francine: mixed signals. the rally in risk assets comes to a halt. a section of u.s. treasuries flipped for the first time in more than a decade. does this mean a recession is on the way? another brexit hurdle for theresa may. her government may be content by not publishing legal advice. unilaterally boosting the pound. welcome to bloomberg "surveillance." i'm francine lacqua in london.

let's check what you're seeing across the board. the stoxx down .2%. we really haven't heard from china yet and there is a little bit of question about what president trump was talking about when he said trade tensions for on hold. looking at euro-dollar. that's partly a trade story and looking at pound 1.2787. december 11 is when the vote on the deal that theresa may got through will go to parliament. there are questions on whether there is contempt of parliament and whether the u.k. can withdraw from article 15. also coming up, we speak to the a.c. milan chairman. he is also at rothschilds. we'll talk about that and football. that is a conversation you won't want to miss. >> thank you very much.

the european union's top court said the u.k. should be allowed to reverse article 15 which riggered the brexit process. revocation remains a possibility until such time as agreements re formally concluded. theresa may's brexit deal has been delayed after an emergency discussion on whether her government is in contempt of parliament or refusing to take the brexit legal advice. in a ruling yesterday, house of commons speaker said there was a case that ministers were in contempt. in the u.k. parliament, the government's top legal advisor admitted may's brexit deal would brexit e country to

rules. >> i am prepared because i do not believe -- because i do not i don't believe mr. speaker that we are likely to be entrapped in it permanently. moratorium on an increase in taxes. the prime minister's office almost canceled a meeting scheduled for today. sterday the finance minister warned the french they are hurting the french economy. powered by b in than 2700 journalists and analysts in more than 27 countries. this is bloomberg. francine: thanks so much.

president trump's advisors have work on scrambling to a trade deal. the white house has offered no details. in the official response, the only possibility of the u.s.'s auto tariffs ending is onsidered. what do we know about what the u.s. and china have agreed over the weekend? >> well, one of the developments today, francine, has been news from beijing that they are going to push ahead with punishment on companies violating i.p. this is one of the biggest concerns that the u.s. has. china today detailed 38 punishments that they would mete out to companies. it could be seen as an early

first step in this whole trade war negotiations process. banning companies from issuing bonds and accessing financing and overseas activity. beyond that, we don't have much by way of detail. xi jinping is still on a global tour. there is a view and expectation according to our colleagues in beijing once he gets back to beijing they will be able to get their messaging in order how to respond to this trade war. we have had this move on the i.p. protection today. nothing too much by way of an official response. francine: what does this mean for the markets in asia? >> well, we have seen certainly a very positive response on china's currency. you recall, francine, very recently we were all on some of a panda watch for that magic

seven level. many investors thought it was a done deal but there has been a ig reprieve in risk sentiment. again, it goes back to this fragile truth theory that the yuan reprieve may be short-lived. it would not take much for a reversal of direction on china's currency. another test towards that seven level. for now, the move is better than where we have been in recent months. francine: thank you so much. meanwhile a section of the u.s. treasury yield curve has inverted for the first time in more than a decade. the spread between three and five-year yields turned negative for the first time since 2007. for more on all of this, we're joined this morning by global

head of f.x. strategy at r.b.c. europe. thank you for coming in. what does the yield curve actually mean? >> for a lot of people it basically means recession. i think that is part of the reason why we're seeing the dollar come under so much pressure today particularly against low yielders, the euro, the japan he is in yen. every time it has inverted it has been followed by recession. you go further back, we had an inversion not followed by recession. it is not the dead certain that people make it out to be. francine: there was a debate on the fed whether an inversion would mean an imminent slowdown. they seem to be on the fence on this one. >> absolutely. you know, you see certain people say this time it is different. global yields everywhere are very low.

it is unreasonable to expect that it can be acting independently based just on u.s. fundamentals. the fed has a very large balance sheet still. it is tempting to make that argument. that said, previously people made that argument. we had it in 2007 and in the late 1980's. i'm more with the count that this doesn't signal a recession and actually we could see the fed going faster than what is expected for next year. francine: as you're saying, if you bring it back further inversion doesn't equal a recession every time. over all, what does it meern for dollar? -- mean for the dollar? >> you have to pay attention to what is actually happening in the u.s. economy.

a dovish concession has emerged one says the fed is going to pull us. equities can rally. this is all great. the second cap which is more consistent, the fed is going to pull us. the world is getting worse. therefore the dollar should go down. i'm in neither camp. if you look at the underlying u.s. data, yes, we have had global softness but the u.s. economy has to slow beyond trend next year dund seem to be well founded. i know a lot of people out there are very bearish on dollar-yen. we're actually the other way around. i think it is really interesting how dollar-yen has not been trading as it should during periods of risk aversion and i think it is consistent with this notion that there is a strong demand for dollar-yen. outside of that, there are a lot

of value trades out there whether it is against the scandis or nearby. indonesia. our strategiest is looking at the political risk between mexico and brazil and what is priced at the moment versus what we think is going to be delivered. francine: thank you so much. she will stay with us and we'll be talking a little bit about brexit. later we have victor poroshenko. don't miss that exclues i interview. mark carney set to speak before the select committee. this is bloomberg. ♪

francine: economics, politics. this is bloomberg "surveillance." i'm francine lacqua in london. theresa may's attempt to sell her e.u. withdrawal deal has een torpedoed. now she was hoping to start the parliamentary discussion later today. the speaker said there is a case for saying that the government is in contempt of parliament. meanwhile an advisor to the european union's top court said the u.k. should not be allowed to verse article 50 which triggered the brexit process. the e.u. court of justice said revocation remains a possibility until it is formally concluded. let's talk about the pound and the impact it could have on

pound. the concern is now we're getting into legal speak. what would change the pound outlook? >> not very much. even if may is held in contempt of parliament, perhaps you get one minister being suspended. could be cox, out of bounds livingston. at this stage, i don't think the arithmetic in her vote will come down to one or plus or minus one. francine: what doesette mean for your pound call? >> there is total discombobulation now. it is really a case of if you get the vote going through parliament you completely remove the risk of a hard brexit with no deal, march 29. at this stage, i don't speak to many investors that think that is a serious possibility. if you get the deal voted

rough parliament, possibly a spike, not sure it is that long. it could potentially lead to a change of government or a second referendum which would depend very much on what kind of question is asked. quite a wide range of outcomes there. a lot of that not really reflected in long-term goal. francine: this is actually the one chart that we need to look at which is -- looking at pound. thank you so much. now let's get straight to the governor mark carney testifying on the impact of brexit. let's listen in. >> we have the second panel of treasury officials joining us in the morning. i'm going to -- i've asked

members to direct questions to witnesses. if there are things you need to add please feel free to do so. i want to start off with the two scenarios set up last week for a disruptive and disorderly brexit. we should think of those as worst case scenarios. can you explain exactly what the bank of england means when it says -- scenario and not a forecast? >> well, thank you. it is an important thing to start off on. a scenario has -- it is not what we think is the most likely thing to happen. so it is not our central expectation. it is a depiction of what could happen to the economy based on a series of clearly identified assumptions and they are laid out. then use established economic relationships to map from those assumptions to potential economic outcomes. we discipline all of this by

using the bank's macro models so it is consistent across asset prices and inflation. we then use reaction functions for macro policy. so there is a -- there is no fiscal policy response but there is a mechanical monetary policy response. that lays out or gives a set of outcomes. now this is particularly relevant for the financial policy committee as you can appreciate. what the f.t.c. is concerned with is tail risk scenarios. and it by design will look at a series of worst case assumptions because the position we need to be in and i would say we in the broadest possible sense the united kingdom need to be in is to have a financial system that

can withstand a highly unlikely but worst case that -- set of events and so that is what we have done with respect to a disorderly brexit, what we called a disorderly brexit. we cross checked that against an even more severe stress test which was released in parallel with this. that more severe stress test and we'll finish on this, also has a lobal recession and 20 billion pounds of misconduct costs. f.e. suggest and the scrmbings suggesting this, the .k. banking system has the capital separately detailed and being part of the solution and not part of problem. >> the probability of these scenarios unfolding -- what

deprobalt you attach to disorderly or disruptive brexit unfolding? >> tail risk is tail risk. it is low probability all of these events would happen at the same time. it is not just a question of the formal trade barriers that come into play. also shorter term disrumses in terms of port infrastructure, other logistical disruptions and a fairly severe financial market reaction and a shock to confidence at the same time. these are low probability events. in the context of brexit. in terms of the likelihood whether or not there is going to be a no deal brexit, members of this committee are better placed to judge that. >> the document talks about a supply shock and also the g.d.p.

declining. can you give any precedence for a decline in g.d.p. or supply shock of this nature? >> it is very hard to get one from this nature because we have lived through a long period, essentially since the second world war deepening trade integration. that's been the direction almost between developed economies and including developing economies as well. e picked up one particular pisode of trade which was -- withdrawn in 1973, when the u.k. joined the european union. all of us are unfortunately familiar with the slower growth and productivity since the financial crisis. a negative.

you have weak -- and so forth. we are quite familiar with. to have rare indeed an episode where you suddenly curtail international trade. >> what about the oil supply shock of 1970? >> that has some similar aspects to it. pushes up import costs, one of the effects to reducing trade. there is some relationship but the new zealand episode is the closest one that we could find and even then it is not exact. the publication last week attracted universal praise. some in the committee areless convinced by what you published as well.

highly extreme. i think it means the bank's credibility. how would you respond? >> well, i think the first thing i would say is there are two classes of criticism if i could generallyize them. one which i think is entirely unfair and the other is debate. the one that is unfair is the fact of the publication. the fact of the publication is this committee. >> we asked for it. >> the fact is we are accountable to the people of the united kingdom through this committee through parliament. we don't have the luxury of holding back materials which we have produced that is directly relevant to our responsibilities from this committee if it is demanded. d what is clear from the now unredacted minutes of the record is we have been doing this for a

couple of years. we have not volunteered this worst case analysis. we have held it back. we have used forms of words to provide comfort around the fact at we have provided or built the resilience. in other words, we talked about an unrelated stwress test, the a.c.s. of 2017 encompassing a hard brexit or a disorderly brexit to give that comfort. it is only when parts of -- the first set of criticism around us producing or us releasing this our judgment. in there is a separate set of criticisms of debate which is around the analysis itself and that we absolutely welcome. let me say a couple of things to

that. first is i think so the analysis needs to be looked at this the round because as you rightly started out, these are scenarios. there is an s in scenarios. there are different vary yantses f a hard brexit versus disruptive. there is also a smooth move to w. tombings, which is contain -- w.t.o., which is contained in the report. this isolation between issues that are very short-term and quite topical and significant around infrastructure, readiness if we can and isolate those and if you don't think those are an issue in the short-term you can zwroump the smooth w.t.o. scenario and use that as a base and discuss off that.

you know, this is the analysis is based off of the core analysis is based off the gravity model. the underlying data point, 600,000 observations that are used to calculate the relationships. we disclosed in the reports that the elasticities, all of these arious whether they are tariff or nontariff, if you're mapping from that to the degree of trade and therefore ultimately to the degree of productivity, there is . range of elasticities we use .25. we use at the lower end of the spectrum. so it is well grounded. disclosing the key assumptions and the various

flows. and if i could, just to go to process, which is we had a core team of 20 senior economists who have been working on this for a couple of years. and then drawing in other professionals from across the bay, almost 150 professionals from across the bay have been working on it and two senior committees, the m.p.c. and the f.p.c. have reviewed the work. this is not something -- there is no exam crisis. we didn't just stay up all night and write a letter to the treasury committee. you asked for something that we had and it we have brought it and we gave it to you. >> thank you. we are very grateful. one final question. a number of the assumptions made in the scenarios. one of the things in a disruptive scenario you said

sterling could fall a further 15% and 25% in a disorderly scenario. how did you reach those figures? it represent the market's view of an average range of possible outcomes. essentially the larger the effect on u.k. trade, the urther -- for various reasons. priced in to a level of the exchange rate. there is a number of possible utcomes. so if the exit is -- toward the better end of that range, or if it is toward the worst end of that range you'd expect it to

fall further. a direct it is elationship. >> there is an equilibrium -- it is grounded in a sustainable current account position. >> thank you. last time you told us it would take four years to do a trade eal. that hink what i said was the experience has averaged four years and including on average the implementation of -- four ears in aggregate. i make no judgment. we're not party to the

discussions the party may have had with the european union about a future trading relationship. we have read the political declaration but what is beneath it we don't know. i take note that one the agreement within the withdrawal agreement there is a possibility, not a requirement, but a possibility of extending the period by one to two years as you know. >> it would follow that if it takes as long as four years that would be the case? >> if our trade negotiations took as long as the average trade negotiations it would use up the time of the additional extension, the two-year extension of the implementation period for negotiation and implementation. if i may make a general comments, what does that implementation -- there is a very practical impact to

implementation. there is implementation in terms of businesses around the country getting ready for the new arrangements, changing suppliers if necessary, developing new markets. basicthere is the very implementation of new customs arrangements, foreign infrastructure, other practical aspects to implementation. there are those practical aspects to implementation in the financial services sector. that is the one area we have direct responsibility and have been working over the last two years in order to make sure the financial services sector is ready. >> you mentioned in the last willon that other services

have taken a considerable amount of time to adapt to the new arrangements. >> i think it is fair to say that at this stage, there are a that don'tndustries know what the new arrangements are going to be. you can only start implementing it when you know what you are implementing for or towards. at this stage, it's not that clear. >> given the length of time it could take to secured trade why does the bank think macroeconomic security will fall back to average? the close economic

partnership will be a new arrangement. our expectation is that there will be some uncertainty related to that. it's relatively modest. i believe it is half the standard deviation increase in uncertainty, which is something, but not that much. given up a structural change, we have seen a reasonable assumption. it doesn't have a big macroeconomic impact on the scenario. that order of magnitude of uncertainty is more directional that there would be some. close partnership arrangement the basic modeling assumption is that there is an implementation period between now and then, a reasonable sense of where we are headed, and that once we arrive at the destination, those expectations are largely fulfilled. that, ifsagrees with

what thes actually, close economic partnership will be will not be known until just of the implementation period, you could take that view, in which case, you would be on the lower end of that sway. that is the point of having these scenarios. and allows you to take different assumptions and have a sense of what the different outcomes will be. was going to respond to the other question, but i couldn't clarify. here iswhat is unusual the spectrum of possibilities that would need to be negotiated for the future relationship. world, thetes of the

,ustoms partnership arrangement you wouldn't just be bringing controls into certain areas. and other states of the world, you would and those possibilities are there. for businesses to know which one they are preparing for is quite important because you can spend a lot of money preparing for something that doesn't happen. if we knew which way this was going, businesses could start to prepare. are we just pushing the uncertainty further down the line? and a couple of years, will we be back to square one again? >> that depends on the pace of negotiation.

i think john is an a good .osition to know anymore.t do that we have seen the impact -- francine: that is the bank of england governor answered questions from the select committee saying there is low probability that the worst-case scenario is materializing. he was just telling you pamela lawmakers -- a panel of lawmakers that patel risk is a tale risk. risk is a tale risk. on the back of that testimony, pound was actually at one point

2805. -- 1.2805. he is saying that fairly severe market reaction is not his best case scenario. let's get straight to the bloomberg first word news. advisorsdent trump's have been left scrambling to explain a trade deal he claims he struck with china to lower tariffs on u.s. auto imports. the president announcing the brakes are in a tweet, but the white house has offered no details. one source says the government is only discussing the possibilities of lowering tariffs. >> they cannot slow walk this, stall this. their word, immediate. expect to see confirming results. advisors to the european

union say the u.k. should be allowed to reverse article 50, the mechanism which triggered the brexit process. the advocate general of the eu court of justice says ramification remains a possibility until such time as the withdrawal agreement is formally concluded. the debate on prime minister theresa may's brexit deal has been delayed after opposition an emergencyranted a mother her government was under content of parliament -- parliament. and a late ruling yesterday, the house of commons speaker says there was an arguable case that ministers were in contempt. france and germany have agreed to cover my the proposal. according to a joint statement, digital companies could face a 3% levy on their european

advertising revenue in a scaling back of the broad plan initially presented by paris. 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. this ispemmaraju, bloomberg. francine: the violent demonstrations in france started out against the fuel taxes. the government can now post on future tax increases. micron, the stakes are high -- macron, the stakes are high. the european commission has already said his existing budget is at a risk of noncompliance with eu rules.

joining us now is greg who covers the french government for bloomberg news. it is quite incredible some of the scenes coming out of paris. will this tax proposal be enough to quell the protests? greg: probably not. what it sounds like is going to happen is they are pointed to a moratorium, three-month delay on attacks that was supposed to take effect next january, but it does nothing about the taxes that took effect in earlier january and nothing about these demands the yellow vest movement has gone to demanding. satisfy somebly people, but certainly not the end of the protests. francine: weiss president macron so unpopular? greg; i think you have to go back to how he was elected. he took very few votes in the first round, but was able to leverage that in a second round. he also ran with promising a

mixture of right-wing and left-wing policies. since he has come in, he has been pretty much a center-right guy. cutting business taxes, getting rid of the wealth tax, loosening the labor law. he has done little to offer the left-wing voters that voted for him. he didn't have that much mass support the first place. i think some people feel let down. he is very stubborn. he is a man who is very convinced that he is on the right path and knows what is best for france. it may turn out to be true, but so far, the numbers have not shown up. francine: now, let's turn to italy. despite talk about a potential compromise, the nation's deputy premier has hit out against of the eu saying he wants to save the block from the verge of destruction. at a meeting in brussels yesterday, the euro area finance

minister calls on a late to take the necessary steps to comply with eu rules. welcome to "surveillance." widen orread going to do both brussels and rome understand that they need to come together? paolo: i'm convinced that we reach an agreement. it has to happen before we start the procedure, which will put italy under examination. i'm sure the italian deficit would be much lower than the french deficit. france, which has always been criticizing italy is great to of 3% while italy

will stay in 2%. francine: what is your overall view of the current government? paolo: they are not good for italian businesses, but the idea of the five stars movement to stop infrastructure investments, this is very widely criticized. francine: because they want to nationalize it? paolo: they don't want to make them first. in total, they have not been doing much in this government in the last six months. they have been talking too much and scaring investors, both foreign investors and italian investors. even consumers, which have been increasing their savings. the discrepancy between what they say or shout and what they do. in total, i'm convinced they would not do much.

italy will continue to stay in eu.euro, the they have been creating a lot of noise, which is responsible for the increase in the spread. francine: what does the business class want from this government right now? is a dialing down the rhetoric? paolo: for sure. they want this government not to stop infrastructure investment. they want to move the spending tom gift two people -- people, to investment. the business community is very united on this. the is why i think government will pull back on some of their major unpopular with industrialists. francine: thank you so much. coming up, crude rebounds after falling sharply last month. oil rises. its biggest two-day gain since

june. you can to the pound hitting a session high as the boe governor continues to answer questions on brexit. he was saying that the british banks are ready for any kind of brexit. we will also bring you the headlines of from the u.k. parliament treasury committee. this is bloomberg. ♪

francine: this is "bloomberg surveillance." oil is heading for its biggest two-day event since june. paolo, us now is chairman of ac milan football club. you still follow the oil and energy markets very closely. said, i that qatar don't want to be part of opec

anymore, what does it change? paolo: they were a small producer out of 32 million of opec. it is a huge producer of liquid gas, but this has nothing to do with opec. it is a political move more than an energy move in the sense that qatar is being kept away from anybody else in the gulf through their lines between saudi arabia, egypt in the emirates. and is been in retaliation against saudi arabia. is, in any case opec is a little weaker today. russia and saudi decide everything, they decided everything in the past to move the price of oil up. they decided everything to move the price down.

i think in the next few days, in the meeting of opec, they will try to cut down production in order to move the oil price to $70, which is what they need in order to have their economies going well. francine: i used to cover opec for many years. is it more difficult now to figure out the price of oil because, it seeks more complicated than it was 10 years ago even because of waivers, we don't understand exactly how strong demand is. paolo: the new thing is shale oil in america, this new player which is one we can move up and down reasonably rapidly. these have changed the game. in the past, there was no alliance between russia and saudi, which is the new thing of the last three years. is reason why oil price going up is because everybody

expects the alliance between russia and saudi will cut down production. francine: do they need to decide whether they please donald trump? tweetch does a trump impact on the psyche of the oil producers? paolo: i don't know how much it will impact, but i don't think it will impact so much to cut down some production. this is my guess. francine: talk to me a little about football. the owners have gone through changes in the last few months. what does elliott want to do with the group? plan to sellis no any share anytime soon. the investment is medium long-term. nothing will happen anytime

soon. it has been a good investment and we hope that milan will progress a lot in the next few years. francine: we are also getting breaking news out of brussels. the u.s. secretary of state is just giving a keynote speech at the german marshall fund event. he is getting introduced right now. as soon as he starts speaking, we will continue monitoring anything coming out of brussels. we were just talking about elliott and ac milan. what is a three-year plan do? the club has been suffering a lot in the last 10 years. as you may know, milan is the second most popular club in the world after real madrid. it has won several european cups. francine: popular in terms of merchandising? aolo: number of fans in the world. it has 400 million people that say i like milan.

the last few years have not been that fortunate. we need to bring milan back where it was 10 years ago. francine: do you have investor interest in getting into milan? paolo: the acre investor is elliott, that is it. they want to make the progress in the club. we have been hiring a new chief executive which joined milan this week. and weoming from arsenal expect from him to bring milan back where it should be. you are: last time, telling me you could also move stadiums. any update on that? agreementmade an with the other football club of milan to make a new stadium together. we have not yet decided where to

make it or how to make it, but the fundamental decisions will continue as we do it today to play in the same stadium. francine: does that work for the fans? if we were to take the decision to make a new stadium teams, itthe two would be very complicated. it seems of this alliance has lasted 17 years, there is no reason to break it. francine: what surprised you about being in the football business? is it different when you deal with football and people's emotions a bit more? paolo: lots of emotions. they say the management is different. you have a lot of prima donna's in football that you don't have in the oil industry. the reason i like it is because

it's different. i always think that change is key to make your life doesn't. -- pleasant. francine: who are the prima donna's? paolo: the players, the managers, everyone is a pre-madonna in football. in football.a paolo,e: for more with check out our conversations on "leaders with lacqua." i imagine there will be further down the line a little bit of a q&a. markets this morning waking up to the fact that they were unclear about what president trump was saying when it came to the u.s.. the other big piece of news out of the u.s. is that a section of the u.s. treasury yield curve has inverted for the first time

in more than a decade. what that means is unclear, whether it means the recession is moving or not. we are also watching pound as the boe governor continues to answer questions on brexit. this is bloomberg. >> currently, we import a good quantity of our food. over half from overseas. that makes it more expensive when sterling falls. that is exactly what happened after the referendum would currency fell. in these scenarios, there are terrorists in place on such -- tariffs in place on some of them. because of the increased cost of the border, associated with the heart of brexit.

each of those will be a different scenario. the answer is for those reasons, yes, you would expect food prices to go up. >> some people say 10%. >> exactly. if you use 36, which gives the , the tariff would affect 5%. the exchange rate would reach 5% depreciation. ♪

francine: mixed signals. the rally in risk assets come to an abrupt halt over the

u.s.-china agreement. another brexit hurdle for theresa as the speaker of the house of commons says her government may be in contempt by not publishing legal advice. the quepasa top courts say the -- u.k. toperse courts say the u.k. can reverse. a know you singled in and honed in on a great opinion piece by the former make of england governor. tom: out with something that is somewhat familiar in the united kingdom. it is a stunning essay. he tears everyone to shreds. will have much more on this.

if the united kingdom parliament supports prime minister may's plan, it will never be forgiven. more the result of incompetence by a high order. the worst of all worlds, not facing an economic crisis. it is confronting a deep political crisis. vassal state do not go gently into that good night. they rage. to me, this is an extraordinary essay as we go into that vote. francine: it is an important vote. saide past, mervyn king that despite political difficulties, there will be many opportunities once of the u.k. leaves the eu. the current bank of england governor is currently testifying in front of the treasury select committee. happening.s what is

brexit opponents in the u.k. have gotten a boost. an advisor to the european union's top court says britain should be allowed to reverse its article 50 notice which began the divorce process with the eu. if the court agrees, it could help those campaigning to thwart brexit with a second referendum. president trump advisors are struggling to explain the trade deal he says he made with china's president xi jinping. president trump tweeted that china agreed to reduce tariffs on u.s. cars, but that is an agreement that doesn't exist on paper and hasn't been confirmed in beijing. jerome powell says a strong economy hasn't reached all americans. and are marks prepared for an event in washington, he says statistics tend to mask of this parity's. -- disparities. he warns that the u.s. faces long-term challenges. the president says

the country is now on the path to thwart a strong rebound following this year's financial crisis. is argentina is in a much stronger situation than it was 12 months ago, we have cut significantly our deficit. next year, we are going to balance primary budget. we already have financed all our needs through the imf program. that makes a big difference. uma: 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. -- them aanz you pomeranz you -- this is bloomberg. tom: has sophisticated is that?

13.30. that is an extraordinary flattening and an acceleration of the last three or four days. we'll gets a lift as well. the big showing. the good market we are in. that should be read on the screen. the german two-year agrees. in. francine: my word of the day is fizzled. we are not seeing a big breakthrough in the trade deals.

at the same time, we are hearing from mark carney testifying saying, banks are ready for any kind of scenario. he also talks down a little bit what he said last week. a hard brexit is only a tailwind. tom: we want to show the 2/10 spread. benchmark for the yield curve, the trump election here. this two-year trek downwards with this new leg down. if i take the color charts off and hide them, you can see where the zero bound is. i usually show this log, but we are moving so fast, as got to go back to a normal chart. there is where we are with a blue line at the bottom curve inversion. we are getting there fast. francine: this only happens once

a decade where we actually have the same chart, slightly different. tom: love it. francine: it only happens when we have yield curve inversion. tom: yours is fancier and prettier. francine: it is very european. thank you, hillary clark. let's get more on these traded versions and what we are seeing with trade concerns. . thank you so much. the inversion actually mean for some of your appetite on the market? forn: the 35 has inverted the first time in a decade. 2/10hart, if you track the the version of her time, that tends to lead recessions. that is an issue we are clearly

focused on today. the minimal leadtime for a to 10 sessionn -- to temper -- to temper session is in -- 2/10 recession is a nine cycle. i think the fed has to beg to differ. no economist has ever called for a recession. credit investors call for too many of them. i don't think it is a sign that a recession is pending immediately, but a sign we are moving in that direction. this is just a leading indicator. the last time this happened it was twentysomething months before a recession. positive.as remained francine: let me bring you over to my other chart and bring it back to 1981. recession looming? >> i'm not looking for an early

recession. having jerome powell, changed his tune extraordinarily, has clearly identified that inflationary pressures are falling back in the two-year number, i think is too high rather than the 10 year or five-year being inappropriately forecasting a recession. the other part is the demand from non-us market participants. when you're faced with negative yields in eurozone, and zero yields in japan, global investors think the u.s. market is already a good deal. that has been a big driver. tom: we look at the acceleration well. other curves as it has got to signal one global disinflation. we were told that the fed is aware of global economics, that really not on it.

where does it have to really turn to a global disinflation gary trent -- disinflationary trend? james: critically, i'm not looking for deflation. i think lower inflation means we have to look at quality companies that can maintain margins and sales and what is otherwise a difficult environment. this is not the right moment to be supporting cyclicals. tom: i have seen a little bit of but in the literature, there is even discussion about the next rate increase of december 19. are think moving so fast, like francine's glorious yield curve chart, that they may have to amend their approach to that december 19 meeting? james: i still believe the fed will hike because there is a buildup expectation that that is what they will do, followed by

six months of consultation on what happens next. eave can reasonably l rates unchanged. i don't believe there is enough evidence to persuade the fed to leave rates where they are. that said, if i were to think about the global dynamic, china still needs to make a profit. i don't think we are going to see the true disinflation we have seen in normal cycles because i still think economies are going to want to price a for profit, rather than market share. francine: do you think the market misinterpreted what jay powell said? jason: the marketplace and the u.s. currently is kind of like teen, when-- ansty things aren't going well, they're looking anywhere for good news. when you look at the quote from it is reallybelow, just below the range of estimates.

range.s just below the for what it is worth, the bond markets saw through that on the day of. it kicked off the second largest equity rally of the year. i think the bond markets software that. w throu thatgh. that.ough francine: when the fed chairman says that while the central bank has made progress lower income workers have been left behind. how do you interpret that? jason: if you look at consumer confidence in the united states, it is that 18 year highs. at anemployment rate is

low at 3.7%. the reality of what that means for us is that inflation is likely to be coming, but it is not here yet. a lot of the is the lack of wage growth from the lower wage categories. 1000%, lower-class workers up 12%. we are also listening to mark carney talking right now in front of the treasury select committee. he is saying there is a low probability of the worst case brexit scenario materializing. he is basically answering questions about his predictions he gave us last week. if you are a bloomberg customer, go on to liv go on your bloomberg terminal. later, we will be speaking to the president of the ukraine at 3:00 p.m.

-- new york, it :00 p.m. in london. this is bloomberg. ♪

uma: this is "bloomberg surveillance." apple is ramping up efforts to boost iphone sales. bloomberg has learned that the company is experimenting with strategies it rarely uses such as discount promotions. apple has moved to some marketing staff from other projects to help. some have described as a newible admission that products are selling below expectations. board members that nissan are

meeting to select the new ceo. the board will vote on the choices december 17. on november 19 on allegations of financial misconduct. his likely to be arrested next week on new allegations. canadian pop producer, -- pot is about to bes bought out. james andtoday is jason. i want to talk about the spirit of high-yield. in working with the transactions -- as you knowt

in every crisis, there is a moment the paper is left on the desk. are we anywhere near that moment where some of this lesser quality credit stuff just can't get moved? jason: we are absolutely at that point here. i think you are seeing it in terms of high-yield issuance. it is off anywhere from 35% to 40%. the issue is what is dealer inventory? 2007, it wask to 10% of the investor great market. today, 0.3%. banks are actually loath to underwrite transactions, which leads to less issuance. we are seeing a spreads widen and yields up to levels that are getting more interesting. they are still below historical averages. tom: when he talks about there is exceptionally important. we all understand in equity markets, rules change.

we don't perceive it in the bond market. the fact is, the depth of the bond market is changed since the financial crisis.how is it today and are they ready for the next shock? really talkan't about corporate credit and high-yield without talking about liquidity. the reality, from a liquidity perspective is that capital markets, historically, used to underwrite a transaction for the entire life of the deal. that was an unwritten rule. that is no longer the case. that grace a lot of opportunity for folks like us to be buying on a stressed or distressed basis. the other place we find opportunity in credit, complicated capital structure. since the brokers can't step in and provide liquidity themselves, if there is complicated financial package, many different holding an operating companies, lots of

different places to invest if something goes wrong in the capital structure. that complexity creates opportunity and the opportunity to get very active in many of these situations. we always laugh when an activist equity fund will buy 2%-4% of the credit company. in credit land, we by 30%-40% of the company. would control the destiny and outcome of the business. that complexity is creating a lot of control today. francine: i don't know if it is the biggest value, what are you most concerned about? what are we left with? have seen the outperformance of floating rate credit over fixed rate credit. that has been the case for this entire year. fixed rate credit are some of the worst performing assets. ratef the best performing

classes are here in the u.k. nds we think -- and u.s. we think the trend will continue, but the reality is, we have to find spreads that are increasing as well. if you take european investment grade credit, even after all the spread widening, 1.3% is the yield. there is a lot to do their from a shorting perspective. what is the cost to you as a short investor? you lose 1.8% a year. year.% a tom: thank you so much. jason here with the dynamics and liquidity. we will continue this morning. we have a wonderful set of guests coming up across

"surveillance" today. john demands i talk about newcastle football. ♪

francine: this is "bloomberg surveillance." we have to look at what is happening in france. we saw a third weekend running these incredible scenes in the center of paris about blockades

and cars on fire. we understand the prime minister will address the people at 12:00. that is in an hour and a half. we understand the french government may also extend the field tax. -- fuel tax. tom: they are really extraordinary. that populismest is a symbol for the rest of europe as well? francine: i'm not sure i would break populism in. i think there were a number of missteps the president did. a lot of people saying if you are going to tax some of the fossil fuels, was basically makes people feel poor, you should bring incentives for new energy. we heard a lot of the organizers and it is unclear what they are protesting about.

there are a number of things they're angry about, but not one clear thing that emmanuel macron could fix quickly. tom: exceptional images there from france this morning. a number of interviews. of the remembrance of the 41st president, we will have much more on that. a well-timed republican interview.this is really well-timed . candidate,republican former user of the hp 12c in the 4:00 hour today. please look for that. yield, 2.95%. this is bloomberg. ♪

♪ tom: good morning, everyone. currentp, and important conversation on brexit as we go

to that vote in parliament. right now in new york city, your first word news. reporter: his what's happening -- here's what's happening. british prime minister theresa may has an uphill battle to sell her brexit deal to parliament. president emmanuel may use tax cuts to end protests. there'll will be a televised speech less than an hour for now. now. hour from president trump has tweeted that china was willing to cut tariffs

on cars being imported from the u.s.. beijing has yet to confirm or deny. president trump paying his respects to former president george h.w. bush at the capitol. now every the americans will get their chance to say goodbye. you will be lying in state for public visitation through tomorrow. a funeral will be held for mr. bush at the washington national cathedral, and that he will be taken back to his home state of texas for burial. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm over power as you -- this is bloomberg. francine: the pound looks saysger after an advisor the u.k. should be allowed to reverse article 50. that is the mechanism which triggered the brexit process.

james, we have a number of things going on right now. news that the u.k. can just unilaterally and brexit, and theresa may's government facing contempt in parliament. what will move pound? i think the pound is going stronger on the back of dollar weakness rather than any profound expectation. evenroblem with brexit is the ones who want to leave don't necessarily want to vote for ms. may's proposal because it doesn't go far enough. we have a very complex picture in parliament. i believe miss may's deal will be voted down. i don't believe we will get a referendum. i think it is too difficult to know what question one would ask. mmr i want to show the king

again, and then go to the court economics that underlies james bevan's view. the former bank of england governor goes on to say it is confronting a deep political crisis, and channeling the german from wales, vassal states do not go gently into that good night. they rage. governor king says all krugman -- says paul krugman is right. if the united kingdom makes these brexit decisions, they will pay forever. it is not like there a one-off solution and things get better. there's things like border crossings and customs that have a weight on gdp and economic

growth forever. do you agree with that? guest: not necessarily. the reason is the underlying there ison that somehow always good in the eurozone. , as we can see from the italian crisis unfolding, that we don't have a stable euro system. even the key proponents of the remain camp have to agree and admit that the eurozone does not function well. it is immensely successful at having insured there's been no major war in mainland europe since 1945. there's been immense success in ensuring common standards for the environment. however, it is not the case that we have a joint economy and a single fiscal state. those tensions remain and are very clear. som: this is about leaver

and remainers both disliking this proposal. if wet is the to do list don't like what the prime minister is proposing? what is the next step? guest: i think there are three groups. there is a middle ground of people who say if we are to leave, we are to leave on the best possible terms, and ms. may's package i think stratefies those people. but there is no expectation that her vote will close with a loss. the question is what then happens. the eu has made it perfectly clear they are not willing to renegotiate, and ms. may's mayl ms. may may then face a leadership challenge. as you've identified, there are several different choices, with

we go with the may deal, whether we just leave and go to the wto, or whether we stay. you cannot ask multiple questions on a referendum and expect to get a decent answer. francine: joining us on the phone to discuss the statement from the european court of justice is the director at the good lie project -- the good law project, who brought the case that the ecj opinion relates to. thank you for joining us. what needs to happen for the article 50 reversal process to actually begin? >> one thing, really. mp's have to decide that is what they want to happen taylor: -- what they want to happen. it is odd to think it is only now, some two and a half years later, that the contradictions baked into the leave campaign

from the start are emerging. there were two groups of leavers, one that wanted an open, free trade, deregulated britain, and another group who wanted a closed, more highly that tries toain shut itself off from globalization. theresa may has managed to keep those two groups together until the moment at which she had to confront them with the reality of what brexit means. and now neither are happy. francine: the only way to reverse a brexit process would be to either have fresh elections or to have a second referendum. >> that's not true. indeed, having a fresh election would not reverse the brexit process. there are two ways. one is to have a second referendum. the other possibility is that

parliamentarians could themselves just decide to revoke the article 50 notice. parliament is supreme. the referendum was an advisory referendum. it advised parliament. , havingnt may well say seen far short of the promises that were made in the 2016 referendum campaign, having seen the illegality during that campaign, we do not think that referendum provides a mandate to leave, so we are going to cancel brexit without a further referendum. francine: right, but would that not lead to civil war on the streets of the u.k.? [laughter] >> i'm sorry to be really boring about this, but no, it won't lead to civil war on the streets of the u.k. remainers, for several years, situation that a they did not want, and it is perfectly possible for a grown-up, civilized democracy

like the united kingdom to deal with the world in which mp's decide that the promises that are so far short of reality that there was no mandate for this brexit. there will not be civil war, and really it is a really unattractive proposition to put. forward, and less just assume parliament does throw the brexit proposal out the what happens, do you think, in the next general election? >> certainly it is fair to say are attitudes to brexit casting across party political lines. so the conservatives have a real problem because there's a substantial group of wantrvative mp's who don't the sorts of radical steps that

leaving the eu on w seo terms would necessitate. so the conservative party is slip -- is split, and the labour party is split as well. mp's in bothnts of our also split. i am not trying to undermine what a challenge dealing with brexit poses for politic in the united kingdom. it is a substantial challenge. francine: but do you not think u.k. citizens would feel like stitched out if parliament decides they don't want a brexit, but doesn't go to a people's vote? how would the average voter feel in the u.k. after they voted to leave the eu? >> the average voter in the u.k. at the moment wants to remain in the eu. francine: that is unclear until we get the polls.

>> it is clear if you look at the polls. it is an increasingly large majority. the reality of the situation is that you will certainly have a small group of disgruntled leavers who will feel very angry , and some with justification, about the fact that they are not getting what they understood themselves to be getting. but to ask the question in that way is to pose a false dichotomy because the reality of the situation is that if they get the brexit they were promised, they will also feel shortchanged because they were promised a brexit that would lead to greater prosperity, and no independent think tank, not even the united government trying to deliver brexit, thinks it is going to be anything other than bad for the economy. francine: thank you so much. i think looking at some of the brexit polls, and looks like they are i sexy the same as they were pre-referendum.

hordern, to annmarie who is speaking to the saudi oil minister. >> all of them have no clue of where the global energy markets are going. provider job to sustainability on where energy markets are by balancing supply and demand. opecrie: the advisor of was saying lovely 3 million barrels it's to be cut. do you agree with that? >> i think that number has been misquoted and misunderstood. it was taken out of context. we will find out tomorrow. talking tog to be our technical experts and ministers. we will be getting a report also .rom opec

the numbers are based on the 25 countries fixing their production at october level of 2018. but we all know that not every country is able to maintain that production. there's going to be natural decline in some countries. there's going to be unplanned interruptions. libya is unfortunately suffering from interruptions. their just announced s. so we will see what the collective impact for all of this, and i assure you that saudi arabia will be interested onbring everybody together one action that brings stability back to the market. annmarie: are you worried if you cut your going to get backlash from consumers? it is not even just the presidents of the united states

in g20. president macron is saying they are too high. what we aretely seeing in france is very unfortunate and sad, and it is a concern to any global citizen. if citizens in a rich economy like france can suffer from energy prices, then governments have to be careful because what happened in france is the result of government imposed taxes. it is not the underlying price of crude oil. annmarie: but it is in the u.s. >> in the u.s. you don't have riots in the streets. you don't have people burning monuments and breaking into stores. what is happening in france and many european countries is government unreasonably taxing subsidizebasically

other policies that they have, in some cases not even related to energy. the consequences are quite to theirnot only citizens and their country, but to the rest of us, because we want a thriving global economy, including in europe. that requires affordable energy. we do what we can by investing in our energy sector, releasing supplies against our short-term renters. saudi arabia released a lot of oil over the last six months. annmarie: how much? 11, 11 .2? >> it is in that range. we will announce the number in the next few days. the reason we did that is to make sure that energy supplies are plentiful and affordable. yet, consumer countries go and impose tax after-tax after-tax

and take up the slack we are releasing. that is not fair. i have to go. i've got a flight. that was the saudi oil minister speaking with bloomberg's annmarie hordern. we will have plenty more from mr. al-falih. for all of those that have been listening to us for the last couple of months, reminder that it is basically between saudi and russia. this is "bloomberg surveillance ." tom and francine from london and new york. we been talking about brexit, the oil price. we've also been talking about france, left, right and center with those pictures of paris burning. we've also been hearing the saudi oil minister weighing in on that fuel tax.

the promised her of france announcing additional measures -- the prime minister of france announcing additional measures. he is going to speak in about 40 minutes. joining us from our paris office is greg viscusi. have the protests taken and emmanuel macron short-handed? reporter: certainly. i don't think he was expecting it to grow like this. the government was very dismissive of the protests when they began, saying basically don't worry about these higher gasoline taxes. we've made it up with lower payroll taxes, and the reduced a type of property tax, which probably was true of a but it still didn't make up for the fact that it was much more extensive develop your car. they said we will give you a sentence -- give you incentives to buy cleaner cars. the were very dismissive in beginning. there's no question the government was not prepared for just how extensive it got and

how quickly it went from being a protest about just gasoline taxes to be in general unhappiness with all of his policies. francine: if they do suspend the tax, will it be enough for emmanuel macron to regain control of the french citizens? reporter: no, i don't think. we are certainly going to get a delay of the gasoline tax that was due to come in next january. however, talking to deputies at the meeting this morning, it seems there's going to be a wider range of announcements quite shortly that could involve anything about restraining increases in electricity prices and energy prices. it could be a much broader package of measures. enough?at be certainly not for the radical french of the movement, but i think that is what the government is trying to do, split the movement so maybe some of the moderate people among the yellow vests would say, good

enough. let's sit down and talk. that way they can paint the ones who don't want to sit down and talk as being extremist, but look. i'm just guessing here. this thing has grown so fast, so quickly, that anyone who tries to claim they know where it is headed is not right. tom: wonderful to have you with us. i think of february 1848 and the barricades. it is not the revolution, but it is a revolution of something. what politicians support these writers, these protesters -- these rioters, these protesters? which politics supports them against macron? reporter: every party except macron's party has tried to jump on this movement. from the beginning they have been nonpolitical, but there's no question that the parties

that stan to gain the most from this have jumped on this. it is marine le pen on the far the far left. they stand the most to gain. the establishment parties like the socialist and center-right republicans jumped up and down saying we totally understand the anger of the people, but they are not going to pick up any votes. they are partly seen as to blame for the situation we are in. as always, it is the fringes that will benefit. francine: thank you for joining us from our paris office. we have quite a lot of market moves. no better way to look at the markets than to look at some of tom's charts. tom and i are doing an inverted yield curve chart. it is very rare we do the same chart. just log onto g tv . u.s. treasuries rising.

investors actually doubt how much longer the fed will keep raising interest rates. beautiful. this is bloomberg.

♪ tom: "bloomberg surveillance." just a few more minutes with mr. bevan in london. he advises the church of england. do they need to get out of cash and load the boat on equities into 2019? with this mix i've been talking about, can we be in the stock market? >> i think they are taking a long-term view. dividends are in excess of cash by a country mile, and in excess of bond yield. i think there is adequate compensation to risk so long as one sticks to decent quality companies. names the sort of

investors should be considering adding to their portfolio. bear market technology shares, are they enough of a shared value? guest: i worry about all talk of a bear market when we are worrying about a recession. i think we are now in a late cycle part of the market. to me it is about quality and growth, sustainable, real growth , and real margins. i see no sign of an imminent recession. i think we should get used to the idea of low, long-term appreciation of growth, and probably less inflation. tom: thank you so much for wisdom today. really appreciate it. onto the greg viscusi interview, what do we expect to see from mr. macron? francine: we have a press conference from the prime minister that is due to start in about five minutes.

even ifthe question is they roll back some of these tax hikes they were proposing on fuel, is that enough to placate be very angry protests? we've seen cars burning in the center of paris. tom: the headline here clearly is the bond market with lower yields and higher prices across all of germany and the u.s. we will look at this within the american economy. shepherdsonk to mr. about fed policy and the linkage to a world of lesser inflation. please stick with us. another hour of "bloomberg surveillance."

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price higher, yields lower. shepherdson and ira jersey. former bank of england governor says britain should not go gently into the night. and a final trip to washington for the 41st president of the united states. good morning, everyone. this is "bloomberg surveillance" live from new york, i'm tom keene. in london, francine lacqua. we will have an important press conference from mr. macron in minutes. francine: i think it is the prime minister that will actually start speaking, and we will hear from the president of it later. hopefully we will have more context on what they plan to do. the concern was that it sort was a fuel hike, but then you saw

cars burning in the middle of paris, blockades, and general anger. tom: very good. in new york city with your first word news, here's uma. reporter: french president emmanuel macron is trying to appease the protest movement, announcing a suspension of the fuel tax hikes that led to violent demonstrations in paris. the taxesia saying will be suspended for several months. brexit opponents in the u.k. sayingtten a boost, britain should be allowed to reverse its article 50 noticed that began the divorce process with the eu. if the court agrees, that could help those campaigning for brexit to get a second referendum. president trump's advisors are struggling to explain the trade deal he said he made with chinese president xi jinping.

trump has said china agreed to butce u.s. tariffs on cars, it has not been confirmed in beijing. federal reserve chairman jerome powell saying the strong economy hasn't reached all americans. in remarks at an event in washington, powell says statistics can mask disparities by income, race and geography, and is warning that the u.s. economy faces long-term challenges, including productivity, growth, and an aging population. 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. 'm over garage you -- i'm uma pemmaraju. this is bloomberg. tom: higher prices through the day. the two cents spread says it all, nearing the inversion point.

with thatordern important saudi minister interview we had in the last hour on oil. big 16.67, but in your yield is flat out extraordinary. let's not forget german yields follow as well with global disinflationary throws. a big deal on that chronically negative two year yield. francine? francine: i'm looking at european stocks. investors definitely rating and some of their optimism over any kind of breakthrough in the trade war. i also want to focus on pound. it rallied after an advisor to the u.k.top court in said it should be allowed to reverse its article 50 notice which triggered the brexit process. tom: here's the manella spread. the difference between the 10 year and the two-year off of the trump election steepening, and then massive curve flattening

overtime. don't worry about it. no recession, no recession, no recession. here we go, really getting near that in version point. that is a big deal -- that inversion point. that is a big deal. francine: that is what we what we want to talk about when it comes to market moves. i have a similar chart to yours looking at the yield inversion. we will push it out for our radio listeners across the u.k.. u.s. treasuries rising after the segment of the yield curve inverted. investors now doubt how much longer the fed will keep raising interest rates. tom: very good. andill talk to ira jersey in shepherds and in the sour about these bond dynamics. right now to washington. archie -- our chief washington correspondent is kevin cirilli. bush'sas president remains were brought back to

washington. what will occur tuesday? tomorrow there will be the funeral at the national cathedral. from there, his remains travel back to houston, where he will have a second ceremony at st. martin's episcopal church and be laid to rest at his presidential library. last night president trump and the first lady paid their respects at the capitol rotunda at about age: 30. we also -- at about 8:30. we also heard public speaking from vice president pence. there is a moment of nonpartisanship worst senator mitch mcconnell stood next to senate minority leader chuck schumer as they paid their respects together. tom: a political respite from all the battle. as i look at the calendar, we near some former of debate over a shutdown of the government. that would've been an anathema to the 41st president. how close are we to disappointing people like george herbert walker bush?

kevin: the two-week extension maneuver they had, really the government is going to be staying open until just a few short days before christmas. that would mean that they kicked the can two weeks, but that looming potential shutdown fight will still occur in just two weeks. francine: the markets don't believe there was any breakthrough in the trade war. how embarrassing is this for the white house? kevin: i talked to folks who look at it two different ways. the first is it assist a temporary fix, and it will be a lot more volatility in january and february. i talked to other folks who say this could have been a lot worse. treasury secretary steve mnuchin was able to do what he needed to do at the g20 and when azeris -- in buenoseris -- aires because he was able to get that fix. they are staring down january

and february, and they are going to have to wait and see. the framework to the framework is how folks are calling this here in washington. francine: i like that. have specifics about this china-u.s. trade deal? kevin: we've been trying to get the specifics for quite some time. , especially last -- quite some time, especially the last day or two. i think we will have to hold off until january. you have german automakers at the white house. coupled with that, this administration and when a series -- administration in buenos a ires has taken a hard look at the sector. tom: this begins at 10:00 a.m. we will have images through the morning as well, with comments for president bush, our coverage beginning at 10:00 a.m. through the funeral at the national cathedral, as well. guestg us is the perfect

to discuss the failure of the shepherdson out of newcastle. explain why the inflationistas have been wrong forever? guest: forever is a bit harsh, but recently the stronger dollar has been a drag on goods prices, which is about 1/4 of the core cpi. there's no question that things like imported clothing prices are under a lot of downward pressure. the other 3/4 is services, and that depends on wages. it is stuck below this 2% margin. tom: i call it the eisenhower chart. 15, is what's called the h a 10 year yield back to the time

of dwight david eisenhower. we've returned with a vengeance to the box weigh on the left. then the surge up here as well. is it a breakout? have we broken the disinflationary trend? guest: the long-term downward trend has really been the story as well as inflation. we had the inflation pay off in the 1970's and 1980's. we took that out. a reallso seen adjustment since about 2000. what is happening now is bottoming out on those real yields. inflation. is still very compressed. -- inflation is still very compressed. with got this completely reckless fiscal policy and the u.s. running big imbalances in the government. in the past, certainly before 2000 or so, that would tend to put upward pressure on real yields. right now that is not what markets are thinking about. markets are thinking about inflation risk and the u.s. cycle.

i think they are probably overdoing both of those fears right now. right now i think we're kind of overdoing it. francine: would you worry about the two-year, 10 year yield? guest: by the end of next year, that wouldn't surprise me, but we have to get over the hurdle first of a significant chance of that rising before we see it fall again. labor market is probably going to generate faster wage growth at some point. not very soon. --on't buy this hot housing this housing meltdown story either. to the probably be upside, and that is surprising. fundamentally growth is pretty good. this is a strong economy. i realize the tax cuts have given us an extra kick which obviously won't last, but underneath that it really isn't bad at all.

real, short-term interest rates are zero, and unemployment is falling. something doesn't look right to me. tom: ian shepherdson with us. an important, timely interview. , mr.resident of ukraine poroshenko. look at that in the 3:00 hour today. also, david westin, "balance of power" today as we remember the 41st president of the united states.

♪ reporter: this is "bloomberg surveillance."

apple is ramping up efforts to boost iphone sales. has learned the company is experimenting with strategies it rarely uses, such as discount promotions and buyback terms. plus, apple has moved marketing staff from other products to help. one described it as a possible admission the iphone xr and xs are selling below expectations. independent board members at nissan meeting to select a successor as chairman. one possible choice is the automaker's ceo. they will vote on the choice december 17. the former is still in jail and will likely be rearrested next week on new allegations. producer says it is in early talks without sharia

-- with altria about a major investment, the first from a tobacco company into the marijuana industry. that is the bloomberg business flash. tom: thank you. it is an extraordinary essay for leave, remain, and all of us worn out by the debate of brexit. the governor of the bank of england, the former governor, completely reinvigorates the debate with his bloomberg opinion essay today. if the united kingdom parliament supports the prime minister's plan, it will never be forgiven. more the result of incompetence of a high order, the worst of all worlds, not facing an economic crisis. it is confronting a deep political crisis. then he quotes dylan thomas m "vassal states do not go gently into that good night." he predicts the united kingdom will rage. he goes after leave. he goes after remain.

he goes after the economic downturn predicted by so many. do you agree with the governor? do you agree with the laureate paul krugman that the united kingdom faces an economic downturn? guest: i think if the u.k. leave the eu without the hard brexit option, it faces is asked her. this is a breaking -- faces disaster. this is breaking apart britain very well. britain's reputation as the sick man of europe began to improve european trading that has made britain so much better off. unfortunately britain's politics are so complicated and divided that one of the bad outcomes might happen. francine: how do you propose we move forward? you sound like someone who would have voted remain. if you are a person who voted

for brexit, you don't want to feel cheated. after all, there was a referendum. guest: they were lied to by the leave campaign. no question about that. i suspect if there were another referendum tomorrow, it would be to remain. suppose if it weren't we really do have to leave, but getting to a referendum requires an enormous shift in politics. this probably only 60 or 70 mp's who want a no deal brexit. unfortunately, those who want something better are between conservative and labour, and their tribal mentalities are holding them back. 's withse mp individual agendas are a

problem. i guess that's why the essay is so angst ridden because time is really running out. francine: but i don't understand. you don't think this vote will go through on december 11. what happens afterwards? is there going to be an attachment for a second referendum? and again, it has to be before the 29th of march were we do risk crashing out. guest: except that the deadline can be extended. my guess is that the eu will be amenable to extending the deadline if there were to be a second referendum, though i do appreciate they take a significant amount of time to organize. rushing it because of a deadline that probably could be changed without too much trouble seems kind of crazy. tom: 1463. war of the roses in your neck of the woods, newcastle. castle goes after allman , and the world the roses goes on and on and on.

this is no different. how do you perceive that this actually ends? guest: you are dead right. this is the most profoundly depressing thing about brexit is it is never going to end because the country is profoundly split. there's no outcome from this that is going to make everybody or even a substantial majority of people happy. maybe it is only 55-45 now. the referendum was only 52-48. the country is divided. it is never going to go away. whatever deal comes out, the hard brexit people and the remain people will never be happy. tom: so there british. guest: and it rains all the time. tom: ian shepherdson with us. on what -- it is a timely interview. david westin has absolutely nailed it. look for "balance of power" today, where a german from a

different main of george herbert walker bush joins them. this is bloomberg.

♪ francine: this is "bloomberg surveillance." tom and francine from london and new york. we are seeing oil repairing some gains after the saudi oil minister said it is too early to say whether opec and its partners will cut production. >> it is premature to say what

will happen. saudi arabia, of course, is an advocate for stable global oil markets. we need to get together and listen to our colleagues here about their views on supply and ofand and their projections their own countries' production. francine: let's speak with annmarie hordern, who spoke with the minister. he seems more convinced that the applicant was a done deal. annmarie: that's right, very bearish on a market cut. , reallythose comments just a reiteration of what he said in nigeria on the way to the g20. he said he would not bear the burden of the cut. very different than what happened in 2016 when they came

to cut the most. u-turn fromof a the abu dhabi meeting him over the market needed to cut at least one million barrels a day. so it is going to be tense negotiations going into the big opec meeting thursday. friday is when they meet with their partners, mainly led by russia. francine: we don't actually have details on a possible agreement, but is there a consensus that opec needs to rein in production? annmarie: the economic advisory board says they need to cut about 1.3 million barrels a day. i asked the saudi oil minister about that, and he said those numbers aren't exactly right and that they still need to meet. this was another bearish sign to cold water onng that.

he said at the g20 that he will not act alone. if russia has not willing to cut as much of the saudis think there needs to become a we could potentially not see a deal. one other thing traders are telling us overwhelmingly is does not wantom to tell the white house, which has showed german this support since the killing of jim all caps showed he in turkey -- which has showed tremendous support since the killing of jim all caps showed he -- of jamal sshoggi in turkey. tom: this is bloomberg.

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pressure and optimize airflow to keep you cool. hello bed of my dreams. order online. we'll build it box it and ship it to your door for you to enjoy. sleep on it for up to one hundred nights and love it or you'll get a full refund. returns are free and easy. i love my leesa. today is going to be great! read our reviews, then try the leesa mattress in your own home. order during our cyber week sale to get our $225 offer. that's $150 off the mattress, plus a free pillow - and free shipping too. go to buyleesa.com today. you need this bed. tom: bloomberg surveillance, extraordinary news. francine is in london. let's get to the briefing. >> thank you very much. china, they have response to

the claim about trade. senior officials are still out of town with the chinese president. president trump said they were willing to cut tariffs on cars being imported. beijing has yet to confirm or deny that. may a setback for theresa and her battle to sell the brexit deal to parliament. the u.k. should be allowed to reverse its article 50 notice, which direct -- began the divorce process. it could help those campaigning by holding a second referendum. the italian prime minister has indicated the government is about to back down in a budget standoff. he said he will be making an offer to the european commission who rejected the budget because of the size of the deficit. he said this will not jeopardize planned reforms. the president paid his respect

to george bush at the capital. now, every day americans will get their chance to say goodbye. he will lie in state through tomorrow. the funeral will be at the washington national cathedral and then he will be taken to texas for his burial. thank you so much. we are talking about the state of media and the onslaught on oliver digital projects -- all of our digital devices. the economist with this, a massive reorder where they said they will diminish the united states and go outside it. it seems like the advertising media mass is at a critical point right now. pressure that

builds at some point, you contrast the print centric titles. i think they've done better because they have diversified away from advertising. it's not necessarily good business. i have to comfort, that doesn't mean it's a good business. google wantbook and to bury them? do they realize they have to exist? >> it's an unintended consequence. they don't know the consequence of the business. i think google is mostly indifferent to everything around them. buildingis focused on itself up to be as big as it can. the consequence of destroying journalism has side effects. francine: it's great to have you on the program. are there any winners? if you look at the landscape, magazines are out. isn't facebook or instagram that

can fill that vacuum? brian: digital advertising begins to grow. amazon can keep growing. i think they could be winners and losers at the same time. the cost they will incur to sustain businesses are substantial. google could be criticized for investing a lot of money that had nothing to do with their business. they almost built a flying car business. handook on the other underinvested in things like making sure the platform wouldn't destroy democracy in united states or egypt or anywhere else. they are going to have to invest more, even as they are winning they will see pressure on an ongoing basis. you look at the media landscape, who will win?

brian: consumers ultimately. it's not to say they are bad off. the players that keep growing will have the increase of cost. disney can sustain growth for a long time and be more important from a consumer perspective with premium content. it's going to cost a lot of money to develop the content and the delivery to consumers and manage the offerings. tom: who wins the streaming wars? thisile has got a plan week. somebody has got to win and many have to lose. brian: i'm not saying consumers need this, but they are effectively the beneficiary. tom: i've got to make money here. i don't care. few bythere are only a

recommendations. recommendations. tom: do you cover disney? will they win the streaming worse? brian: they are well-positioned. they will make themselves more durable than their peers. they are overvalued because the costs are extreme. our viewers have pricing power to say to these guys, we won't pay $40 a month? really.ot the prices are going to be with the prices are going to be. we are going to get these tv shows we can't ever have the time to watch. we will be happy that we watched it. it's going to cost a lot of money. we are going to get more selection. everyone loses? or everyone wins, depending on your vantage point. the business gets worse as it

continues to grow. francine: do magazines survive? brian: they keep declining. publishers will find a niche. the washington post can do well with respect to the newspaper industry. there can be weekly titles that do ok as well. there can't be hundreds of titles doing well. it's the same with the credit business in general. tom: brian, thank you so much. we are thrilled to have him here. we have a lot to talk about, including stunning headlines from france. we will lead with those when we return. you need to stay with us today. we have an interview with carly fiorina, republican on the success of women in the recent election. will the republicans learn lessons? this is bloomberg. ♪

francine: breaking news out of the news conference from france. the french prime minister announcing the suspension of these fuel increases, we must change. the concern is this is too late. we saw the blockades in the protests start three weeks ago. withturned more violent every weekend that went by. a lot of people are looking at france and saying this is much more of an anger movement against the political class than protests and concern on the fuel increase. ian.s get to

>> france is a very divided country. some of the major cities are doing well. there is a high productivity economy. the gap between the winners and losers is enormous. as an angercribe it movement, that's on the mark. in a country so divided and what must feel like an innocuous policy change, it produces an outsized reaction because it captures this that has been swelling for a long time. macron's popular has been plunging for a while. he is seen as out of touch with the electorate. he has lost a lot of the goodwill he had when he was elected. it's the timing and the policy change that is explosive. the scenes in paris over the weekend were shocking. thatine: is there anything

macron it can do to get people on his side? >> its past the point where he could of done that. he faces a severe uphill struggle for the future. france needs reforms. there has been some movement in the labor market, but it's sporadic pair to other advanced economies. he does not have the support or the will to push it through. france is a country where those who are doing well are doing very well. those who are struggling are trying to get on the inside. it's a messy position. from a family in milan. his socialist background is very different to say the least. from where you sit in the reading you do every day on france, is there a cogent left in france right now? francine: there is not a cogent left that could win an election.

this is how i would say it. if you look at how macron got elected, he positions himself as a movement. he was in the previous president's cabinet. the will of the people, it wasn't the centerleft or right divide. he came out of nowhere. when you look at the political parties on the right and left, they are in a troublesome spot over the last 18 months. do we ever go back to the more traditional left versus right parties in france? >> that's a tricky one. the electoral system in the presidential elections, there is a very big protest vote to the extreme right that dissipates in the second round. france, these populist movements are becoming large and influential. there are dimensions that 15

years ago people were not thinking about. now it's left, right, and nationalist right. it's explosive. it has come about for very clear reasons. the concentration of wealth, the concentration of income, the lack of opportunity for people who can't get on the inside track, there is an outpouring of anger. it's not the only place you can see this. is there all across europe. tom: we will continue to follow those headlines. there will be a dental protest on saturday. we always remain calm. i want to go to something that mr. shepherdson touched upon 40 minutes ago. that is the dynamic between inflation and the lay her on top. in this latest kleins we have seen in spreads, the decline to 2.96%, what have you seen within

the real yield dynamic? hashis most recent move mostly come in the form of 10 year real yields coming on. inversion, iabout don't think there is anything nefarious about that. tom: francine had a chart earlier that was better than yours. >> the inverted about a month ago. it's basically saying they think growth in the out year, the next two or three years, will be slower. tom: exactly. are we looking at the model of -- 2.0%? percent >> it's been a massive sugar rush off the tax cut. that is gone now. we revert back to two point something. 2.6 or 2.7.

that is where the unemployment rate goes. they are looking at 3.7 unemployment. it is still falling. that's going to be a difficult balancing act if they think growth will be ahead. it could potentially push unemployment lower, toward 3%. >> the bond market is pricing into the middle of that. they are saying we will be at 2.0 or three point no. 3.- jonathan: no francine: this economy has not reached all americans. does the fed need to take this into account so the have-nots have more western mark >> -- more? >> we talk about the unique

coefficient. the fact is that's been rising for decades. this is not a new phenomenon. there is not a lot monetary policy can do for that except make sure the economy is growing. one of the ironies is as it grows, those people with assets do better than those who don't have assets. there is not a lot monetary policy can do. fiscal policy could help with job training programs and activities. i think jay powell is trying to fed is notealize the going to hike forever. they are coming to an end of their hiking policy. twoill likely see one or hikes in 2019. they will be done until the economy booms or busts. i think that is the path the markets are pricing for. francine: your take on the inverted yield curve? >> i don't think an inverted

yield curve is really that important to signaling a slowdown in the economy like a recession. a more sustained and full inversion of the yield curve, where the two-year yield is higher than the 10 year yield, that is a signal that the market thinks the fed has gone too far. tom: lots to talk about here with the bond market on the move, a stunning move in the last six weeks. while, we did a surveillance correction. we have people who don't tell me how to pronounce things. i was wrong. did i do that right? lose the l. tom is wrong.

we will get out of this when we returned. this is bloomberg. ♪

francine: this is bloomberg surveillance.

-- get the the bloomberg business flash. >> the german luxury automaker has long been an advocate of collaborating with rivals in the race toward making self driving cars. the head of development tells bloomberg that high research costs and the technology encourages partnership. chairman cbs says he's not interested in becoming ceo. doesld bloomberg that he not. they are searching for someone to replace les moonves who left three months ago after being accused of sexual misconduct. mexico will see a million dollar loss when it sells its presidential boeing 787. the new president plans to carry out his campaign promise to get rid of the plane. he thinks it's too ostentatious.

$219 million. one aviation consultant said it might bring in $76 million less. that is the bloomberg business flash. fractured's a politics in washington. there is the fractured reality of france and on and on. nowhere has there been an essay that has captured the fracture of britain like bloomberg opinion today. it's an extraordinary essay. i will play it out on twitter. former bank ofhe england governor and what he was talking about. this should be rage. you mentioned dylan thomas against the dying of the night. that is not a good trend in the united kingdom gdp. >> is terrible.

the uncertainty has become difficult. we see companies holding off investment. the business sector is suffering. the housing market, everything is weakening now. , rage against the dying of the night. dylan thomas. who is going to win in england? 700,000 people came out a couple of weeks ago to protest for another referendum. i think you will see more of that. december 11 is the vote. it looks set to fail. december 12, what happens? there is a lot of speculation. nobody knows what course the prime minister will take or what power she has in her own party. -- markets are posters focused on it going either way. it could collapse tomorrow if we

get news and the other direction. the uncertainty is extreme. francine: what is priced into the pound? it will rally on the confidence that the brexit process is reversible. is it range bound? does it depend on what happens with the vote? >> it is range bound until it's binary. is centered around 129 or 130. if there is a second vote and the u.k. decides to stay in. if it's a hard brexit, it's down to 110. the uncertainty is a norm us. markets are sitting out. when there is a change in the move low, there is movement one direction or the other. the big change will be after december 12 when we know what is going to happen. tom: thank you so much for joining us today. the teen -- tenure is looking below 2.0.

without question, the interview of the day on bloomberg television, look for a conversation with the president of ukraine. that is in the 3:00 hour. we leave you with images of americans and george herbert walker bush. ♪

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my name is mike, i'm in product development at comcast. we're working to make things simple, easy and awesome. alix: impending inversion, the shortage of the yield curve

inverts for the first time since 2007. trump says it's fixed, the trump team tries to explain a trade deal as xi stay silent. opec plus, to cut or not to cut. they say it's premature to say they will cut production. it's uncertain how they get any cuts should be. david: welcome to bloomberg daybreak with alix steel. the capital building. the remains of president george herbert walker bush of enlightened state all not long after the service yesterday. this is a live shot. the firsttrump and lady visited last evening. the president saluted the casket as he went into the rotunda. here he comes now. this is from last evening, president trump with malawi it.