedly. with the economy on a recovery trajectory, 10 years after the crisis was over, there is a hasef that this policy worked. it is a vague construct of the ideal level of interest rates. tom: be plug-ins are a mystery, correct?

-- the plug-ins are a mystery, correct? where theng to become culture is that we are after the fact and completely data dependent? stephen: that is a reasonable way to put it. what central bankers are telling you is their policy stance is conditional on what happens. by definition, it is a backward looking policy for a central bank who has a forward-looking impact in terms of setting policy today in terms of what it means for the future. there is a disconnect between the information they used to set policy and the impacts that will come in the future, which are different from what the past has look like. tom: do you approve of chairman move to distance himself and talk about data

dependency? stephen: it is refreshing to have a new chairman who wants to speak plainly and directly about issues. we will see how he does. job. new in the he has said a few things he probably regrets. we all do, probably you have done that. when he said something a month ago that he saw no reason why the expansion could not continue little hair, what is left at the top of my head, jumped up and said, i have heard this before. tom: we will come back.

tom: bloomberg surveillance at this morning from frankfurt, francine lacqua at an important event, a seminar of bankers including bankers.

i'm tom keene in new york. thrilled this stephen roach is with us. sterling, indicative of events at westminster. let us go to anna edwards. i'm going to say the brexiteers had their moment yesterday. what are the diehard troops doing? good to see you. it is interesting. we saw the moments in the where theesterday european research group asked the prime minister, should i write a letter asking for a leadership challenge? he did. that- they have not got to 48 to launch a leadership challenge. reports that maybe

they have. they would not necessarily say so. perhaps, they would give the prime minister notice. we wait to find out if they have got the fortier. the next challenge would be to survive the leadership challenge. ay do that. m she may carry the support of the conservative mps. tom: what was so intriguing yesterday was that moment on the floor where the prime minister of the united kingdom screamed scotland is part of the united kingdom. it captures the fury of the moment. explain that, translate that back to 1703, please. the reason for that is that she was being challenged by the scottish national party.

she was challenged to explain, why is there no mention of scotland in the withdrawal document. there are mentions of northern ireland. scotland feels it competes with northern ireland for investment. he was asking why are there no mentions of scotland. it was an easy one for her. she stood up and said there is no mention because you are in great britain. thee is no land border with european union and that makes a difference as to why there is a special mention of northern ireland. tom: so much is lost in translation. thank you for translating today. thank you. right now, here's markus

karlsson. marcus: thank you. the pentagon spent almost $1 billion on his first auto surplus. investigators found week information technology security they could endanger securities. they discovered equipment mislabeled in warehouses. they found no evidence of fraud. the acting attorney general will not shut down robert mueller's investigation. bloomberg has learned that matthew whitaker told senator graham he will let the probe continue. before taking office, he probably criticized the investigation. mitch mcconnell is optimistic about being able to avert a government shutdown. after meeting with president trump, he thinks he will be able to address demands to pay for a border wall. the president has threatened to

veto a spending resolution if it does not include the wall. in northern california, the death toll keeps rising in the deadliest wildfire ever. killedt 63 people were and they have raise the list of missing two 600. survivors have questioned the warning system. by the time they were alerted, the flames were close. others say they got no warning at all. global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am markus karlsson. this is "bloomberg." francine: thank you. we are here in frankfurt where we have been live all day, moderating a panel on business models of the future. to delve into what mario draghi said here about the european theook, we are joined by commerzbank european economist.

it seems there are risk out there. i am thinking of low inflation. what concerns you the most? is not theest threat brexit but italy. italy is too big to fail. you may say we have the program of the ecb but there are certain conditions attached for example a country should first go to the fund and has to accept reform conditions before the ecb could step in. a populist government is unlikely to submit to reform conditions from brussels. it may notrisk that work in this explains why investors are so nervous. francine: should brussels give an easier time in italy?

there are governments trying to do the best they can keeping their promises and italy needs to find a way to keep going and that is not austerity. joerg: it is austerity. francine: you cannot grow through austerity. joerg: when you bring down the deficits, the high level of sovereign debt, the risk of default goes away and confidence returns and you can grow. italy is a bad place to do business. can be compared to emerging markets. italy has to offer better conditions and modernize their economy. dishing out money will depress the economy and not help. francine: if brussels is too

hard, do you worry about the citizens voting against europe? joerg: brussels is not tough. andave jean-claude juncker we are a political commission and we are soft on rules. past, howen in the soft the commission has been on france. when the european parliament june, thisre over in situation will come down and the populace in italy and the commission will find a kind of compromise. chief economist at deutsche bank believes that brussels needs to be softer from what it is because of the surplus they have had in the past. do you reject that? joerg: absolutely. we have the opposite position.

if you look at the deficit of and adjusted for interest repayments and for the business cycle, you can see there was no austerity at all over the past years. the deficit has increased and italy suffers not from austerity but from too much spending, especially in noninvestment areas. francine: when you look at germany, what would the growth firmer and -- growth of germany look like without angela merkel? joerg: angela merkel is not very important as far as the growth outlook is concerned. has notan government done much to improve the business conditions in germany. we have an atmosphere of complacency. francine: she has kept politics stable which helps the economy. joerg: it kept everything stable

but the other countries have falling and germany is back in terms of its quality as a business location which can be documented. francine: thank you for joining us. he is the chief economist here at commerzbank. banks, andk about folded all in with trade concerns. this is "bloomberg." ♪

marcus: this is bloomberg surveillance. let us get the business flash. deutsche bank and bank of america may be drawn into one of the biggest money laundering investigations in history. the lenders have been contacted

by you as criminal investigators as part of the probe into dansk a bank's estonia branch. they have also asked about jpmorgan. shares of the largest electricity producer in california are soaring in premarket trading. of the state public utilities commission said he cannot imagine allowing the company to go into bankruptcy. &e faces liability if it is found to cause blazes. elon musk's warning workers at tesla he is coming for a visit. walk the he will entire model three production line. battery sales to finish vehicles, all facilities need to support making 1000 cars per day. tesla reports a surprise third-quarter profit. that is the business flash. tom: thank you.

been a next ordinary news flow and the united kingdom, front and center -- an extraordinary news flow in the united kingdom, front and center. we have a conversation with kevin cirilli. but there isopics only one for the president. it is friday and that is mueller time. what does mr. mueller do on a friday? kevin: we get a new development. yesterday, we had a glimpse into the investigation team in which he said to rick gates, paul manafort's deputy, he does not believe there should be sentencing because gates is cooperating on multiple fronts.

that means that rick gates is working with bob mueller. that means that meeting from july, 2016 as well as paul manafort, donald trump, jr., that appears to be where the investigation is focused. tom: the distinction i see is the idea that he is "writing a report. i do buy it. is he doing his investigation? kevin: it was interesting that michael cohen was in town. he was spotted this week. bob mueller has kept the timeline for when he will be releasing his investigation close. reportedly, the president and his attorneys have been responding to questions from the investigation. the only thing we knew was that he wanted to wait until after midterms. kevin cirilli, craig gordon

in our team on the watch through the day and in the afternoon and early evening. we are thrilled to bring you elaine cumard. election expert on outcomes, election reality. let me take a wildcard. can we get fair election counts in florida? elaine: that is turning out to be tough. i am a veteran of that famous night in nashville where i was without gore as we won the election and lost the election and had something in between. that all these years later, florida does not have better election counting operations. a close election,

there are going to be difficulties with the count and this looks to be close. tom: who are the people counting? you are the expert. who counts votes? the officials from each county. election administration in this country is not federal. countiesto states and or sometimes, cities. there are election boards in each of these places. it is localized and there are different election machinery. we remember the hanging chads. uneven way of counting. tom: win this, are the results. is thewould suggest

democrats had a demographic shift. can you project forward to 2020 and to 2024 on where our demography is taking us? in 2020 isography taking us at the presidential level to a good year for democrats. there were three states that hillary needed to win and she wisconsin,nsylvania, and michigan. her margins were narrow that she lost by and this year, all three of those elected democratic governors. , a democrat ought to have a better time. voted fors women democrats, particularly in the suburbs. i do not see anything in the future or a change in president trump's behavior that is going

pathy thatthe anti women have for this president. kamarck with brookings. we are going to come back to stephen roach. i want to look at a chart and drive forward the conversation as leaders meet amid a trade war. gtv . are at morgan stanley and your knees are shaking. you need to get smarter. it is the roach affect at morgan stanley. go in with a decent chart. steel that chart at gtv . this is "bloomberg." ♪

francine: this is bloomberg surveillance. tom and francine from frankfurt and new york. we are talking about banks. we heard from mario draghi. coming up, the speech. i know he will address on the concerns in europe but not only

about strength or weakness but on political turmoil including italy or brexit. tom: italy off the radar. it is news out of italy that continues to concern so much of european banking. let me do a single best chart and withhen roach years in china with morgan stanley. it is one of our most famous charts, china constant gdp, real the 1990's, the miracle of that decade, the crisis. the template across all of this for an authoritarian regime has been to employ people. the number one thing is keep them busy. is that the fear, the major topic? stability is a big deal and employment is the road to stability. your chart shows the growth rate

peaking in 2007 which was a great year in the china structural a economy debate. that is when the former premier said the economy was unstable. he began a debate that shifted the structure to slower growing services. china can employ about 25% more workers than faster growing economies. it is ok to go to slower growth if you are generating jobs. tom: it is a deceptive chart. , at the world is coming to an end, 6.5%, a hard landing is down here and we are not there. how do they miss a hard landing? stephen: they stay on the course of continuing to expand services , consumption led economy. innovation,cused on

pushing ahead in areas they have dna to work with in terms of artificial intelligence. tom: do they do this at the expense of donald trump's america? stephen: innovation is not a zero-sum game. we need it, they needed. let us stay focused on what we can do best to boost productivity growth and china needs innovation to avoid what we call the middle income trap. if they do not do it themselves, they will fall below the 6.5% threshold. they know that. they are focused on other things like that and property -- like debt and property bubbles. as long as they stay focused on their agenda, they can tolerate slower growth provided it does

not fall significantly. remnimbi atat does china? does it mean something bigger? it is one of the levers china has to deal with some of the headwinds they face. they have got the currency, monetary policy, fiscal policy and the drop in the remnimbi over the last year or so is indicative of the fact that they have the ability to allow a market based reduction in their currency to provide some offset so the headwinds -- to the headwinds. tom: thank you for the effort to get here. stephen roach, over the fields, through the woods. was it 12 hours?

stephen: i did not think i was going to be here. tom: we thank you for being here. theous storms we saw within greater new york area. we have a conversation on zingalesot only luigi on his italy. we have stephen roach today. it is appropriate to have catherine mann of citigroup with us. our trade deficit, is it sustainable? worldwide, this is bloomberg. .

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reports the government will collapse, saying she will stay in her post. the cabinet minister decides not to reside. the dollar bull run has ended, the market pricing at a rate hike. california to the rescue. the state regulator says he cannot imagine letting pg&e fall into bankruptcy. we speak to this anova ceo on the impact of wildfires. welcome to "bloomberg daybreak," my colleague slept in until 6 a.m. the rhetoric for the open, we are in no man's land, futures down 5/10 of 1%. watch semis into the open. is pound, cable rate, 1.28 how we print. volatility intense,